Stablecoin Adoption Is Rising. Should Bank Investors Be Concerned?

The passage of the US GENIUS Act served as a flashpoint for stablecoins, which had been confined almost exclusively to cryptocurrency applications. With a clearer regulatory framework in place, financial services firms are considering how they can benefit from the promise of stablecoin-enabled transactions—particularly lower costs, faster settlement times, and around-the-clock availability.  

Meanwhile, industry insiders continue to wrestle with the potential for those assets to meaningfully cannibalize the low-cost deposits that represent the lifeblood of the banking industry. 

One of the greatest barriers to institutional stablecoin adoption has historically been regulatory uncertainty, particularly in the US. This has now changed, with the GENIUS Act signed into law in 2025, which formalizes stablecoin regulations, while the proposed Clarity Act seeks to further define the treatment of digital assets. 

At its core, the GENIUS Act seeks to establish stablecoins as a distinct asset class, giving institutions leeway to adopt them as a means of payment and as a store of value. The bill establishes eligibility criteria for stablecoin issuers, clarifies how their reserves should be managed, and establishes a holistic regulatory framework for the asset class. 

Given the central role of the US dollar in the global stablecoin ecosystem, this regulatory clarity may prove to be one of the most important catalysts for future growth. 

Given the potential for stablecoins to pay more generous rates than bank deposits, particularly for retail customers, the fear rippling through the industry is that consumers will shift their cash holdings from deposits—the lowest-cost funding source for banks—into higher-yield stablecoin assets, increasing banks' cost of funding and lowering their earning potential from net interest income. 

For consumers, the outcome would likely be mixed. Higher yields on idle cash could be beneficial, but banks may respond by raising fees, tightening spreads, or increasing borrowing costs. 

For banks, hypothetical widespread adoption of stablecoins would threaten their lowest-cost funding source: retail deposits, while increasing their holdings of higher-cost, uninsured commercial deposits from stablecoin issuers themselves. This is a serious risk, as even if banks were able to increase loan prices (yields) to offset upward pressure on the cost of funding, the likely outcome would be lower loan demand and, overall, lower net interest income across the board. 

Three trends deserve close attention: 

1. Rising deposit betas
2. Declining customer balances in no- and low-interest checking accounts over the past few decades
3. Strong growth among a small but rapidly growing cadre of fintech firms that offer far more competitive yields than traditional banking peers

These factors may point toward a retail consumer that has grown savvier in maximizing yield on idle cash, and which could be more amenable to a low-friction, high-yield solution like stablecoins if appropriately designed and marketed, to the detriment of banks. So, how concerned should bankers and bank investors be? 

Our initial analysis identified no definitive signposts of deteriorating bank metrics at the aggregate level:  

• Deposit growth remains healthy compared with historical standards.
• Deposit cost of funding is actually quite a bit lower than we might expect, given the current interest rate backdrop.
• Bank growth—often closely tied to deposit growth—looks healthy with bank assets in line with long-term historical averages as a proportion of nominal US GDP.

In our view, all of this would be interpreted as meaning that banks are currently in solid shape and are not yet experiencing significant pressure on their funding costs, growth, or economic model. 

While cash balances are somewhat below expected levels, they're in no way indicative of significant and structural changes in consumer cash appetite at this stage, falling within a standard deviation of long-term averages. Rather, they point to the second, still significant explanatory factor that undergirds consumer willingness to hold cash: strong equity market performance (consumers hold less cash when equity market performance is strong).  

We expect stablecoins to continue gaining traction, but we do not view them as an existential threat to banking. 

History offers useful parallels. Money market funds created competitive pressure for bank deposits in the 1970s, while fintech platforms continue to do so today. Stablecoins could become another option in a growing universe of cash-management tools. 

There are several factors that temper our concerns: 

• Lack of a clear "killer use case" for stablecoins
• Lack of FDIC insurance that bank deposits and tokenized deposits both boast
• Yield-seeking customers who would allocate funds toward stablecoins are likely already optimizing their yield on idle cash today

As a result, growth in stablecoins as a cash equivalent would likely cannibalize higher-yield alternatives like money market fund holdings, CDs, or high-yield savings accounts. 

We now expect to see an increase in the percentage of interest-bearing accounts over the next decade, from 73% to 79%, rather than the decline that we would usually see during an interest rate cutting cycle, due to a handful of factors: 

• Increasing competition for consumer deposits amid a still-strong growth outlook and loan demand
• A generally financially savvier clientele that has started self-selecting into higher yield products—raising the interest-bearing deposit mix floor
• The still-hypothetical but increasingly probable availability of tools to help customers improve their management of idle cash
• The availability of another convenient, high-yield cash product with growing utility in stablecoins

In a scenario where stablecoin adoption significantly exceeds our expectations, the banks that look proportionately better positioned are those that: 

• Boast predominantly commercial deposit bases
• Already have relatively high funding costs
• Enjoy strong diversification from non-interest revenue sources

For investors seeking to maintain bank exposure but are concerned about stablecoin disruption, we'd recommend favoring companies like Citigroup, JPMorgan, PNC, and U.S. Bancorp, which boast sufficient scale to navigate evolving bank technology trends while avoiding the worst exposure to deposit disruption. 

Historically, new payment methods do not necessarily eliminate existing ones. A few years ago, as ‘Buy Now, Pay Later’ volumes started to take off, there was concern that BNPL's success represented a potential threat to existing payment companies. 

In our view, BNPL has been a success, and its impact on Visa and Mastercard (and related companies in their ecosystems) has been negligible. In hindsight, fears that BNPL would materially displace credit and debit card volumes seem alarmist, and we think investors should be careful not to make the same mistake with stablecoins. 

Even outside of rewards, other factors favor card-based payments from a consumer perspective. Cards offer fraud protection that would not be available with stablecoin payments. Additionally, debit cards exist as part of a bank checking account, and these accounts offer FDIC insurance, which would also not be available with stablecoin accounts. Finally, cards are widely accepted in the US, and stablecoins likely won't be for quite some time, if ever. 

The history of the payments industry suggests that new payment types must offer significant advantages over existing payment forms to drive adoption. For stablecoins, we struggle to see any major advantage from the average consumer's perspective, and we do see meaningful disadvantages relative to the card-based status quo. 

While stablecoins and the passing of the GENIUS Act solve some issues—like volatility in value and regulatory uncertainty—when it comes to using crypto for consumer payments, we think major disadvantages remain relative to the existing dominance of card-based payments. This is not to say that stablecoin payment take-up will be zero, but it would take massive volume to put a meaningful dent in Visa/Mastercard volumes, which we see as very unlikely. 

In our view, making some modest investments into stablecoins makes sense for payment companies. As with BNPL, there will likely be opportunities for existing players to co-opt any future stablecoin volumes and benefit as the technology matures, although much like BNPL, we don't expect these opportunities to materially move the needle on volumes.