How a $500B Deposit Shift to Stablecoin Threatens Banks

Global bank Standard Chartered has projected that one-third of the growing stablecoin market will be sourced from bank deposits with an estimated $500 billion flowing from these deposit accounts by 2028.

Regional banks are the most vulnerable to this disruption by stablecoin. These regional banks rely more heavily on interest income, and they would feel the loss of deposits to stablecoin more acutely, CoinDesk reports.

“We are moving toward a reality where every financial asset is digitized. This shift from bank deposits to stablecoins is the logical next step in that evolution. It doesn’t matter whether the industry calls them stablecoins or tokenized deposits; the end result is the same,” Xin Yan, Chief Executive Officer of Sign, told us.

The use of digital credits is already happening. 

“Most people don’t realize they already live in a world of digital credits. When you pay with a phone or a card, you aren’t touching cash. You are moving data. Stablecoins take that same familiar experience and make it global, programmable, and available every second of the day,” Yan said. 

“It gives people a more powerful version of the money they already use without forcing them to adopt a new way of life.”

“Deposit migration to stablecoins puts subprime lenders in a difficult position because they already operate on thinner margins and rely heavily on deposit funding. We work with banks and credit unions every day, and the most common concern we hear is retaining deposits,” Sean Ristau, Vice President of Digital Assets at InvestiFi, told us.  

“When those deposits leave the banking system, the customers who can least afford a credit contraction, people rebuilding their financial lives, are the ones who feel it first.”

Subprime lenders would feel the migration of deposit accounts to stablecoin more than prime lenders would.

“Prime lenders have diverse funding sources that let them absorb deposit outflows more gracefully. Subprime lenders don’t have that luxury,” Ristau said.

“As deposits shrink, they’re forced into more expensive wholesale funding, which drives up the cost of every loan they originate, costs that get passed on to borrowers already paying the highest rates.”

Which subprime sectors — auto finance, personal loans, small business lending — are most vulnerable to deposit volatility?

“Personal loans and small business lending are the most exposed because they lack the collateral backstop that auto finance has. A vehicle can be repossessed and resold, giving auto lenders greater flexibility,” Ristau said. 

“Unsecured personal loans and small business lines don’t have that safety net, so those are the credit lines that get pulled back first.”

Ristau expects the migration from traditional bank deposits to stablecoins to continue in the future.

“Absolutely, and I think we’re still in the early innings. As stablecoin infrastructure matures and regulatory frameworks become clearer, the value proposition only gets stronger,” Ristau said.

“The question for traditional banks and credit unions isn’t whether this trend continues, but how quickly they adapt their deposit products to compete with it.”

The Commodity Futures Trading Commission said in a recent press release that a national trust bank may be an issuer of payment stablecoin.

Other financial institutions are already making moves with stablecoin. For example, Fidelity Investments expanded its digital asset investment line with a stablecoin launch on Jan. 28.

The GENIUS Act, signed into law by President Trump on July 18, created a federal, comprehensive and regulatory framework for stablecoins.  

With an estimated $500 billion in bank deposits flowing out to stablecoin by 2028, the impact on regional banks that rely more heavily on deposit accounts is currently being felt. Subprime lending, in particular unsecured personal loans and small business lines, also will be affected by the stablecoin disruption.