Tether CEO challenges BIS as stablecoin debate splits on 10% reserves

Tether Chief Executive Paolo Ardoino challenged the Bank for International Settlements' preference for tokenized bank deposits, arguing that fully reserved stablecoins offer savers a safer alternative to money held under fractional reserve banking.

"BIS is rightfully worried about the fact that stablecoins are exposing the emperor without clothes," Ardoino said. "Why someone should choose to put his savings into a fractional reserve product while stablecoins are fully reserved?"

The exchange follows BIS General Manager Pablo Hernández de Cos's Aug. 28 remarks at the Jackson Hole Economic Symposium, where he argued stablecoins fall short of several properties needed to function as money at scale. De Cos cited redeemability at par, interoperability and financial integrity as key concerns, while warning that stablecoin use outside the United States could weaken monetary sovereignty and enable digital dollarization.

The dispute carries direct consequences for the $2.7 trillion crypto market and the global banking system. If BIS-aligned regulators push tokenized deposits over stablecoins, USDT's dominant market position could face regulatory headwinds; if Ardoino's argument gains traction, banks could see deposits migrate to fully reserved digital assets.

Tokenized deposits remain bank liabilities

In the BIS model, tokenized deposits stay on commercial bank balance sheets and settle through central bank accounts. De Cos said this structure preserves the "singleness" of money because different bank liabilities remain redeemable at par through central bank settlement. Stablecoins work differently: a user holding USDT who needs to pay someone accepting only USDC may first need to exchange one token for the other in a secondary market, where prices can deviate from dollar pegs during periods of stress.

Banks have started building infrastructure around the tokenized deposit model. JPMorgan Chase, Bank of America, Citigroup and Wells Fargo are developing a shared deposit token network through The Clearing House, with a launch targeted for the first half of 2027. SWIFT launched a blockchain-based shared ledger with 17 major banks, including Citi, HSBC, UBS and BNP Paribas, in July. Custodia Bank and Vantage Bank are testing a dual-purpose token that operates as a bank deposit inside the Hazel network and as a stablecoin outside it, with a planned fourth-quarter 2026 rollout.

Ardoino focused his response on the reserve structure behind the two forms of digital money. He argued that stablecoins can be backed almost entirely by liquid reserves, including U.S. government debt, while commercial banks operate under a fractional reserve system in which only part of their liabilities are held in liquid assets.

Deposit flight question reaches U.S. lawmakers

The competition for deposits has become part of the U.S. debate over crypto market structure. Banking groups have pushed lawmakers to tighten stablecoin reward provisions in the Digital Asset Market Clarity Act. In July, the American Bankers Association, Independent Community Bankers of America and 76 state banking associations urged Senate leaders to revise Section 404 before the legislation reached the Senate floor. Citigroup Chief Executive Jane Fraser repeated the concern in August, warning that stablecoin rewards could draw deposits away from banks and affect their ability to extend credit.

The dispute partly traces back to the GENIUS Act, which prevents payment stablecoin issuers from directly paying interest or yield to holders. Crypto exchanges and other service providers can still offer some rewards depending on how their programs are structured, leaving lawmakers and banking groups divided over where restrictions should apply.

De Cos raised a similar funding issue at Jackson Hole. Stablecoin issuers can increase demand for government debt by placing reserves into Treasury securities, potentially lowering sovereign borrowing costs, he said. At the same time, money leaving commercial bank deposits could increase bank funding costs and eventually raise borrowing costs for households and companies.

Ardoino presented the same movement of funds from the opposite perspective. "What happens to financial system if people start realizing that stablecoins are safer and move their savings into the better asset class?" he said. "We're in the Find Out phase."

USDT remains the largest stablecoin by circulation and has developed a substantial user base outside the United States. Tether has pursued that market through payment and remittance investments, including its May investment in cross-border platform LemFi, which serves users across African and Asian remittance corridors. Ardoino said some economies now rely heavily on USDT for both domestic and foreign commerce, while the BIS has warned that increasing use of dollar-denominated stablecoins outside the United States could weaken monetary policy transmission.

This article is for informational purposes only and does not constitute investment advice.