A recent report from Jefferies indicates that the increasing use of the digital dollar and stablecoins may lead to a gradual decline in bank deposits over the next five years. The analysis suggests that banks could see a core deposit runoff of 3% to 5%, resulting in higher funding costs and reduced profitability.
According to analysts led by David Chiaverini, while stablecoins do not pose an immediate existential threat to banks, their growing adoption in payments and other financial services should not be overlooked. The report highlights that banks could face a modest 3% hit to earnings due to this trend.
Stablecoins, which are cryptocurrencies designed to maintain a stable value, are becoming increasingly popular in various sectors, particularly in crypto trading. Following the passage of the GENIUS Act in July 2025, their use has expanded into areas such as payments and treasury management. The stablecoin market reached a total supply of $305 billion by the end of 2025, marking a 49% increase from the previous year, with adjusted transfer volumes hitting $11.6 trillion.
The total market capitalization of stablecoins stands at approximately $314 billion, up from about $184 billion in 2022. Jefferies projects that this figure could rise to between $800 billion and $1.15 trillion over the next five years, further emphasizing the growing significance of stablecoins in the financial landscape.
These digital currencies serve as a form of digital cash that operates continuously, offering yields that often surpass those available from traditional bank accounts. Bank of America CEO Brian Moynihan has expressed concerns that as much as $6 trillion in deposits could shift into stablecoin products, potentially impacting the broader banking system.
Despite these concerns, Jefferies argues that stablecoins are not an immediate threat due to regulatory limitations. The proposed CLARITY Act aims to classify stablecoins as payment instruments rather than savings products, which would limit their appeal for passive holders. The GENIUS Act restricts regulated stablecoin issuers from providing yield to passive holders, which mitigates the risk of a sudden shift from traditional banking.
In response to the competitive landscape, several traditional financial institutions are exploring their own stablecoin offerings. Fidelity Investments has already launched its Fidelity Digital Dollar, while Bank of America and Goldman Sachs have indicated interest in entering the stablecoin market if regulations permit.
Jefferies identifies banks with a higher concentration of retail and interest-bearing deposits as being more vulnerable to the risks posed by stablecoins. Specifically, banks such as WTFC, FLG, WBS, EGBN, and AX are highlighted as having significant exposure due to their deposit structures.
Jefferies' report highlights the potential impact of digital dollars and stablecoins on traditional banks, predicting a gradual decline in deposits and profitability. As stablecoins gain traction in various financial sectors, banks with higher concentrations of retail deposits may face increased risks.