The Bank for International Settlements has published a working paper whose findings directly challenge one of the key narratives of decentralized finance. According to the study, stablecoin growth slows noticeably when U.S. banks raise deposit rates. Circle’s USDC proved particularly vulnerable—its sensitivity to interest rates was the highest among major stablecoins. At first glance, this looks like a technical finding about monetary elasticity. In reality, it points to a fundamental problem: DeFi is still not an independent financial system—it is embedded in the traditional one, and banks hold one of the key levers influencing its growth.
The context here is crucial. The period from 2022 to 2023, when the Fed sharply raised interest rates, saw a massive outflow of capital from stablecoins. USDC’s market capitalization fell by almost half during that time. Many at the time attributed this to the fallout from the collapse of the Terra/LUNA ecosystem and a broader flight from risky assets. The BIS study offers an alternative interpretation: investors rationally shifted into bank deposits, which, for the first time in years, were offering real returns. This shifts the focus of the analysis from event-driven to structural—and makes the conclusion far more concerning for the DeFi industry as a whole. BTC is trading at $81,112 (-0.22%), reflecting the market’s overall cautious sentiment under current macroeconomic conditions.
An analysis of market participants shows that the effects are unevenly distributed. As the issuer of USDC, Circle is bearing direct reputational and commercial losses from this analysis: investors and partners now have academically substantiated evidence of the product’s structural vulnerability. Tether’s USDT has historically shown less sensitivity to interest rates—partly because of its different reserve structure and user base, which is concentrated primarily in emerging markets. Traditional banks and regulators stand to benefit, having gained an academic argument for tighter control of stablecoins. Notably, Tether is also in the news this week as a strategic investor in AIsa’s Series A round. The company operates at the intersection of AI and crypto, signaling the issuer’s strategy is diversifying beyond its core stablecoin business.
The market impact should be considered from several angles. For DeFi protocols where USDC is the primary liquid asset—lending platforms and automated market makers in particular—the BIS’s findings point to a systemic risk: liquidity outflows could recur in the next monetary tightening cycle. The key point is that the problem lies not in DeFi technology itself, but in the nature of its capital base. The proclaimed autonomy of decentralized finance runs up against a simple fact: money flows where risk-free returns are higher. This creates hidden pressure on ETH and related DeFi tokens—hard to detect on short-term charts, but clearly visible in TVL trends over several months.
Three possible scenarios emerge. Positive: Legislation formalizing the U.S. stablecoin market creates new products—yield-bearing stablecoins with built-in returns that can compete with bank deposits at any interest rate. This reshapes the market, but strengthens it. Base case: Fed rates gradually decline in 2025–2026, pressure on USDC eases, and stablecoin growth resumes—but the structural dependence on the monetary cycle remains and will resurface during the next tightening phase. Negative: Regulators use the BIS’s findings to justify restrictions on stablecoins, treating them as banking products and subjecting them to corresponding reserve and licensing requirements. In this scenario, DeFi liquidity contracts structurally, not cyclically.
Key risks and indicators to watch in the coming weeks include: Fed rhetoric at rate-setting meetings and its impact on USDC’s market capitalization; progress on stablecoin legislation in the U.S. Congress; TVL data for the largest DeFi protocols, broken down by the currency composition of their liquidity; and any steps Circle takes to diversify its reserve base or launch yield-bearing instruments. It is also worth monitoring the stance of major corporate USDC holders—if they begin shifting into alternatives, that would be an early signal that the negative scenario is unfolding.
The analyst’s conclusion is clear: the BIS study is not a technical document, but a political signal. It gives regulators and the banking lobby academic cover to increase pressure on stablecoins just as the industry approaches legislative legitimacy. For investors, this means reassessing the risk model for DeFi positions: the dependence of returns on the monetary cycle is now documented, and ignoring this factor when building a portfolio is becoming professionally indefensible.
More analysis will be posted on this channel—subscribe so you don’t miss updates as the situation develops.
This material is for informational purposes only and does not constitute investment advice.