Are Stablecoins Safer Than Banks? Brian Armstrong Sparks the Debate

Kicking the banking anthill. According to Brian Armstrong, banks should not lend their clients' deposits without their consent. The CEO of Coinbase describes this mechanism as a relic of the fractional reserve system.

He argues that a regulated stablecoin backed by reserves compliant with the GENIUS Act remains less risky than a bank deposit. However, the attack targets an industry that holds approximately $18 trillion in deposits in the United States.

Key Points

• The Coinbase leader contests the use of client deposits without explicit consent, inherited from fractional reserves.
• A token fully backed by eligible assets would, according to him, be better protected than a bank account.
• The Federal Reserve has not required any reserve from American banks since March 2020.
• The exchange is seeking a trust charter from the U.S. federal banking regulator.

Brian Armstrong and the Fractional Reserve Lawsuit

The principle is taught in the first year of economics. A bank receives a deposit, keeps a fraction, and lends the rest, which creates credit. However, the institution thus becomes unable to repay all its clients on the same day. The required reserve ratio no longer plays the safeguard role it is still credited with. And for good reason: the Federal Reserve reduced it to 0% in March 2020. Federal insurance then takes over, up to $250,000 per depositor and per bank.

March 2023 demonstrated this in real life. Clients of Silicon Valley Bank withdrew $42 billion in twenty-four hours. Then the institution closed the next day, with nearly 94% of uninsured deposits on its balance sheet. However, Circle had lodged $3.3 billion in USDC reserves there.

The stablecoin thus fell to $0.87. The drop followed a few hours of banking panic. It ceased as soon as the Treasury and the Fed guaranteed all deposits. Brian Armstrong considers regulated stablecoins safer than bank deposits. Source: X / @LeJournalDuCoin

Stablecoins and the GENIUS Act, Coinbase's Arithmetic

Enacted in July 2025, the GENIUS Act is the first federal law in the U.S. to regulate payment stablecoins. It mandates full backing of issued tokens, in dollars or Treasury bills with a maximum of 93 days. Repos and shares of money market funds are also permitted. The text then adds a monthly publication of reserves, certified by the executives. In case of bankruptcy, holders come before other creditors. Lending these reserves is prohibited.

The law also prohibits issuers from paying a yield to holders. This provision was fiercely fought for by the banking lobby. Nevertheless, Coinbase offers rewards close to 4% to users who keep their USDC on the platform. The exchange acts as a distributor and not an issuer.

The American Bankers Association and the Bank Policy Institute have been demanding since the closure of this loophole. Their concern is based on a figure. An advisory committee of the U.S. Treasury estimated the worst-case scenario. Up to $6.6 trillion in deposits could then migrate to stablecoins. However, the Treasury expects a market of $2 trillion by 2028.

Brian Armstrong's argument hinges on a comparison of balance sheets. On one side fully liquid reserves published every month. On the other, long-term lent assets financed by deposits that are repayable on demand.

Coinbase Seeks a Federal Trust Charter

The CEO of Coinbase adds a second grievance. Regulatory barriers would have stifled banking innovation and concentrated the market in the hands of a few institutions. The United States had more than 14,000 commercial banks in the mid-1980s, compared to less than 4,500 today. The creation of institutions approached a hundred per year before 2008. Some years, they now count on one hand.

In 2025, Coinbase thus applied for a national trust charter from the OCC, the federal banking regulator. This approval would allow it to hold its clients' reserves itself, without a banking partner. Circle, Ripple, Paxos, and Fidelity Digital Assets have filed similar applications.

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