U.S. banks face a growing threat to their deposit bases and net interest margins as stablecoins gain mainstream traction. Analysis from Standard Chartered, led by global head of crypto research Geoff Kendrick, estimates that stablecoins could cause the exit of up to $500 billion in deposits from lenders across industrialized nations by the end of 2028. In the U.S. alone, bank deposits could fall by an amount equivalent to one-third of the total stablecoin market capitalization.
The stablecoin supply in circulation has risen by roughly 40% over the past year to just over $300 billion. Kendrick believes this pace is likely to accelerate following the potential passage of the Clarity Act, a crypto market structure bill currently moving through Congress, which he expects to be approved by the end of the first quarter.
A key point of contention is the earning of yield on stablecoins. Coinbase currently offers 3.5% rewards on balances held in Circle's USDC. Bank lobbying groups argue this practice could hasten deposit losses. Coinbase CEO Brian Armstrong, speaking at the World Economic Forum in Davos, countered, "The bank lobbying groups and bank associations are out there trying to ban their competition... I think it's un-American, and it harms consumers."
Regional lenders are identified as the most vulnerable. Using net interest margin income as a share of total revenue as a key risk indicator, analysis shows Huntington Bancshares, M&T Bank, Truist Financial, and Citizens Financial Group face the highest exposure. These institutions depend more heavily on traditional lending than larger, diversified peers.
Despite the long-term risk, immediate market signals are mixed. The KBW Regional Banking Index climbed nearly 6% in January. Kendrick notes that expected interest rate cuts could reduce deposit costs in the short term, but views the longer-term shift as unavoidable. He also highlighted that major issuers Tether and Circle hold only 0.02% and 14.5% of their reserves in bank deposits, meaning "very little re-depositing is happening."
Concurrently, a report by Rabobank positions dollar-backed stablecoins as a tool for extending U.S. monetary influence. The mechanism allows foreign demand for digital dollars to be converted into U.S. Treasury bill purchases, helping fund deficits while keeping real capital domestically. In trade, U.S. importers can pay exporters in stablecoins, with only the tokens moving across borders.
This growing influence coincides with the rapid rise of crypto cards as a payment mode. Once a niche product, the crypto card market is now valued at $18 billion, with monthly volumes growing from about $100 million in early 2023 to over $1.5 billion today—a growth rate exceeding 100% annually. These cards utilize stablecoins in the background while leveraging traditional card networks for acceptance.
While dollar-pegged stablecoins dominate, non-USD alternatives are gaining ground. Over the past year, the supply of non-USD stablecoins has surged 260%, pushing their combined market cap to about $1.55 billion, though this remains a small fraction of the total stablecoin market.
