Stablecoin what it is: Understand why the debate about profitability goes far beyond cryptocurrency

The current debate in the U.S. Congress about whether stablecoins should pay yields may seem like a technical issue confined to the crypto universe. But in reality, the controversy over stablecoins and their rewards is rooted in a much deeper dispute: who should capture the value generated by the money you hold. White House advisors, such as Patrick Witt, have argued that consumers should earn when choices exist. On the other side, traditional banks fiercely fight to maintain their historic monopoly over deposits.

To understand what is truly at stake, one must first grasp what stablecoins are and why their ability to generate yields poses an existential threat to the traditional financial model.

Understanding stablecoins and the yield debate

Stablecoins are cryptocurrencies designed to maintain a stable value (usually pegged to the US dollar), functioning as a digital medium of exchange without the extreme price fluctuations of Bitcoin or Ethereum. Unlike other cryptocurrencies, they offer predictability—you know that 1 stablecoin is worth approximately $1.

The core of the debate is not the stablecoin itself, but what holders can do with them. If stablecoins can generate returns (interest rewards or yields), they become a viable alternative to traditional bank deposits. That’s why the traditional sector reacts so strongly: an entire generation has been educated to simply leave money idle in checking or savings accounts that barely yield 0.5% per year.

Why consumers expect stablecoins to generate yields

For decades, a silent majority of American savers accepted an implicit agreement: their bank deposits earned little or almost nothing. In exchange, they received security (guaranteed by the FDIC), liquidity, and convenience. Banks, in turn, took that money, lent it out with a profit margin of 3%, 5%, sometimes 10%, and captured almost all economic appreciation.

However, with the emergence of decentralized technologies and blockchain infrastructure, this dynamic has begun to change. Balances have become programmable. Assets have become portable. Suddenly, consumers could question: why should the bank capture all that return while I earn nothing?

It is precisely this questioning that is reshaping expectations. It’s no longer about asking the bank for a savings account with 1% yield. It’s about expecting the money to earn by default—not as a special product for sophisticated investors, but as a basic behavior expected of any digital representation of value.

This shift in expectations is accelerated by projects like Pudgy Penguins and their tokenized ecosystem, which demonstrate how digital assets can generate utility and yields while remaining under user custody. The PENGU token from the project circulates in millions of wallets and exemplifies how tokenization allows users to capture a proportional share of the value created—a stark contrast to bank deposits that rarely generate value for the depositor.

Once this expectation takes root among consumers, confining the concept solely to stablecoins becomes impossible. The logic extends to any digital representation of value: tokenized securities, blockchain-based bank deposits, even tokenized Treasury bonds.

The credit objection: why banks are right—and wrong at the same time

The banking sector raises a legitimate concern: if consumers start capturing yields directly on their balances via stablecoins, deposits could leave the banking system. With fewer deposits, less credit is available. Mortgage loans become more expensive. Small businesses lose access to financing. Financial stability suffers.

This is not an objection to be dismissed. Historically, banks have been the main channel through which household savings turn into credit for the real economy. The dependency is real.

But the conclusion does not necessarily follow from the premise. Allowing consumers to capture yields does not eliminate the demand for credit. It merely reorganizes how credit is financed, priced, and governed.

We have seen this pattern before. In the 1980s and 1990s, the growth of money market funds, securitization, and shadow banking (outside the banking system) generated concerns: the system would collapse, credit would disappear. None of that happened. Credit reorganized itself. Flows shifted from deposits to capital markets, from bank balance sheets to securitized instruments.

What is happening now with stablecoins is another transition of this nature. Credit does not disappear when deposits cease to be an opaque source of low-cost funds. It migrates to channels where risk and return are explicit, where participation is clear, and where those who assume the risk capture a proportional reward.

From intermediaries to infrastructure: how stablecoins drive this change

The sustainability of this transition does not depend on a single product but on the emergence of a financial infrastructure that changes the default behavior of money. As assets become programmable and balances more portable, new mechanisms enable consumers to maintain custody while still earning yields under defined rules.

Structures like Vaults (digital safes), automated allocation layers, and yield-generating wrappers exemplify this new category of financial primitives. What they all share is a crucial aspect: they make explicit what has historically been opaque. You see exactly how your capital is allocated, under what restrictions, and for whose benefit.

Intermediation does not disappear in this new world. It shifts. It moves from institutions (banks) to infrastructure (protocols and smart contracts). It moves from discretionary balance sheets to rule-based systems. Hidden spreads become transparent allocations.

Framing this change solely as “deregulation” misses the essential point. It’s not about eliminating intermediation. It’s about changing who benefits from it and where it operates. That is precisely why stablecoins capable of generating yields scare the traditional sector so much—they reveal the reality that has always been masked.

Regulation, not restriction: the future of deposits beyond stablecoins

What is truly at stake is a transition from a financial system where consumer balances earned little, intermediaries captured most of the returns, and credit creation was largely opaque, to a system where balances are expected to generate yields, yield flows go directly to users, and infrastructure increasingly governs how capital is allocated.

This change is inevitable. But it can be shaped by smart regulation. Rules around risk, disclosure, consumer protection, and financial stability remain absolutely essential. They should not be abandoned.

The mistake would be to interpret the debate over stablecoins merely as a decision about cryptocurrency. At its core, it is a decision about the future of deposits in the 21st century. Policymakers may try to protect the traditional model by severely limiting who can offer yields on balances. They may slow down the margin shift.

But they will not reverse it. Because once consumers experience capturing a larger share of the value their own money generates directly, that expectation does not disappear. This is the true lesson of the stablecoin debate: it’s not about a new asset competing with traditional deposits. It’s about consumers challenging the fundamental premise that their balances should remain low-yield instruments whose economic value primarily reverts to institutions, not individuals and families.

The transition is just beginning. And stablecoins are only the first domain where this yield expectation will reshape user behavior and the economy.