Regulatory uncertainty surrounding stablecoins could place traditional banks at a competitive disadvantage compared with crypto-native firms, according to Colin Butler, executive vice president of capital markets at Mega Matrix.
Speaking to Cointelegraph, Butler said many financial institutions have already invested heavily in digital asset infrastructure but remain unable to fully deploy it because lawmakers have yet to clearly define how stablecoins should be regulated. The central debate revolves around whether stablecoins should be treated as bank deposits, securities, or a new category of payment instrument.
Under current U.S. law, stablecoin issuers are prohibited from paying yield directly to holders, but exchanges can still offer returns through lending programs, staking, or promotional rewards.
According to Butler, legal advisers are urging bank boards to delay major capital expenditures until regulators provide clearer guidance.
Banks Built the Infrastructure, but Cannot Fully Use It
Several major financial institutions have already developed infrastructure to support stablecoins and other digital assets.
JPMorgan, for example, has created the Onyx blockchain payments network. BNY Mellon has launched digital asset custody services, while Citigroup has conducted tests involving tokenized deposits.
Despite these initiatives, Butler said regulatory ambiguity is limiting the scalability of these investments. Risk and compliance departments at banks remain cautious about approving full deployment without knowing how regulators will classify stablecoins.
Crypto companies, however, are more accustomed to operating in regulatory gray areas.
“Banks simply cannot operate under the same level of uncertainty,” Butler noted.
Stablecoin Yields Highlight Competitive Gap
Another challenge for traditional banks is the growing yield gap between stablecoin platforms and conventional savings accounts.
Butler noted that many crypto exchanges offer returns of around 4% to 5% on stablecoin balances, while the average U.S. savings account yields less than 0.5%.
He compared the situation to the shift toward money market funds in the 1970s, when depositors rapidly moved funds in search of higher yields. Today, the process could happen even faster, since transferring funds from bank accounts to stablecoins takes only minutes and the yield gap is even larger.
Fabian Dori, chief investment officer at Sygnum, acknowledged the competitive pressure but said the situation is not yet critical.
Large-scale deposit flight remains unlikely in the short term, he argued, as institutions still prioritize trust, regulation, and operational resilience when choosing financial platforms.
Yield Restrictions Could Push Activity Offshore
Butler also warned that attempts to limit stablecoin yields could have unintended consequences.
Under current U.S. regulations, stablecoin issuers are generally prohibited from paying yield directly to holders. However, crypto exchanges can still offer returns through lending programs, staking services, or promotional rewards.
If lawmakers impose broader restrictions, Butler believes capital could migrate toward alternative structures such as synthetic dollar tokens, which generate yield through derivatives markets rather than traditional reserve assets.
These instruments could still provide returns even if regulated stablecoins cannot.
If such a shift occurs, regulators may find themselves facing the opposite of their intended outcome: more capital flowing into opaque offshore structures with fewer consumer protections.
“Capital doesn’t stop seeking returns,” Butler said.
