There is a war between cryptocurrency companies and traditional banks over stablecoins, and Jefferies analysts said they could become a continuing drag on banks’ profits as use of the digital dollar spreads.
While stablecoins will not be an immediate existential threat to banks and are not likely to trigger a sudden run on US bank deposits, analysts at Jefferies estimate that banks could see a core deposit drain of 3% to 5% over the next five years. This would likely increase funding costs and reduce banks’ profitability.
“The medium-term risk of a gradual flight of deposits from emerging performance opportunities based on activities and payments use cases should not be ignored,” analysts led by David Chiaverini wrote in a report on Tuesday.
That “modest pressure” scenario would leave the average bank facing a roughly 3% hit to its profits, 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 euro.
They are already widely used in cryptocurrency trading, but since the GENIUS Act was passed last year in the US, the market is expanding into payments, treasury management and cross-border transfers. Supply reached $305 billion by the end of 2025, up 49% from the previous year, while adjusted stablecoin transfer volume rose to $11.6 trillion in 2025, according to the report.
The total market capitalization of the stablecoin sector currently stands at around $314 billion, up from $184 billion in 2022, according to data from DefiLlama. And according to Jefferies calculations, it could reach between $800,000 and $1.15 trillion over the next five years.
That growth is important for banks because stablecoins can serve as digital cash that moves 24 hours a day and connects to decentralized financial platforms that offer higher returns than 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 similar returns.
The long-term threat
Jefferies’ central argument for stablecoins not being an immediate threat is that the new market structure bill in US rules, as it stands now, limits their appeal as simple savings products, even as the bill’s passage is uncertain.
“CLARITY [act] “would codify stablecoins as payment instruments, rather than savings products, closing the ‘stablecoin performance loophole’ left open in GENIUS.”
The GENIUS Act, passed in July 2025, prohibits regulated issuers of stablecoins from paying returns directly to passive holders. This restriction reduces the possibility of a strong abandonment of checking and savings accounts in the short term.
Additionally, banks and other traditional financial giants are launching or considering their own stablecoins 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 company extremely focused on tokenization and 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 settlements, as well as rewards for DeFi lending and staking protocols, to pose a similar risk to bank deposits.”
So which banks are most exposed to this risk?
According to Jefferies, banks with higher concentrations of retail and interest-bearing deposits appear more exposed than custodial banks or large institutions already investing in digital asset infrastructure.
“We view WTFC, FLG, WBS, EGBN and AX as the most exposed banks under coverage, given that they have the highest concentration of retail and interest-bearing deposits.”
Read More: Stablecoin Market Reaches $312 Billion as Banks, Card Networks Adopt On-Chain Dollar
