The debate over how to represent fiat money onchain is intensifying, with Tether CEO Paolo Ardoino challenging the Bank for International Settlements’ (BIS) preference for tokenized bank deposits over stablecoins.
Ardoino criticized recent comments from Pablo Hernandez de Cos, general manager of the BIS, who argued that stablecoins are not an effective substitute for fiat money. De Cos cited concerns including limited redeemability, supply constraints, interoperability challenges and the potential facilitation of crime.
Instead, De Cos described tokenized bank deposits as a “more direct path to harness tokenisation while preserving the monetary system’s foundations.”
Ardoino argued that the BIS’s concerns overlook what he views as a key distinction between the two forms of digital money. He said stablecoins are generally backed almost entirely by U.S. Treasury securities, while tokenized bank deposits are typically backed by only around 10% in liquid assets.
“BIS is rightfully worried about the fact that stablecoins are exposing the emperor without clothes. Why someone should choose to put his savings into a fractional reserve product while stablecoins are fully reserved?” Ardoino declared.
Stablecoin adoption expands in emerging markets
Stablecoins have continued to gain popularity and adoption. Tether’s $USDT, with a market capitalization of more than $183 billion at the time of writing, has become an important financial product in emerging markets.
Ardoino said there were economies “heavily relying on $USDT, for both internal and foreign commerce.”
Stablecoins become a U.S. policy flashpoint
The debate over stablecoins has also reached the highest levels of U.S. politics, becoming a contentious issue in discussions over the Digital Asset Market Clarity Act, known as the CLARITY ACT.
Banks have raised concerns about deposit flight if cryptocurrency exchanges are permitted to offer rewards on stablecoin holdings. Ardoino suggested that broader awareness of stablecoin reserves could accelerate a shift away from traditional bank deposits.
“What happens to financial system if people start realizing that stablecoins are safer and move their savings into the better asset class? We’re in the Find Out phase.” Ardoino concluded, hinting at large-scale deposits-for-stablecoins substitution.
