At the World Economic Forum in Davos, Circle CEO Jeremy Allaire pushed back hard on banking industry warnings about interest-bearing stablecoins — calling the idea that they will trigger a mass deposit exodus “totally absurd.”
Why it matters
Banks and some regulators have argued that paying interest on stablecoins could distort markets and drain deposits from the banking system, potentially constraining credit creation. In the U.S., those concerns have surfaced in debates over the GENIUS Act and other stablecoin proposals, with critics saying such rules could leave systemic gaps.
What the banks are saying
Banking executives, including Bank of America CEO Brian Moynihan, have likened interest-bearing stablecoins to money market mutual funds, which must hold liquid short-term assets such as U.S. Treasuries. Moynihan and others argue this dynamic could reduce banks’ capacity to lend. Some in the sector have warned that as much as $6 trillion — around 30%–35% of U.S. commercial bank deposits — could move into stablecoins if interest-bearing products were widely available.
Allaire’s rebuttal
Allaire dismissed the deposit-flight narrative at Davos, arguing the warnings are overblown and historically familiar. He noted that analogous claims were made when government money market funds and other financial products emerged — yet lending continued. “That deposit flight narrative is totally absurd,” he said, stressing that new products haven’t stopped lending in the past.
He also highlighted that interest-like rewards already exist across the financial system — for example, in credit card rewards and other balance-based incentives — and that these benefits are important for customer retention. “These rewards (…) exist in every balance that you have with a credit card that you use. They exist around so many other financial products and services that we have,” Allaire said. “They help with stickiness, they help with customer traction. They are not themselves like these huge monetary policy dampers.”
Broader shift in lending
Allaire pointed to a structural change in credit markets: lending is increasingly moving away from traditional bank risk-taking toward private credit markets. He referenced a WEF panel observation that much U.S. GDP growth has been financed via capital market formation — including high-yield issuance — rather than traditional bank credit. “Private credit issuing junk bonds, capitalizing the build out of the American technology advancements, not bank credit,” he said, arguing that credit creation is evolving rather than contracting.
Others in crypto have made a similar case. The Coinbase Institute has argued that “credit is evolving, not shrinking,” and that lending is shifting toward private credit, fintech, and DeFi channels that don’t rely on bank deposits. “Liquidity moves — it doesn’t vanish,” the institute said.
A regulatory and design goal
Allaire concluded by outlining Circle’s preferred path: stablecoins should function as cash-equivalent, prudentially supervised, very safe instruments. From that foundation, he envisions building lending models that sit on top of stablecoins rather than seeing them as a direct threat to traditional banking. “We want stablecoin money to be cash instrument money, prudentially supervised, very, very safe money. And then I think what we want to do is we want to build models for lending that build on top of stablecoins,” he said.
Bottom line
The exchange in Davos highlights the growing tension between legacy finance and crypto-native firms over how digital money should be regulated and integrated into the broader financial system. Banks warn of deposit erosion and reduced lending capacity; stablecoin proponents counter that financial innovation has always shifted funding channels and that properly regulated stablecoins can be safe building blocks for new lending models.
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