Stablecoins cannot cause net deposit flight from the banking system because every issuance or redemption simply moves a bank deposit from one account to another, according to Austin Campbell, founder and CEO of Zero Knowledge.
Speaking on CoinDesk's The Policy Protocol podcast in an episode published around October 23, 2026, Campbell said stablecoins causing deposit flight is "mathematically not possible." In his account, when someone buys a stablecoin, their dollars land in another bank account, and redemption reverses the trip. Ownership of the deposit shifts between accounts or banks, but the total pool is not destroyed.
A narrower claim about individual banks
Campbell's argument is technical rather than absolute. A particular bank might lose deposits to another bank, but in his telling the system as a whole does not. He also rejected the idea that stablecoins are simply a riskier version of a bank account, describing them as closer to cash or money-market instruments than to leveraged bank deposits.
That distinction matters because banks lend out a portion of the deposits they hold. A stablecoin built more like a money-market product operates on a different model, so direct comparisons between the two can mislead, he argued.
The lobbying fight over yield
The debate is playing out in an active lobbying effort. Banking trade groups, including the American Bankers Association and the Independent Community Bankers of America, have raised concerns that stablecoins offering yield could pull money away from traditional deposits, and have pushed for restrictions on stablecoins that pay holders a return.
Campbell called those concerns misinformed, characterizing the deposit-flight narrative as a misunderstanding of how stablecoins work rather than a sober assessment of risk.
Under the Genius Act framework, stablecoin issuers can back their tokens with bank deposits, Treasury bills, repurchase agreements, or reverse repos. They are not required to replicate FDIC-insured deposits.
Regulatory and market developments
The podcast conversation arrived alongside several notable US developments. The Office of the Comptroller of the Currency has been finalizing rules on stablecoins, adding regulatory detail to a sector that spent years operating in gray zones. Meanwhile, JPMorgan launched its JPMD tokenized deposit on the Ethereum blockchain.
Campbell drew a contrast between bank deposit tokens like JPMD and stablecoins. A tokenized deposit remains a bank liability, with everything that implies, while a stablecoin, in his framing, is a different product with a different risk profile.
Background on the argument
Campbell previously managed reserves for Paxos' BUSD, which became the third-largest stablecoin and peaked above $20 billion. He has also been a consistent critic of how the banking sector understands stablecoins, with a broader thesis focused on efficiency gains that blockchain rails could bring to payments and settlement.
What it means for policy
For policymakers, the argument reframes the central question. If stablecoins only shift deposits around, the debate becomes less about systemic stability and more about which banks win or lose market share.
The yield question is likely to be decisive. If regulators accept the deposit-flight thesis, restrictions on yield-bearing stablecoins become easier to justify. If Campbell's view gains traction, those restrictions start to look more like protectionism than prudence.
For banks, the JPMD launch suggests at least some large institutions are choosing to build rather than block, using tokenized deposits to keep the customer relationship while offering onchain functionality. Whether smaller community banks can follow that path is a separate and harder question, and it helps explain why groups like the ICBA are pushing so hard.
Campbell's accounting argument will not end the debate on its own, but it does force critics to be more precise about what they fear: a vanishing deposit base, or simply deposits ending up somewhere they would rather not see them go.
