Stablecoins pose threat to banking system

Paolo Ardoino, founder of Cardano, argues that stablecoins pose a growing threat to the traditional financial system because they are safer than bank deposits. According to him, stablecoins are fully backed by liquid assets, while bank deposits are only 10% reserved and therefore rely on trust in banks.

In brief:

• Stablecoins are fully backed by liquid assets such as government bonds
• Traditional bank deposits are only around 10% reserved
• This creates a risk that savers will switch to stablecoins en masse

Why stablecoins are becoming more attractive

Ardoino raises the fundamental question of why anyone would want their savings in a product with fractional backing while fully reserved stablecoins are available. This dilemma poses a risk to the existing banking system, as it exposes the structural weakness of traditional bank deposits.

The Bank for International Settlements (BIS) regularly expresses concern about stablecoins, but in doing so unconsciously acknowledges that these digital coins are stable and safe. Ardoino suggests that this is precisely the problem: if investors realise that stablecoins are better protected, they could move large amounts to this alternative.

Implications for the financial system

The central question is what happens to the financial system when people en masse begin to realise that stablecoins are a safer asset class than traditional savings accounts. A mass shift of money towards stablecoins would put pressure on the banking system, because banks can offer less deposit protection than crypto equivalents.

This scenario underscores a fundamental tension in modern finance: systems with lower reserves must rely on continued trust, while fully reserved alternatives do not need to depend on that trust. Ardoino identifies this phase as the moment when investors truly begin to realise this difference.