Lavneet Bansal
← Blog

Stablecoins and Payments

Stablecoins vs Banks: BIS Double Standard in Plain Sight

A look at how the BIS critiques stablecoins while ignoring the flaws of traditional banking, and why stablecoins, though imperfect, offer a better alternative.

By Lavneet Bansal

Originally published on Between the Lines.

“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: