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Hofmann, Kaldorf, and Rottner argue that stablecoins create two powerful macroeconomic forces that move in opposite directions.

On one side, stablecoin issuers often invest their reserves in short-term government debt. That creates extra demand for Treasury bills and can lower the government’s borrowing costs.

On the other side, when households or firms move money out of bank deposits and into stablecoins, banks lose one of their cheapest funding sources. To keep deposits, banks may need to pay higher rates. Higher funding costs can then translate into higher lending rates and tighter credit for businesses.

That is the tension at the heart of the paper: stablecoins may make government borrowing easier while making private credit more expensive.

The paper’s model can be understood through two channels.

First, the banking channel. When deposits leave the banking system and move into stablecoins, commercial banks have less cheap funding available. To replace it, they either compete harder for deposits or rely on more expensive funding. Both routes can raise their cost of lending. Over time, this can reduce credit supply to the real economy.

Second, the fiscal-space channel. Stablecoin issuers typically hold safe and liquid assets against the tokens they issue. In practice, that often means short-term government securities. As stablecoin demand grows, so does demand for these securities. That can push government borrowing costs down and give the public sector more fiscal room.

The paper’s key finding is that, under its benchmark calibration, the negative banking-channel effect dominates. In other words, the drag from tighter bank credit can outweigh the benefit of cheaper government borrowing.

The result is not inevitable. Regulation changes the story.

If stablecoin reserves were required to sit inside the banking system, or at the central bank, the deposit drain could be much smaller. The macroeconomic effect would depend less on stablecoin adoption itself and more on how reserves are held.

The source of demand also matters. If stablecoin demand comes from abroad, the domestic banking system may avoid some of the deposit loss while still receiving capital inflows.

There is also a stability caveat. The model assumes stablecoins maintain their peg. Real markets are messier. If confidence breaks, a stablecoin run could create a much sharper stress event than the model’s calm baseline suggests.

For executives, founders, investors, and policymakers, the message is that stablecoins are no longer a side story inside crypto.

They may become a direct competitor to bank deposits, a new buyer of government debt, and a structural force in credit markets. If their market share keeps growing, the cost and availability of business credit may depend not only on central bank policy, but also on how much money sits inside digital wallets.

The quiet lesson is this: the future of finance may not be shaped only by interest-rate decisions. It may also be shaped by where people choose to park their most liquid money.