Jefferies: Rising Stablecoin Use Could Trim Bank Profits ~3% by Draining Deposits

Jefferies warns that growing stablecoin adoption — expanding beyond trading into payments, treasury management and cross-border transfers — is unlikely to cause abrupt bank runs but poses a medium-term structural threat to bank fundamentals. The bank models a 3–5% runoff in U.S. core retail deposits over five years as customers shift balances into stablecoins and tokenized dollar products. That deposit outflow would force banks to replace cheap retail funding with costlier wholesale funding (50–150 bps higher), compress net interest margins and reduce average bank earnings by roughly 3%. Stablecoin market size and activity are rising (market cap above ~$180bn in early 2025; Jefferies estimates supply and transfer volume could grow substantially through 2025–2030), increasing on-chain payment and DeFi staking use cases that may accelerate deposit substitution. The GENIUS Act’s ban on yield to passive regulated stablecoin holders limits immediate deposit flight, but Jefferies flags longer-term risks from activity-based rewards, DeFi returns, payment incentives and tokenized dollar initiatives from firms like Fidelity. Regional and community banks with large interest-bearing retail deposits are most exposed; large diversified banks are less vulnerable initially. Mitigants include stablecoin reserve holdings in liquid assets (e.g., T-bills), parts of reserves remaining inside the banking system, evolving regulation, CBDC research, and banks’ own tokenization efforts. For crypto traders: expect shifting liquidity patterns, higher on-chain volumes and changing DeFi yield dynamics; monitor bank funding stress and bank equities (regional banks especially), tokenized dollar projects and regulatory developments that could alter adoption paths.