“They are rightfully worried that stablecoins expose a fractional-reserve problem in traditional banking,” commented Tether CEO Paolo Ardoino regarding statements from representatives of the Bank for International Settlements (BIS). In his view, stablecoins backed one hundred percent by liquid assets are safer than tokenized bank deposits, which are typically covered by reserves of only around ten percent.

Disagreements escalated following a speech by BIS General Manager Pablo Hernández de Cos at the Jackson Hole Economic Symposium. He stated that tokenized deposits, rather than stablecoins, should form the foundation of the future monetary system, criticizing stablecoins for fragmentation risks, a lack of guaranteed par redemption, and the threat of capital outflows from the banking sector.

The debate unfolds against the backdrop of pending regulatory changes in the United States. While digital asset bills spark disputes between the tech and banking sectors, Ardoino questions why users would choose fractional-reserve products over fully backed digital alternatives.