Stablecoins vs Banks: BIS Double Standard in Plain Sight

“Give a man a gun, he can rob a bank.

Give a man a bank, he can rob the world.”

These lines came back to me while reading the BIS’s 2025 report on stablecoins. The report lays out a firm case: stablecoins are risky, lack flexibility, and don’t belong at the core of the financial system. It warns of poor regulation, limited credit creation, and threats to monetary stability.

But the more I read, the more one question kept coming up:

Compared to what?

The BIS holds stablecoins to a high bar, while giving traditional banks a pass. Yet the banking system has delivered crisis after crisis, hidden risk, and a structure where depositors take the risk but see little of the reward.

Stablecoins aren’t perfect. But they weren’t built to copy banks. They were built because banks keep failing us.

This isn’t a blanket defense of stablecoins. It’s a look at the double standards we’ve normalized.

And why a simpler, safer alternative deserves more credit than it gets.

1: The BIS View on Stablecoins

One message stood out in the BIS report: stablecoins are too risky to be a core part of the financial system. They list three main problems:

No singleness. Stablecoins don’t always trade 1:1 across markets. That breaks the consistency of monetary system.

No integrity. Many don’t follow KYC or anti-money laundering rules. This makes them prone to misuse.

No elasticity. They’re fully backed, so they can’t expand credit like banks do.

Put simply, the BIS thinks stablecoins might work in narrow use cases, but they’re not fit to anchor real-world finance.

That sounds fair at first. But the more you look, the more it feels incomplete.

Because the BIS is applying a harsh lens to stablecoins and giving traditional banks a pass. That’s the double standard.

Before we accept their verdict, we need to ask a basic question:

How does the banking system score on the same three points?

2: The Reality of Banking Today

The BIS is quick to point out what’s wrong with stablecoins. But it says almost nothing about the risks in traditional banking. Let’s flip the lens.

i. Singleness? Banks break that too.

Bank deposits are supposed to be equal. A dollar in one bank should be worth the same in another. But that’s not always true.

During a crisis, deposits in some banks become riskier than others. Just ask depositors at SVB, Credit Suisse, or regional banks in Turkey or Lebanon. In extreme cases, access to funds gets frozen or capped.

Trust varies by institution, not just by currency. Even within the same country, trust levels vary. A large bank may be considered “safe,” while smaller ones trade at a discount in secondary markets for certificates of deposit.

So if stablecoins create fragmentation, the same is true for bank deposits. It’s just harder to see until something snaps.

ii. Integrity? Banks have a history.

BIS criticizes Stablecoins for enabling financial crime. But most of the biggest money laundering scandals came from licensed banks.

HSBC was fined for laundering drug cartel money.

Danske Bank moved over $200 billion in suspicious Russian funds through its Estonian branch.

Deutsche Bank, Standard Chartered, Wachovia have all been fined billions for enabling illicit finance.

These weren’t edge cases. They were repeat offenders. And when caught, the fines were absorbed, and no one went to jail.

Yes, stablecoins can be misused. So can any bearer instrument, including cash. But if integrity is measured by real-world outcomes, banks are hardly innocent.

So if “integrity” means following the rules and protecting users, banks don’t get a clean slate either.

iii. Elasticity? It’s a double-edged sword.

Banks create credit by lending out deposits. That’s how the system stays elastic.

This system creates liquidity and credit, but also risk, opacity, and fragility:

They don’t hold all your money. If too many people withdraw, the bank fails.

It’s why central banks had to inject trillions in 2008 and again in 2020.

And it’s why regulators now have to stress-test the banks they regulate.

So elasticity comes with a price. fragility. And that’s why banks require bailouts when things go wrong.

In contrast, stablecoins don’t stretch the supply. 1:1 backing is seen as a flaw by the BIS, but maybe that’s a strength, not a weakness. And kind of discipline the system needs

iv. And what about the depositor experience?

Depositors often get 0% interest. Banks lend that money at 7–10% and keep the spread. On top of that:

You pay ATM and account fees, wait days for transfers, and deal with downtime, limits, and surprise charges.

Simply put:

The bank uses your money to make money, and then charges you for the privilege.

And yet, the BIS seems more concerned about stablecoins reducing bank deposits than about how much value banks take from their customers.

So maybe the stablecoin critique isn’t really about risk. Maybe it’s about protecting the old model.

A model that, even with decades of regulation, still gives us:

A financial crisis every few years

Balance sheets full of hidden risk

A system where banks profit and depositors get scraps

If stablecoins are flawed, then so is the system they’re being measured against.

3: What Stablecoins Actually Offer

Stablecoins didn’t come out of nowhere. They were born from frustration, mostly with banks that are slow, expensive, fragile, and extractive. They’re a response to the belief that only big, regulated institutions can be trusted with money.

At their core, stablecoins make a simple promise:

Every token you hold is backed by real reserves. One to one. No tricks.

That’s the strength. No complexity, no guessing. Just straightforward value.

Let’s look at what they bring to the table.

i. Transparent reserves, when done right

Banks have complicated, often opaque balance sheets. Stablecoins don’t have to.

The best issuers show their reserves clearly:

USDC (Circle) holds short-term U.S. Treasuries and cash. It’s regularly audited.

USDM (Mountain Protocol) gives access to T-bills and passes the yield to users.

USDS Savings (previously called sDAI) are on-chain versions that show how and where yield is being generated.

You can track supply. You can often see where the reserves sit. It’s fully visible on-chain.

And when things go wrong, like TerraUSD, it’s not buried in a quarterly report. It’s public. And people react in real time.

ii. No leverage, no lending, no funny games

The BIS says stablecoins lack elasticity. But that’s the point.

A well-designed stablecoin:

Doesn’t lend your funds.

Doesn’t chase risky yield.

Doesn’t create money out of thin air.

It just holds what it says it holds. And lets you use it when you want.

There’s no maturity mismatch. No hidden risk. No fine print buried in financial engineering.

It’s a vault, not a casino.

In a post-2008 world, that matters.

iii. Minimal friction, maximum flexibility

Stablecoins are programmable money. That unlocks new capabilities:

24/7 transfers, including across borders, with no weekend downtime.

Microtransactions without high fees.

Smart contracts can automate payments, lending, escrow, or settlement.

Compare that to banks:

Closed on weekends.

High FX and remittance costs.

Layers of middlemen for cross-border payments.

For billions of people, especially in countries with currency controls, weak banking infrastructure, or high inflation, stablecoins are not a trend. They’re a lifeline.

iv. The incentives can be fair

Today, most stablecoin issuers keep the yield from their reserves. But that’s not the rule, that’s a choice. And it’s already changing:

Protocols like Spark (sDAI/USDS) already pass yield to holders.

On-chain products like Element, Pendle, and Morpho are building structured yield products.

Future models could transparently split reserve earnings between the user, the issuer, and the ecosystem.

The key is this: the yield belongs to the system. In banking, it goes to shareholders. In stablecoins, it can go to the people holding the money.

That’s not just design, it’s a shift in power.

v. They’re building from first principles

Stablecoins aren’t patching old systems. They’re asking new questions:

They’re asking:

What if money moved like email?

What if you didn’t need a minimum balance to save?

What if finance could be global, open, and built for everyone?

They’re not rebranding old finance. They’re rebuilding it. Slowly, but with purpose. That might come with new risks. But it also comes with new tools to manage them.

So when the BIS says stablecoins don’t “fit” the current system, maybe that’s the point.

Because the current system keeps failing. Stablecoins aren’t perfect. But they offer something clearer, simpler, and closer to the user.

And for a lot of people, that’s already better.

4: The “No Credit” Critique

One of the biggest knocks against stablecoins is this: “They don’t create credit.” That’s true, for now.

Unlike banks, stablecoins don’t multiply money. They don’t lend out deposits. They don’t expand liquidity across the economy.

And to the BIS, that’s a big problem.

But maybe it’s worth asking, should all money create credit?

i. Let’s question the assumption: Should all money create credit?

The traditional financial system assumes that credit creation is linked to money. The ability to lend and multiply deposits through fractional reserves provides money with its power.

But this also makes it fragile:

Bank runs occur when people panic, realizing that banks don’t have all their deposits available.

This is also why banks tend to fail during economic downturns, as defaults on loans begin to rise.

Central banks frequently intervene to ensure there is adequate liquidity in the financial system.

Perhaps separating money from credit, at least at the foundational level, isn't a flaw but rather a beneficial feature.

Stablecoins provide reliable money: they are fully backed, easily redeemable, and simple to audit. If credit is necessary, it should be constructed in transparent layers on top of this stable foundation, rather than being integrated directly into the money itself.

ii. Credit is already happening, just in new forms

It’s not true that credit doesn’t exist in the stablecoin world. It’s just being built differently.

Aave, Compound, and Morpho enable users to borrow and lend using stablecoins as collateral.

Maple Finance and Centrifuge are developing undercollateralized credit pools for institutional borrowers, which are funded by stablecoin deposits.

Real-world asset (RWA) protocols such as Goldfinch, TrueFi, and Clearpool are providing loans to small and medium-sized enterprises (SMEs), exporters, and fintech companies around the world, all denominated in stablecoins.

These systems don’t need banks to underwrite the risk. They use:

On-chain data

Smart contracts

Reputation layers

Real-time transparency

These aren’t perfect systems. Some are still experimental. But they’re real. And growing.

iii. New ways to assess trust

One reason banks dominate credit is that they own the customer data. They see your salary, your repayment history, and your spending.

But DeFi and Web3 are beginning to reimagine this:

On-chain credit scores: Based on wallet behavior, protocol interactions, and transaction history.

Reputation tokens: Where lenders and borrowers build trust through consistent repayment.

Decentralized identity (DID): Projects like BrightID, Gitcoin Passport, and Worldcoin are creating verifiable human identity systems for anonymous users.

In this model, you don’t need a physical branch to approve a loan. You just need data, algorithms, and risk-sharing pools.

Stablecoins serve as the foundation for transactions, providing a clean and neutral form of money. Meanwhile, lending systems will naturally develop on top of this foundation.

iv. Undercollateralized loans are next

Most stablecoin lending today is overcollateralized. That’s by design. It keeps the system stable while trust is still forming.

But over time, more undercollateralized credit will show up. You’ll see:

Risk-based pricing

Community underwriting

Smart contracts that enforce repayment terms

It’s slower than traditional lending, but more transparent, more modular, and potentially safer.

And this time, users may get a fairer deal. Fewer middlemen. Transparent pricing. Clear risk-sharing.

v. Maybe it’s not about recreating credit, but rethinking it

Stablecoins aren’t trying to be banks. That’s the point.

They do not need to copy the credit mechanisms of traditional banking to be useful. Perhaps we should reconsider the necessity of debt being embedded into the base layer of money. Instead, what we might need is:

Safe, transparent stores of value

With credit built modularly, through explicit, auditable mechanisms

Priced dynamically by market-based protocols, not internal bank committees

This credit involves fewer assumptions, reduced hidden risks, and greater user control. This design may prove to be more resilient for the next generation of finance.

So yes, stablecoins don’t create credit yet. But they don’t have to, at least not in the same way banks do.

They can be money without risk, and still enable credit without collapse.

That’s not a weakness. That’s a new starting point.

5: A System Built on Trust, or Extraction?

The case for stablecoins isn’t just about speed or cost. It’s about how value flows. And who gets to keep it?

At its core, it challenges a story we’ve all been taught:

“Banks keep your money safe. Regulators protect you.
The system is slow and expensive, but trustworthy.”

This story has been repeated for so long that it seems like common sense, but real-life experiences tell a different truth.

Banks charge you to hold your own money.

They use your deposits to make loans, but pass none of the yield back to you.

When things go wrong, they freeze your funds, limit withdrawals, or collapse overnight.

And when does the entire system fall? You, the taxpayer, pay to clean it up.

In this system, trust flows in one direction: upward. Users are expected to trust institutions, but those institutions are rarely built to trust users back.

This isn’t trust. It’s extraction.

Stablecoins offer a quiet reversal of that relationship.

i. Stablecoins flip the script

A well-designed stablecoin says:

Your funds are fully backed.

You can withdraw anytime.

We’re not lending behind your back.

There’s no surprise clause. No small print. No middleman charging a penalty for access.

This simplicity is powerful, especially in a world that’s grown used to being bled dry by legacy finance.

ii. The yield doesn’t have to be captured at the top

In the current system:

Banks earn interest on your deposits.

They lend those deposits at higher rates.

The spread goes to shareholders, not to you.

In a stablecoin-based system:

Reserves generate yield (from T-bills, for instance).

That yield can be passed on directly, transparently.

And users can decide whether they want yield, liquidity, or both.

This is how financial systems should work: aligned with the people who fund them.

It’s not just about making money move faster; it’s about making value flow more fairly.

iii. It’s not just new infrastructure. It’s a quiet rejection.

Stablecoins don’t just improve financial infrastructure. They quietly reject a system that profits from opacity and inertia.

They ask:

Why should access to money be gated by geography, paperwork, or permission?

Why should the benefits of financial scale be so one-sided?

Why shouldn’t money be programmable, auditable, and built for the individual?

When they do this, they not only create better products but also highlight the inefficiencies and hypocrisies within the existing system.

That’s why the pushback is so fierce. Because it’s not just a new technology, it’s a new set of incentives. And that makes it a threat.

iv. The real fear: not that stablecoins will fail, but that they won’t

When the BIS warns of “risks” from stablecoins, we should ask: risk to whom?

Risk to users? Possibly, but the same could be said of banks, and worse.

Risk to financial stability? Maybe, but stability built on opacity is a fragile kind.

Risk to the central role of regulated institutions? Almost certainly.

Because if stablecoins continue to grow, and prove to be safer, faster, and fairer…

Then the public will ask an uncomfortable question:

Why do we need to pay for complexity when simplicity works?

Because if people move to systems that are safer, simpler, and more transparent, they might stop asking for permission altogether.

Stablecoins challenge the assumption that financial power has to sit with banks.

And for once, it’s the user, not the institution, who has the leverage.

6: Not Perfect, But Directionally Right

Let’s be clear, stablecoins aren’t perfect. Some issuers still hide behind vague reports, and not all are regulated. There are real, unresolved issues:

Reserve transparency varies significantly among different issuers. Some remain unclear about the assets that back their tokens.

Regulatory frameworks also differ widely. While some countries outright ban stablecoins, others view them as valuable fintech tools, and many are still undecided on the matter.

Yield capture is inconsistent, as many issuers earn interest from reserves but do not share this with users.

Additionally, risks associated with smart contracts and custodial bottlenecks continue to be concerns, particularly within DeFi-native systems.

But here’s the difference: these problems are known, visible, and being worked on.

That’s very different from the legacy system, where we usually don’t see the cracks until it’s too late.

i. The model is getting better, fast

In just a few years, we have seen:

Real-time proof-of-reserve tools gain traction.

Yield-bearing stablecoins like USDM and sDAI/USDS go live.

Entire credit systems like Maple, Goldfinch, and Centrifuge built on top of stablecoin rails.

Regulators begin to take stablecoins seriously, not just as a threat, but as infrastructure.

It’s not perfect. But the direction is clear, and fast-moving.

ii. It’s not about flawless tech. It’s about better defaults.

Stablecoins won’t solve everything, but they offer a better set of defaults.

Instead of complexity, they offer clarity.

Instead of privilege, they offer openness.

Instead of institutional rent-seeking, they offer systems that can be audited, forked, and improved.

They shift the baseline. They make it harder to justify opaque systems that extract value without accountability.

Are they ready to replace the banking system tomorrow? No.

But are they proving that money can be simpler, safer, and more aligned with its users?

Absolutely.

iii. They don’t need to replace banks; they just need to remind us there’s a choice

The BIS isn’t wrong to point out the risks. But it’s important to recognize what the institution is really defending.

If money becomes programmable, if yield becomes accessible to everyone, and if finance aligns with the needs of users.

Then the foundations of the old system start to look shaky.

Stablecoins remind people:

You can hold money without giving up control.

You can move value without waiting days.

You can ask where the yield is going, and expect an answer.

That’s what makes them powerful. Not hype. Not speculation. Just better alignment.

iv. Maybe that’s why they’re being resisted

The BIS calls stablecoins a risk to the monetary system. But maybe the real fear isn’t about risk.
Maybe it’s about losing control.

Because stablecoins don’t just challenge how money moves. They challenge who gets to decide the rules. They question a system that extracts more than it gives, and does so by design.

If that system keeps failing, and it has, then asking better questions isn’t reckless. It’s responsible.

Stablecoins aren’t perfect. But they offer an exit.

They don’t give you a bank.
They give you a way to leave one.

Footnotes

BIS Annual Economic Report 2025 - The next-generation monetary and financial system
https://www.bis.org/publ/arpdf/ar2025e3.htm