A new report from Jefferies analysts warns that the rapidly expanding stablecoin market could steadily erode profits for traditional banks, even as an immediate crisis appears unlikely. The analysis, released Tuesday, estimates that stablecoin adoption could drive a 3% to 5% runoff in core deposits over the next five years, potentially cutting average bank earnings by around 3% as funding costs increase and fee income faces pressure.
The findings come amid a growing “war” between cryptocurrency firms and traditional banks over the future of stablecoins – cryptocurrencies designed to maintain a stable value, typically pegged 1:1 to fiat currencies like the U.S. Dollar. While not posing an existential threat, the increasing use of stablecoins for payments, treasury management, and cross-border transfers is drawing funds away from traditional banking products.
The stablecoin market reached a total market capitalization of approximately $314 billion, a significant increase from $184 billion in 2022, according to data from DefiLlama. Supply reached $305 billion at the end of 2025, up 49% from the previous year, with adjusted stablecoin transfer volume rising to $11.6 trillion in 2025. Jefferies projects this growth could continue, reaching $800 billion to $1.15 trillion in the next five years.
The appeal of stablecoins lies in their ability to function as digital cash, operating around the clock and integrating with decentralized finance (DeFi) platforms that often offer higher yields than traditional bank accounts. Bank of America CEO Brian Moynihan recently cautioned that the broader banking system could be impacted by the “possibility of $6 trillion in deposits” shifting into stablecoins and related products offering yield-like returns.
Although, Jefferies analysts believe the current regulatory landscape, particularly the GENIUS Act passed in July 2025, limits the immediate threat. The GENIUS Act prohibits regulated stablecoin issuers from directly paying yield to passive holders, reducing the incentive for a rapid exodus from checking and savings accounts. A forthcoming bill, CLARITY, is expected to further codify stablecoins as payment instruments rather than savings products.
Despite this, the report highlights the potential for “activity-based rewards” – incentives for using stablecoins for transactions, payments, and settlement, as well as rewards from DeFi staking and lending – to pose a similar risk to bank deposits in the long term. “The intermediate-term risk of gradual deposit runoff from emerging activity-based yield opportunities and payments use cases should not be ignored,” the analysts wrote.
Certain banks are seen as more vulnerable than others. Jefferies identified WTFC, FLG, WBS, EGBN, and AX as the most exposed, given their higher concentrations of retail and interest-bearing deposits.
In response to the growing competition, several major financial institutions are exploring their own stablecoin offerings. Fidelity Investments launched the Fidelity Digital Dollar (FIDD), and Bank of America’s Moynihan stated the bank would issue a stablecoin if Congress legalizes them. Goldman Sachs CEO too indicated the firm has a significant focus on tokenization, and stablecoins.
