There is a war going on between crypto firms and traditional banks over stablecoins, and Jefferies analysts said they could become a constant drag on banks’ earnings as digital dollar use spreads.
While stablecoins will not pose an immediate existential threat to banks and are unlikely to trigger a sudden run on US bank deposits, Jefferies analysts estimate that banks could see a 3% to 5% outflow of core deposits over the next five years. This is likely to increase funding costs and cut into banks’ profitability.
“The medium-term risk of gradual outflow of deposits from new activity-based return opportunities and payment cases should not be ignored,” analysts led by David Chiaverini wrote in a report on Tuesday.
The “modest pressure” scenario would leave the average bank facing an earnings hit of around 3%, the analysts said.
It’s not hard to see why banks should be concerned about the growth of stablecoins, which are cryptocurrencies designed to maintain a stable value and are typically pegged 1:1 to fiat currencies like the US dollar or the euro.
They are already widely used in crypto trading, but since the GENIUS Act was passed last year in the US, the market is expanding into payments, financial management and cross-border transfers. Supply reached $305 billion by the end of 2025, up 49% from a year earlier, while adjusted stablecoin transfer volume rose to $11.6 trillion by 2025, the report said.
The total market capitalization of the stablecoin sector is currently around $314 billion, up from around $184 billion in 2022, according to DefiLlama data. And according to Jefferies’ calculations, it could reach $800 billion to $1.15 trillion over the next five years.
This growth matters to banks because stablecoins can serve as digital cash that moves around the clock and connects to decentralized finance platforms that offer returns over most bank accounts.
In fact, Bank of America CEO Brian Moynihan warned earlier this year that the broader banking system could be harmed by “the possibility of $6 trillion in deposits” moving into stablecoins and stablecoin-linked products that offer yield-like returns.
The long-term threat
Jefferies’ core argument that stablecoins are not an immediate threat is that the new market structure bill in US regulations, as it stands now, limits their appeal as simple savings products, although the bill’s passage is uncertain.
“CLARITY [act] would codify stablecoins as payment instruments, rather than savings products, closing the “stablecoin yield loophole” open in GENIUS.”
The GENIUS Act, passed in July 2025, prevents regulated stablecoin issuers from paying returns directly to passive holders. That restriction reduces the chance of a sharp short-term switch out of checking and savings accounts.
Also, banks and other traditional financial giants are either launching their own stablecoins or thinking about it to get ahead of the competition. Fidelity Investments launched its first stablecoin, Fidelity Digital Dollar (FIDD). Bank of America’s Moynihan said the bank will issue a stablecoin if Congress legalizes it, and Goldman’s CEO said his bank has “a huge number of people in the firm who are extremely focused on tokenization, stablecoins.”
Still, the report argues that the long-term risk should not be ignored.
“We see the potential for activity-based rewards for stablecoin transactions, payments and settlement, as well as rewards from DeFi staking and lending protocols to pose a similar risk to bank deposits.”
So which banks are more exposed to this risk?
According to Jefferies, banks with greater concentrations of retail and interest-bearing deposits appear more exposed than custodians or large institutions that are already investing in digital asset infrastructure.
“We consider WTFC, FLG, WBS, EGBN and AX to be the most exposed banks under cover, as they have the highest concentration of retail and interest-bearing deposits.”
Read more: Stablecoin market hits $312 billion as banks, card networks embrace onchain dollars
