Traditional finance and crypto clash escalates: Circle CEO refutes claims that stablecoin yields will trigger bank runs

At the just-concluded World Economic Forum in Davos, Jeremy Allaire, CEO of Circle, the issuer of the world’s second-largest stablecoin USDC, engaged in a high-profile debate with banking industry representatives over stablecoin yields.

Allaire directly dismissed concerns from the banking sector that “stablecoin yields could lead to bank runs” as “completely absurd,” while executives from traditional financial institutions like US banks warned that allowing stablecoins to pay interest could risk up to $6 trillion in deposit outflows from the US banking system.

01 Core Dispute

At the World Economic Forum in Davos, Switzerland, the future of stablecoins became a focal point of debate among financial leaders. Jeremy Allaire, CEO of Circle, scoffed at banking industry concerns about stablecoin yields, calling them “completely absurd.”

Allaire pointed out that similar warnings have been made in the past. When money market funds emerged, some feared they would drain deposits from banks, but that was not the case.

He mentioned, “Approximately $11 trillion in US dollar money market funds have grown under various circumstances.” Meanwhile, lending activity has not ceased. This directly counters the core concerns of the banking industry.

02 Banking Warnings

Contrary to traditional banking views, Brian Moynihan, CEO of US Bank, made a shocking prediction during the Q4 2025 earnings call.

He warned, “If you look at some studies… you might see up to $6 trillion in deposits flowing from bank balance sheets into the stablecoin environment.”

Moynihan emphasized that this capital outflow would weaken banks’ lending capacity, especially their support for small and medium-sized enterprises. This prediction reflects widespread concerns within the US banking sector about stablecoin yield capabilities.

The American Bankers Association (ABA) echoed this stance in a letter to the Senate on January 5, calling for explicit inclusion of “prohibitions on interest” in market structure legislation for affiliates and partners of stablecoin issuers.

03 Regulatory Power Struggles

The debate has extended into the US Congress. The proposed “Crypto Asset Regulatory Innovation and Technology Act” (CLARITY Act) has become a focal point of contention.

The latest draft of the bill attempts to find a middle ground by limiting rewards to activities like staking, providing liquidity, and lending. However, due to opposition from Coinbase, the bill’s review has been delayed.

Coinbase CEO Brian Armstrong stated last week on X that the amendment aimed at restricting stablecoin rewards “will kill stablecoin yields and allow banks to prohibit competition.”

04 Fundamental Differences Between Two Financial Models

At the heart of this debate is a clash between two different financial paradigms. On one side are traditional financial institutions represented by US banks, and on the other are crypto innovation companies like Circle and Coinbase.

Traditional banking relies on a fractional reserve system, where banks only need to hold a small portion of deposits as reserves, and the rest can be used for lending. Mainstream stablecoin issuers, however, adopt a 100% reserve model, with each stablecoin issued backed by corresponding assets.

Brian Armstrong contrasted this: “In the crypto world, there are 100% reserves, so all your money is there.” He believes this eliminates the classic “bank run” risk.

Comparison of Stablecoin and Traditional Banking Models

05 Market Status and Future Outlook

Currently, the total market cap of stablecoins is approximately $315.8 billion, still far below the US banking sector’s total deposits of about $17.4 trillion.

However, the crypto industry sees enormous growth potential for stablecoins. According to a recent report by Matt Hougan, Chief Investment Officer of Bitwise, the market has entered a “decade-long battle,” with institutional forecasts predicting the stablecoin market could surpass $3 trillion by 2030.

Allaire also emphasized at Davos that artificial intelligence will be a major driver for future stablecoin adoption. He believes “billions of AI agents” will need a payment system, and “currently, there is no alternative besides stablecoins.”

06 Practical Applications and User Choices

For ordinary users, the practical significance of this debate lies in how they manage their funds. On mainstream trading platforms like Gate, users can already choose between traditional bank savings and crypto yield products.

With the rise of RWA (Real World Asset) yield products, users now have more ways to earn stable returns. For example, the nBASIS vault of Plume’s Nest protocol has integrated with Gate Web3 Wallet, launching RWA yield products directly connected to the CEX ecosystem.

These developments indicate that regardless of regulatory outcomes, the pace of financial innovation will not slow down. Users’ pursuit of asset autonomy, yields, and convenience is driving the entire industry forward.

Future Outlook

Stablecoin market cap has surpassed $315 billion, while US bank deposits total around $17.4 trillion.

Banks worry that up to $6 trillion could flow into stablecoins, while Allaire from Circle focuses on future “billions of AI agents” requiring payment solutions.

Daily transactions on crypto payment cards have recently increased by about 22 times, approaching 60,000 transactions. These cards mainly operate over Visa and Mastercard networks, showing that traditional payment systems are adapting to crypto spending scenarios.

In this financial system transformation, platforms like Gate are building bridges between traditional finance and the crypto world by integrating RWA yield products, regardless of future regulatory changes.