Stablecoin Growth is Putting Banks at Risk! Here is Why

Stablecoin growth is no longer just a crypto market trend—it is becoming a direct challenge to the traditional banking system. As adoption accelerates, analysts warn that stablecoins could significantly disrupt banks’ core funding models, payment networks, and profitability. 

Recent estimates suggest that the impact could reach hundreds of billions of dollars, raising concerns about financial stability and the future role of banks.

Key Takeaways

• Stablecoin adoption could pull up to $500 billion from bank deposits by 2028

• Regional banks are more exposed than large diversified institutions

• Long-term pressure on net interest margins appears unavoidable

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How Stablecoin Growth Risks Banks

The debate around stablecoins vs banks has intensified as stablecoin supply has surged. Over the past year alone, the total stablecoin market has expanded by roughly 40%, pushing circulation to just over $300 billion. This rapid growth highlights a structural shift in how users store value and move money.

According to analysis cited by Bloomberg from Standard Chartered’s global head of crypto research, Geoff Kendrick, stablecoin growth risks banks by draining deposits that traditionally fund lending activities. In developed markets, as much as $500 billion could exit bank deposits by the end of 2028. In the United States, this outflow could equal nearly one-third of the total stablecoin market capitalization.

READ ALSO: Stablecoin Market Forecast 2026: Adoption, Yield Tokens, and Scale

Stablecoin Impact on Traditional Banking

Source: freepik.com

One of the biggest concerns is the stablecoin impact on traditional banking revenues, particularly net interest margins (NIM). Banks rely on deposits as a low-cost funding source. When deposits migrate to stablecoins, banks must either raise interest rates to retain customers or accept shrinking margins.

Kendrick notes that payment networks and core banking functions are increasingly shifting toward stablecoins, reinforcing why stablecoins threaten banks beyond simple deposit competition.

Regulation and Accelerating Adoption

Regulatory clarity could further accelerate stablecoin adoption and banking risk. The proposed Clarity Act in the United States is expected to provide a framework for digital assets, potentially encouraging broader institutional and retail usage. 

While regulation may reduce systemic risk, it could also legitimize stablecoins as alternatives to bank deposits.

Another contentious issue is yield. Platforms like Coinbase currently offer rewards of around 3.5% on USDC balances. Banking lobby groups argue that such incentives could intensify banks losing deposits to stablecoins, while crypto firms see it as fair competition that benefits consumers.

Regional Banks Face Higher Exposure

Not all banks are equally vulnerable. Standard Chartered’s analysis shows that regional U.S. lenders are more exposed than diversified banks or investment banks. Institutions such as Huntington Bancshares, M&T Bank, Truist Financial, and Citizens Financial Group were identified as having higher sensitivity to deposit outflows.

This vulnerability stems from their reliance on traditional lending and net interest income. As how stablecoins disrupt banks becomes clearer, smaller and regional lenders may face tougher strategic choices.

Financial Stability and Long-Term Risks

In the short term, market indicators suggest limited immediate stress. The KBW Regional Banking Index rose nearly 6% in January, outperforming broader benchmarks. Expected interest rate cuts and government stimulus could also offer temporary relief.

However, the stablecoin growth financial stability risk remains a long-term concern. A key factor is that major issuers like Tether and Circle hold minimal reserves in bank deposits—meaning little capital flows back into the banking system. This lack of re-depositing underscores why the shift may be structural rather than cyclical.

READ ALSO: Crypto Card Spending Reaches $18B as Stablecoin Utility Surges

Conclusion

Stablecoin growth is steadily reshaping the financial landscape. While banks may weather short-term volatility, the long-term trend suggests a gradual erosion of deposits and pressure on profitability. Whether banks adapt through innovation, partnerships, or regulatory engagement will determine how severely stablecoins disrupt the traditional banking model.

FAQ

Are stablecoins safer than bank deposits?

Stablecoins reduce volatility but still carry regulatory, issuer, and operational risks.

Why are banks worried about stablecoins?

Because stablecoins can pull deposits away, reducing funding and net interest margins.

Which banks are most at risk?

Regional banks that rely heavily on traditional lending and deposit funding.

Will regulation stop stablecoin growth?

More likely, regulation will legitimize and accelerate adoption rather than stop it.

Can banks compete with stablecoins?

Yes, through digital innovation, better yields, and integration with blockchain-based payments.

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