A war is raging between cryptocurrency companies and traditional banks over stablecoins, with analysts at Jefferies saying they could continue to weigh on bank earnings as use of the digital dollar expands.
While stablecoins do not pose a direct existential threat to banks and are unlikely to trigger a sudden run on U.S. bank deposits, analysts at Jefferies estimate that banks could lose 3% to 5% of their core deposits over the next five years. This could increase funding costs and weaken banks’ profitability.
“Medium-term risks of gradual deposit erosion from emerging activity-based revenue opportunities and payments use cases should not be ignored,” analysts led by David Chiaverini wrote in a note on Tuesday.
Analysts said this “moderately stressful” scenario would hit banks’ earnings by about 3% on average.
It’s not hard to see why banks should be concerned about the growth of stablecoins, cryptocurrencies designed to maintain a stable value and often pegged at a 1:1 ratio to fiat currencies such as the U.S. dollar or euro.
They are already widely used in cryptocurrency transactions, but since the passage of the Genius Act in the United States last year, the market is expanding into payments, money management, and cross-border transfers. The report states that supply will reach $305 billion by the end of 2025, a year-on-year increase of 49%, while adjusted stablecoin transfer volume will increase to $11.6 trillion by 2025.
The total market capitalization of the stablecoin industry is currently approximately $314 billion, up from approximately $184 billion in 2022, according to DefiLlama. According to Jefferies calculations, this number could reach US$800 billion to US$1.15 trillion in the next five years.
This growth is important to banks because stablecoins can act as digital cash, move around the clock and plug into decentralized finance platforms, providing yields higher than most bank accounts.
Indeed, Bank of America CEO Brian Moynihan warned earlier this year that “$6 trillion in deposits” could flow into stablecoins and stablecoin-related products that offer similar yield returns, harming the broader banking system.
long term threat
Jefferies’ core argument that stablecoins do not pose a direct threat is that the New Market Structure Act in U.S. rules, for now, limits the appeal of stablecoins as simple savings products, although its passage is uncertain.
“clear [act] By closing the ‘stablecoin yield loophole’ left in GENIUS, stablecoins are incorporated into payment instruments rather than savings products. ”
The GENIUS Act, passed in July 2025, prohibits regulated stablecoin issuers from paying earnings directly to passive holders. This limit reduces the likelihood of sharp shifts in checking and savings accounts in the short term.
Additionally, banks and other traditional financial giants are either launching their own stablecoins or considering launching their own to stay ahead of the competition. Fidelity Investments has launched its first stablecoin, Fidelity Digital Dollar (FIDD). Bank of America’s Moynihan said the bank would issue stablecoins if Congress legalized them, and the Goldman Sachs CEO said the bank has “a large number of people in the company who are very focused on tokenizing stablecoins.”
However, the report believes that long-term risks should not be ignored.
“We see the potential for activity-based rewards for stablecoin trading, payments and settlements, as well as rewards from DeFi staking and lending protocols posing similar risks to bank deposits.”
So which banks are more exposed to this risk?
Jefferies said banks with higher concentrations of retail and interest-bearing deposits appear to be at greater risk than custodian banks or large institutions that have invested in digital asset infrastructure.
“We view WTFC, FLG, WBS, EGBN and AX as the riskiest banks under coverage as they have the highest concentration of retail and interest-bearing deposits.”
Read more: Stablecoin market reaches $312 billion as banks, card networks embrace on-chain USD
