Welcome to Issue 5 of Stablecoin State.
The weekly stablecoin brief for finance leaders, builders and fintech professionals who understand that stablecoins are a monetary infrastructure story - not a crypto story.
Last week we covered the Iran conflict through the lens of 1983’s WarGames - “The only winning move’ is sometimes not to play.
It's now clear that stablecoins have long been part of the strategic calculus for many nations - and that this is only broadening.
Blockchain intelligence firm Elliptic reported that the Central Bank of Iran had $500m of USDT (Tether) in their reserves at the end of 2025 - used to facilitate oil trading outside of sanctions.
A necessity in a world where SWIFT is increasingly weaponised and the world moves from multilateral to multipolar.
How different countries choose to adopt blockchain settlement, and the superior speed, cost and security they provide versus analogue rails, will be hugely varied.
But the direction is not in doubt.
For the US, the GENIUS Act (and the CLARITY Act in progress) are part of a national strategy to assert technological dominance and defend the US dollar’s ‘exorbitant privilege’ as the world’s reserve currency.
The Trump family’s direct financial stake in World Liberty Financial (and its USD1 stablecoin) are also adding a layer of complexity to the debate that regulators are only beginning to reckon with.
The next front is closer to home.
The global banking sector is now in the crosshair of stablecoin issuers.
In the US, the US banking lobby is fighting hard to prevent stablecoins from offering yield.
Why?
Because yield-bearing stablecoins strike at the heart of the cheap deposit funding that underpins the banking business model.
And this week the BIS said the quiet part out loud.
This is the Dire Straits moment for parts of institutional finance.
The float has always been Money for Nothing.
It just never had to be defended before.
THIS WEEK
A GENIUS with CLARITY
DeFi in Dire Straits
BIS in Japan urges caution
Main story: Money For Nothing
NEWS
A GENIUS WITH CLARITY
“He who controls the money supply of a nation, controls the nation” James Garfield
Two pieces of legislation doing two different jobs.
Both matter.
The GENIUS Act is done. Congress passed it in July 2025
It provides the first federal framework for stablecoin issuance and oversight in American history, covering:
Who can issue a payment stablecoin
Full reserve backing – no fractional lending.
What reserves must back it (cash and government bonds)
Which regulator supervises them
Stablecoins only.
Full stop.
The CLARITY Act is the second layer and negotiations are getting heated.
It passed the House 294-134 in July 2025 but has not passed the Senate.
Where GENIUS covers stablecoin issuers, CLARITY covers the entire crypto market structure - and specifically answers the question that has paralysed the industry for a decade:
Who regulates the crypto industry?
The answer CLARITY gives?
It’s mostly the Commodity Futures Trading Commission (CFTC.)
The Act would grant the CFTC exclusive jurisdiction over digital commodity spot markets, while maintaining SEC jurisdiction over investment contract assets.
In plain terms: most tokens get treated as commodities, not securities.
The SEC retains oversight of fundraising and primary issuance. The CFTC takes the trading infrastructure.
The Senate is not starting from scratch -- multiple committee drafts are in play and Treasury Secretary Bessent has called for passage this spring.
But the stablecoin yield fight is the sticking point threading through both bills.
The banking lobby wants yield prohibited.
The crypto industry wants yield permitted.
That argument is not resolved.
Together, GENIUS and CLARITY represent the most significant attempt to build a US regulatory architecture for digital money since the Bank Secrecy Act in 1970.
One is already law. One is close.
Both are consequential for every institution in this readership.
Why this matters?
The crypto industry secured a significant structural win - the CFTC, a smaller and historically less adversarial regulator than the SEC, will oversee the majority of digital asset markets.
For banks, the yield question is existential.
Low and no-interest deposits are not a feature of the current environment - they are the foundation of the funding model.
Permitting stablecoins to pay yield would change that equation permanently.
DEFI IN DIRE STRAITS
“The beginning of wisdom is the definition of terms” attributed to Socrates
So first, a definition.
Decentralised Finance - DeFi - refers to financial applications built on public blockchains that operate without centralised intermediaries.
No bank.
No clearinghouse.
No compliance officer.
Smart contracts execute the rules automatically.
Lending, borrowing, trading and yield generation, all peer-to-peer.
Stablecoins are not DeFi.
They are a monetary instrument.
They are used inside DeFi protocols - just as dollars are used inside casinos - but the dollar is not the casino.
Stablecoins are gaining institutional acceptance precisely because they can operate entirely outside DeFi:
In payment rails
In trade settlement
In treasury management
With cross-border transfers.
That acceptance is real and growing.
DeFi itself is a different beast.
Crypto theft reached $3.4 billion in 2025 - the highest since 2022.
2026 is not slowing down.
In under 20 days this month, digital asset platforms have lost more than $605 million.
The largest single incident: $292 million drained from Kelp DAO on April 19 - the biggest DeFi exploit of 2026 so far.
Earlier in the month, $285m was stolen from Drift, in a state-sponsored hack which was six months in the making.
The attack vectors are not exotic code bugs.
They are private key compromise, social engineering, and supply chain infiltration.
North Korean state-backed actors stole $2.02 billion in 2025 alone - a 51% year-on-year increase - with a significant portion assessed to fund the regime's weapons programme.
Led by the Lazarus Group, they are thought to be the most successful financial hackers of all time.
These are intelligence operations running on blockchain infrastructure.
For institutional capital, the verdict is straightforward.
DeFi is currently not investible at scale.
The absence of recourse, the pseudonymous counterparties, the governance structures that can be manipulated, and the security track record combine to place it outside the risk parameters of any regulated institution.
That does not mean it stays that way permanently.
But it is where it stands today.
The distinction matters because the narrative risk for stablecoins is real.
Every DeFi headline lands in the same paragraph as "crypto" in the financial press.
It’s the job of the stablecoin community to make sure the fault lines are clear.
Why this matters:
Institutional stablecoin adoption and DeFi adoption are NOT the same journey on the same timeline.
Conflating them is the single biggest category error in mainstream coverage of this space.
The rails can be increasingly trusted.
The protocols built on top of them are a separate question entirely.
THE BIS URGES CAUTION
"The bank hath benefit of interest on all moneys which it creates out of nothing." William Paterson, Founder of the Bank of England
This week, Pablo Hernández de Cos, General Manager of the BIS - the central bank of central banks - spoke at a Bank of Japan seminar in Tokyo.
De Cos identified five specific risk categories from stablecoin growth:
· Effects on credit supply
· Financial stability
· Monetary policy
· Fiscal policy
· Regulatory circumvention
His most pointed observation was structural.
Tether and Circle - issuers of the world's two largest stablecoins accounting for roughly 83% of the $320 billion in circulation - exhibit features that make them resemble securities rather than money.
"In particular, they impose redemption frictions, leading to frequent deviations from par in secondary markets. In this respect, they currently operate more like exchange-traded funds than like money."
On run risk: in a period of stress, a rush by holders to cash out could force issuers to dump Treasury bills and pull funding from banks, amplifying volatility in key funding markets rather than insulating them.
And relevant to every bank CFO and treasurer in this readership: shifts from bank deposits to stablecoins "may be less pronounced if stablecoin holdings remain unremunerated" during periods of high interest rates.
So, the head of the BIS just acknowledged that yield-bearing stablecoins would accelerate deposit flight from banks.
That is not a crypto industry talking point.
That is the head of the institution that sets global financial standards confirming the threat in public, in Tokyo, on the record.
Without global coordination, divergent regulatory frameworks for stablecoins across jurisdictions could lead to severe market fragmentation or enable harmful regulatory arbitrage, de Cos warned.
Why this matters:
The BIS warning validated part of our core thesis.
Stablecoins are a monetary infrastructure story.
The question of who issues them, what backs them, whether they pay yield, and how they are regulated is not a crypto question.
It is a question about the architecture of the financial system itself.
William Paterson understood the value of creating money from nothing in 1694.
The BIS understands the threat of disrupting that arrangement in 2026.
So should you.
MAIN STORY
MONEY FOR NOTHING
Mark Knopfler - ‘your favourite guitarist’s favourite guitarist’
(This section uses Australia as a worked example, but it follows across most developed economies.)
The free deposit franchise has been tested before and survived every time.
Understanding why matters - because it explains what makes the current moment different.
The first test was internet banking.
In the late 1990s, the assumption was that price transparency would force deposit rates up.
Customers could now compare. Surely, they would move.
They didn't.
The friction of switching accounts, the inertia of direct debits and payroll, the trust deficit of digital-only institutions - all of it kept deposits sticky.
The Big 4 held their position.
The second test was the rate cycle.
When the RBA hiked aggressively from 2022, the ACCC found that the major banks were strategic in passing on rate increases - lifting bonus saver rates while leaving standard transaction accounts at zero.
Customers noticed.
Some moved to Macquarie or ING.
But the bulk stayed.
Three quarters of the deposit base remained in at-call accounts, many paying nothing.
The third test was Macquarie Bank.
No hoops. No catches. 2.5% on a transaction account.
It was a direct attack on the franchise, and it worked - Macquarie tripled its household deposit base in four years and captured 7% of the savings and transaction market.
But 7% is not systemic.
It is a warning, not a wound.
The reason each test failed to fully break the model is the same in every case.
No single competitor could simultaneously offer yield, instant liquidity, and institutional credibility at scale sufficient to overcome switching costs.
For BOTH retail and wholesale deposits.
Internet banks had credibility questions.
High-interest accounts had conditions.
Macquarie had no branch network and limited product depth.
Until now.
WHAT STABLECOINS CHANGE
A yield-bearing stablecoin, fully reserved, regulated under a framework like GENIUS, sitting in a wallet on a customer's phone, changes the game.
YIELD
A stablecoin backed by short-duration government securities and earning the cash rate - or close to it - can pass that yield directly to the holder.
No conditions.
No introductory period that reverts to 1.55% after five months.
The yield is structural, not promotional.
LIQUIDITY
Settlement is atomic and continuous.
24 hours a day, seven days a week.
Not next business day. Not subject to cut-off times or batch processing windows.
Instant.
CREDIBILITY
This is the gap that has not yet closed -- but it is closing.
The GENIUS Act creates a federal regulatory framework for stablecoin issuers in the United States.
RBA said recently that the question is no longer whether tokenisation has a future in Australia's financial system, but how.
APRA and the CFR are engaged.
The institutional credibility gap is narrowing with every regulatory milestone.
When all three gaps close simultaneously - yield, liquidity, credibility - the switching cost calculation changes.
Not for every customer.
Not overnight.
But at the margin, for the customers who are most financially literate, most rate-sensitive, and most likely to act.
This is not an argument that stablecoins replace banks.
They don't.
No mortgage.
No lending relationship.
No product suite.
The customer who moves idle transaction account balances to a yield-bearing stablecoin wallet is not leaving their bank.
They are repricing one specific funding pool.
But that pool - the low and no-cost deposit base - is precisely where the bank’s profitability lives.
Jarden Research, in its March 2026 piece ‘The Dreadnought revolution’ - the most rigorous quantified analysis of Australian deposit vulnerability we’ve seen - frames the migration precisely.
Deposits don't leave the system.
They migrate.
From retail, where they are priced at well below market, to wholesale, where they are priced at market.
The bank that loses a transaction account deposit to a stablecoin wallet doesn't lose the money from the financial system.
It loses the subsidy.
The free funding becomes market-rate funding.
The NIM inevitably contracts.
That is the mechanism.
It doesn't require mass adoption to be material.
It requires enough migration at the margin to reprice the franchise.
THE SLOW DRAIN
The mechanism is not a run. It is a generational shift.
Australia is in the early stages of the largest intergenerational wealth transfer in its history.
KPMG and the Productivity Commission estimate A$3.5 trillion will pass from Boomers and older Gen X to younger generations over the next two decades.
Roughly A$175 billion per year.
The recipients are digital natives.
For Millennials and Gen Z, blockchain rails and stablecoins are not exotic.
They are infrastructure.
Nobody closes their ANZ account. The accounts run in parallel.
But idle balances, savings buffers, and discretionary float migrate to lower friction, higher utility rails.
Slowly. Steadily. In one direction.
The agentic age accelerates this. AI agents managing payments, yield optimisation, and treasury functions require programmable money.
A static zero-rate transaction account is functionally unusable for autonomous financial management.
The free deposit base does not collapse.
It drains.
WHAT COMES NEXT - FOR BANK INVESTORS AND TREASURIES
This is not a prediction; it is a framework.
The deposit franchise is not going to collapse next quarter.
Customer inertia is real.
Switching costs are very real.
Regulatory uncertainty around stablecoin yield in Australia remains real, as is general risk aversion.
The RBA has not yet established a framework that would allow a yield-bearing AUD stablecoin to operate at scale.
But the direction of travel is not in doubt.
The regulatory environment is moving toward legitimacy.
The technology is proven.
The yield gap - between what a stablecoin could offer and what a transaction account currently pays - is visible and quantifiable to any customer with a phone.
And the customer segment most likely to act first is not the least sophisticated. It is the most.
The question is not "will this happen."
It is:
"at what migration rate does this become material to our funding cost, and what is our response when it does."
Jarden's numbers provide a starting point.
For CBA, a full repricing of the low and no-cost deposit book to the prevailing cash rate implies 76 basis points of NIM compression - 37% of the total margin.
That is the upper bound of the risk.
The realistic scenario is something smaller and slower.
But smaller and slower still compounds.
ENTER THE ROYAL NAVY
The Dreadnought was not built by Britain's enemies.
It was built by Britain.
In 1906, Admiral Jackie Fisher did something that looked insane.
He scrapped most of the Royal Navy's existing fleet and replaced it with a single new class of warship:
HMS Dreadnought.
Faster, bigger guns, steam turbine powered.
It made every other battleship in the world obsolete overnight.
Including Britain's own.
Fisher's logic was simple: if we don't make our own fleet obsolete, our enemies will.
Better to lead the disruption than absorb it.
Jarden Research titled their March 2026 deposit vulnerability analysis "The Dreadnought Revolution" for exactly this reason.
The parallel is not subtle.
Fisher's argument was not that the threat was imminent. It was that the strategic response needed to come from inside, before the disruption came from outside.
Australia's major banks are all in Project Acacia.
The infrastructure conversation is happening. The question is whether the commercial urgency matches the technological readiness.
Why this matters
The free deposit model has funded Australian banking profitability for generations.
And many other banking sectors around the globe.
It is structural, not accidental.
And it has survived every previous threat because no single competitor could close the yield-liquidity-credibility gap simultaneously and compellingly enough to overcome switching costs.
Stablecoins, under the right regulatory conditions, close all three.
This is not a crypto story.
It is a monetary infrastructure story. It always was.
The architecture of money is changing.
The institutions that shape that change will capture the value.
The institutions that defend against it will absorb the cost.
-Thanks for reading.
Mark
Personal note:
The legendary Mark Knopfler is rightly synonymous with Newcastle.
But he was born in Glasgow and educated in the village next to mine for a period.
That the coolest guitarist in rock history has some roots in the West of Scotland remains, to this day, the coolest thing about my area.
P.S. If you would like to contact our team just reply to this email - we read every response.
If this issue made you think differently about stablecoins, forward it to a CFO, treasurer, or finance leader who should be reading it.
The conversation is just getting started.
