Stablecoins are on the rise! Jefferies: Bank deposits may decline by 3% to 5% within the next 5 years

A smoke-free war triggered by “stablecoins” is underway between cryptocurrency companies and traditional banks. Jefferies analyst says that as the application scope of “digital dollars” continues to expand, it could gradually erode the profitability of traditional banks in the future.

Jefferies points out that although stablecoins are unlikely to pose an immediate survival threat to banks or trigger sudden bank runs in the short term, analysts estimate that core deposits could decline by 3% to 5% over the next five years, potentially increasing banks’ funding costs and putting long-term pressure on their profitability.

In a report released Tuesday, David Chiaverini’s team warns:

As revenue opportunities based on transaction activity emerge and stablecoins expand in payment scenarios, the medium-term risk of deposit outflows should not be underestimated.

Analysts note that even under this “mild pressure” scenario, the profitability of typical banks could face about a 3% impact.

Why are traditional banks so uneasy about the rise of stablecoins? The reasons are clear. In the past, stablecoins were mainly used for cryptocurrency trading; however, since the U.S. passed the GENIUS Act last year, stablecoins have significantly expanded into everyday payments, corporate treasury management, and cross-border remittances.

The Jefferies report states that by the end of 2025, the total supply of stablecoins will soar to $305 billion, with an annual growth rate of 49%; the adjusted stablecoin transfer volume has surged to $11.6 trillion.

According to DefiLlama, the total market cap of stablecoins has now risen to about $314 billion, a significant increase from $184 billion in 2022. Jefferies further projects that within the next five years, the stablecoin market could rapidly expand to $800 billion or even $1.15 trillion.

High yields, 24/7 operation, the biggest threat to traditional deposits For banks, this explosive growth is deadly because stablecoins can serve as around-the-clock digital cash, seamlessly connect to DeFi platforms, and offer yields far higher than those of regular bank accounts.

In fact, Bank of America CEO Brian Moynihan warned earlier this year: If $6 trillion in deposits flow into stablecoins and stablecoin products offering fixed yields, the entire banking system could face serious damage.

Why is the short-term impact still limited? Despite this, Jefferies believes that stablecoins are still unlikely to directly replace bank deposits in the near term, mainly because the U.S. “Clarity Act” currently restricts stablecoins from being attractive as savings products:

The pending Clarity Act aims to explicitly define stablecoins as “payment tools” rather than “savings products,” closing the “yield loophole” left by the GENIUS Act.

If they can’t beat them, join them! Wall Street giants are rushing into stablecoins Seeing the tide of mass adoption, traditional financial giants are not sitting idly by. They are launching their own stablecoins or developing related strategies to seize the opportunity. Asset management giant Fidelity Investments has taken the lead, launching its stablecoin “Fidelity Digital Dollar (FIDD).”

U.S. banks also say that if Congress approves, they will definitely launch their own stablecoins; Goldman Sachs CEO has also revealed that internally, they have invested “significant manpower” to explore the development potential of asset tokenization and stablecoins.

Which banks are most vulnerable? Although the U.S. prohibits stablecoin issuers from paying interest directly to users, Jefferies believes that “indirect revenue mechanisms” could still threaten bank deposits, such as activity rewards from stablecoin trading, payments, and settlement, as well as DeFi staking and lending yields, which could gradually attract funds away from bank deposits into on-chain finance.

So, which banks are most at risk? Jefferies analysis suggests that, compared to those that focus on safekeeping digital assets or have already invested in digital infrastructure, banks heavily reliant on “retail deposits and interest-bearing deposits” will face greater risks.