How Stablecoins Become the "Catfish" of the Banking System

In ancient China, there is a classic story about fish farming: a fisherman places a catfish into a large tank, and it constantly stirs the other fish, keeping the entire tank lively. In recent years, stablecoins have been playing a similar role in the financial system. But unlike traditional views, this “catfish” is not here to devour the entire pond; instead, it may serve as a catalyst for upgrading the entire financial system.

For many years, the market has been pessimistic about the relationship between stablecoins and traditional banks. As early as 2019, when Facebook announced the Libra project, the global financial community reacted with near panic—fearing that once billions of people could hold digital cash backed by government debt assets at any time, the monopoly of traditional banks over deposits and payment systems would be broken. This seemingly reasonable concern prompted academic and regulatory research. But the findings were surprising.

Market Misjudgment Under the Stir of the Catfish

A rigorous academic paper recently published by Cornell University professor Will Cong overturns a long-held consensus: stablecoins are not the “end” of bank deposits, but rather a “catfish” in the market—they exist not to replace but to stir.

The anxiety at the time was clear: why would consumers still keep money in zero-interest, weekend “shutdown,” fee-heavy demand accounts? If they can hold “digital dollars” on their phones anytime, why accept the inconveniences of banks?

However, real data shows that the panic over a large-scale “deposit run” did not materialize. Despite explosive growth in stablecoin market capitalization, empirical studies have found little to no significant correlation between stablecoin adoption and bank deposit outflows. This indicates that fears of stablecoins disrupting the market are exaggerated.

The Reality of Sticky Deposits

Why did these concerns not come true? The answer lies in the underlying logic of traditional banking models.

The entire financial system is fundamentally built on “frictions.” Demand accounts serve as the hub for fund interoperability; any transfer of value across services must go through this checkpoint. Banks hold the only “bridge” connecting various islands in consumers’ financial lives.

But this “friction” persists not because of technological advantages, but due to a strong “bundling effect.” Mortgage loans, credit cards, direct salary deposits—these services’ concentration makes demand accounts an indispensable central node. Consumers don’t use them because they are convenient, but because without them, things become complicated.

This dependency creates an extremely strong “stickiness.” For most users, the convenience of bundled services outweighs the additional benefits that stablecoins could provide. Transferring lifelong savings to a digital wallet just for a few basis points of interest is irrational for the vast majority.

In other words, warnings about “massive deposit outflows” are more driven by vested interests’ panic over their own positions, ignoring the fundamental economic law: deposit stickiness is an extremely powerful force.

How Competition Forces Bank Reform

But this does not mean stablecoins have no impact. On the contrary—the true value of this “catfish” lies in changing the logic of bank operations.

The very existence of stablecoins constitutes a form of discipline. When a credible alternative truly emerges, banks can no longer assume that customer funds are “locked in.” They are forced to rethink how to attract and retain deposits—not relying on system “frictions,” but offering more competitive interest rates and better service experiences.

This compelled change actually improves the efficiency of the entire financial system. Research shows that under the “catfish” effect of stablecoins, banks will offer higher deposit rates, more refined service systems, and ultimately broader financial intermediation activities, enhancing consumer welfare.

Evidence proves that the “threat of exit” itself is the strongest motivation for existing institutions to improve services. Stablecoins are not here to overthrow the banking system but to push it toward self-optimization—that is the true meaning of the “catfish” effect.

Regulatory Framework Sets the Rules for the “Catfish”

Of course, all this depends on effective regulation. Regulators have valid concerns about “run risk”—if market confidence falters, reserves backing stablecoins may need to be sold off, triggering systemic crises.

But this is not a new risk. It is a standard risk in financial intermediation, highly similar in essence to risks faced by traditional financial institutions. We already have a mature framework to manage liquidity and operational risks. The real challenge is not “inventing new rules,” but properly applying existing financial engineering to new technological forms.

The U.S. GENIUS Act is playing a key role here. It explicitly requires stablecoins to be fully backed by cash, short-term US Treasuries, or insured deposits, and establishes enforceable redemption rights, creating hard safety boundaries at the institutional level. Academic research indicates these regulations already cover core risks, including run risk and liquidity pressures.

Next, the Federal Reserve and the Office of the Comptroller of the Currency (OCC) will translate these principles into enforceable regulatory rules, ensuring stablecoin issuers account for operational risks, custody failures, and the complexities of blockchain integration. This way, the “catfish” is placed within a transparent, controlled framework—able to stir the market without threatening financial stability.

Efficiency Revolution and the Upgrading of the US Dollar

Once freed from defensive mindsets, the true potential of stablecoins will become apparent.

The “underlying infrastructure” of the financial system has reached a point where reconstruction is necessary. The core value of stablecoins is not just 24/7 availability but “atomic settlement”—real-time cross-border value transfer without counterparty risk. This is the long-standing core problem that the current financial system has failed to solve.

Today, cross-border payments are costly and slow. Funds often need days to move through multiple intermediaries before final settlement. Stablecoins compress this process into on-chain, ultimately irreversible single transactions.

This transformation has profound implications for global fund management: funds are no longer trapped for days en route but can be transferred instantly across borders, releasing liquidity long held by correspondent banking systems. In domestic payments, similar efficiency gains mean merchants can access lower-cost, faster payment methods. For banks, this is a rare opportunity—to upgrade long-dependent, “duct-tape and makeshift” traditional clearing infrastructure.

Embracing the “Catfish” and Seizing the Era

Ultimately, the U.S. faces a choice: either lead the development of this technology or watch as the future of finance takes shape in offshore jurisdictions. The dollar remains the world’s most popular financial product, but its supporting “track” is aging.

The GENIUS Act offers a truly competitive institutional framework. It localizes and institutionalizes the “dangerous” catfish—by bringing stablecoins into regulatory boundaries, the U.S. transforms what was once a shadow banking risk into a transparent, robust “global dollar upgrade plan.”

For banks, it’s time to change mindset. Instead of obsessing over “competition threats,” they should consider how to turn stablecoin technology into their advantage. History offers similar precedents: the music industry initially resisted MP3s and streaming, only to discover they were a goldmine. Banks are similarly resisting a transformation that will ultimately save them.

When banks realize they can charge for “speed and transparency” rather than “delay and friction,” they will truly learn to embrace this “catfish.” This is not the end of banking, but its upgrade—and this market-stirring “catfish” will be a key driver of that transformation.