The growing popularity of stablecoins is posing a significant challenge to traditional banking systems, with the potential to disrupt deposits worth up to $500 billion in industrialized nations by the end of 2028, according to a report by Standard Chartered. These digital assets, designed to mirror the value of fiat currencies like the US dollar, are increasingly drawing attention as an alternative to traditional banking.
The Rise of Stablecoins
The total circulating supply of stablecoins has already surged by 40% year-on-year, reaching over $300 billion, according to data from DeFi Llama. This growth is expected to accelerate further, driven by regulatory frameworks such as the “Clarity Act,” which is currently under review in the US Congress. This legislation aims to provide clear guidelines for the digital asset sector, potentially fueling further development in the crypto space.
Jeff Kendrick, the Global Head of Digital Asset Research at Standard Chartered, emphasized that the adoption of stablecoins could incentivize a migration of deposits away from banks, significantly impacting their net interest margins. These margins, a key measure of bank profitability, are highly dependent on deposit levels, making traditional banks particularly vulnerable.
Impact on US Banks
According to Standard Chartered, US banks could lose deposits equivalent to one-third of the market value of stablecoins. Kendrick specifically highlighted that regional banks in the US are more exposed to this risk than their larger counterparts. Banks like Huntington Bancshares, M&T Bank Corp, Truist Financial Corp, and Citizens Financial Group rely heavily on deposit-based lending, making them more susceptible to the fallout from stablecoin adoption.
In contrast, larger and more diversified financial institutions, including investment banks, are better positioned to withstand these challenges. These banks typically have a broader range of revenue streams, reducing their reliance on deposit-based income.
The Role of Crypto Platforms
The competition between cryptocurrency platforms and traditional banks is intensifying. For example, Coinbase currently offers a 3.5% reward on USDC (a stablecoin issued by Circle Internet Group), highlighting the appeal of digital assets to consumers seeking higher returns on their holdings. This has sparked concern among banking industry groups, who fear that such incentives could further drive deposit migration to crypto platforms.
Brian Armstrong, CEO of Coinbase, emphasized during the World Economic Forum in Davos that offering such rewards aligns with consumer interests and criticized banking opposition to these practices as harmful to innovation.
Regulation and the Future of Stablecoins
Regulatory clarity is expected to play a pivotal role in the future of stablecoins. Kendrick predicts that legislation governing digital assets will be finalized by the end of the first quarter of 2026. This could serve as a catalyst for further adoption of stablecoins and intensify competition between traditional financial institutions and crypto platforms.
However, Kendrick notes that the threat posed by stablecoins is not immediate. The KBW Regional Banking Index, which tracks regional banks, has risen by 6% in January 2026, outperforming the KBW Bank Index for larger banks, which gained just over 1%. This suggests that, in the short term, banks may still benefit from favorable economic conditions, including potential interest rate cuts and increased lending activity.
Challenges for Stablecoin Issuers
Stablecoin issuers such as Tether and Circle also face challenges. For instance, Tether holds only 0.02% of its reserves in bank deposits, while Circle holds 14.5%. This limited redepositing of reserves into the banking system further underscores the potential disconnect between traditional banking and the growing world of digital assets.
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