MW This veteran strategist is poking holes on the hype surrounding stablecoins

By Jules Rimmer

Stablecoin evangelists' claims may be exaggerated but tokenising bank deposits does make sense, say this strategist.

Stablecoins have its proponents, but one veteran strategist says its benefits are overhyped.

For all the hype around stablecoins, it's tokenization that may revolutionize finance, says a veteran financial markets strategist.

Stablecoins - essentially money-market funds for the crypto world - have been heralded as a mechanism for transmitting instant cross-border payments, streamlining financial networks, representing collateral in wholesale financial settlements and a store of value. The White House has been chiefly interested of late in their potential to create demand for government securities at a time when it needs to sell more of them.

Mentions per 100,000 sentences during earnings calls

However, strategist Ed Butchart thinks the hype surrounding stablecoins has been overplayed. After heading up the emerging markets strategy team at Merril Lynch, trading for Moore Capital's hedge fund and most recently chief investment officer at Kepler Partners and Sloane Robinson Investment Management, Butchart is now writing his own research product.

In an interview with MarketWatch he described how some of their drawbacks have been left unchallenged and risks understated. He argues instead, that tokenized bank deposits, a transferable digital token on a unified ledger, stand a far better chance of becoming the favored form of cash in many countries.

Stablecoin bulls, like Citi and Standard Chartered for instance, have claimed that market capitalization will boom from the present $290 billion to north of $2 trillion within a few years. They assume stablecoins will become more widely-used for a variety of real-world transactions and payments. Butchart pushes back, though and examines some of the risks that have been overlooked thus far.

The potential of stablecoins to generate demand for U.S Treasuries is less than backers and U.S. Treasury officials imagine, Butchart contends.

Stablecoin market cap

Central to his argument are what Butchart terms "geoeconomic risks" - where economics and geopolitics collide. Stablecoins may threaten any national government's influence over its economy with increased dependency on stablecoins backed by U.S, dollars DXY especially when many countries are alarmed by the change in direction of U.S. economic, trade and foreign policy. Increased usage of stablecoins backed by dollars will be perceived as a risk.

Stablecoin skeptics point to this worry - that it would cement dollar dominance - after the perceived "weaponization" of the dollar in the last few years. At present 99% of stablecoins are dollar-denominated. Butchart opines that the rest of the world is - explicitly or implicitly - opposed to unchallenged U.S. financial hegemony.

Moreover, in a LinkedIn post, Butchart articulates concerns that commercial banks may lose deposits to stablecoins, especially if they start to earn rewards as Coinbase (COIN), the popular cryptoexchange now does, in lieu of interest. Commercial bank deposits are subject to national rules, highly regulated and, for a central bank a key part of the transmission of monetary policy.

If commercial banks lose a significant chunk of their deposits, they will no doubt lend less, as Butchart points out, and this might inhibit economic growth. Disintermediation of the banks would also make bank runs easier, Butchart contends.

It's not just commercial banks who would recognize a threat to their funding either. Money-market funds would also suffer from the competition. The benefits to the U.S Treasury market are overstated if one is essentially taking money out of money-market funds in lieu of stablecoins.

Another aspect of potential stablecoin-induced vulnerability would be increased focus on short-term debt issuance. The average duration of U.S debt at present is 71 months, so raising increased sums of short-term debt increases the risk associated with short-term borrowing, limiting flexibility and raising interest costs. At present, Butchart notes, stablecoin issuers own $180 billion of short-maturity Treasuries but current projections estimate that could grow to north of $1 trillion by 2030, ranking them beside the Japanese who are holders of $1.3 trillion U.S. debt.

Stablecoins may facilitate cross-border payments but Butchart still reckons "if you ultimately want to send fiat currency, you'd still incur cost and friction in the on- and off-ramps and forex conversion."

Credit-card companies like Mastercard $(MA)$ and Visa (V) are seen as ripe for disintermediation by stablecoins but again Butchart can see an advantage the incumbent networks offer in terms of arbitration and regulations that protect customers.

Where Butchart does see legitimate upside, however, is the possibility of a tokenized bank deposit which, while still nascent, "can offer some important benefits when considered through the geoeconomic prism: a digital representation of a real world bank deposit, many of stablecoins benefits but sitting within the existing banking infrastructure, residing on centralized ledgers and offering interoperability by wholesale settlement of interbank liabilities.

At this stage, there are no obvious publicly-listed vehicles for exploiting the potential for tokenized bank deposits. The prospect, though of fractionalizing real-world assets (whereby investors could buy small percentages of large or illiquid assets) will prove enticing, though, and Butchart sees potential for tokenized equities, bonds, real estate, collectibles and even hedge funds.

Robinhood Markets (HOOD) already has taken a step in this direction with an offering of tokenized U.S. stocks to European customers.

Butchart conjures up a world where a tokenized securities portfolio could offer exposure to real-world assets - like a wind farm or a piece of fine art - to which gaining exposure was never possible previously. This seems more plausible than stablecoins underwriting the U.S. national debt in the next few years, he says.

-Jules Rimmer

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October 16, 2025 02:30 ET (06:30 GMT)

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