Crypto leaders continue to downplay the perceived risk of stablecoin adoption to traditional banks.
In a recent report, Standard Chartered Bank warned that U.S. banks risk losing $500 billion in deposit outflows by 2028, citing growing stablecoin adoption as a structural risk.
According to the Standard Chartered head of digital asset research, Geoffrey Kendrick, the risk has become more apparent as payments and other core banking activities continue to migrate to on-chain alternatives.
Previously, Kendrick projected that stablecoins could attract $1 trillion from emerging markets over the same period.
Additionally, the bank estimated that the overall stablecoin market could grow to $2 trillion over the same period, suggesting that nearly three-quarters of the boom may come from emerging markets and U.S. banks.
Currently, the stablecoin market cap is above $300 billion.
Galaxy downplays bank fears
However, Galaxy’s head of research, Alex Thorn, dismissed the projection, saying that,
“There is no such thing as deposit flight.”
Drawing parallels to savings accounts and money market funds (MMF), Thorn said,
“Investors have been pulling cash from their ‘savings’ accounts and putting the cash in money market funds for years. But when you invest in an MMF, the fund buys treasuries... where do they buy treasuries? from a seller who takes the cash and... puts it in their bank.”
Similarly, for stablecoins, users’ bank account dollars will end up with the stablecoin issuer, which will eventually buy treasury bonds. The seller of the bonds will then park the cash proceeds in the bank, Thorn added.
He reframed that there won’t be a deposit ‘flight,’ but a ‘migration.’
“There could be some ‘deposit migration,’ if there are banks that do not offer competitive enough services.”
Regional banks at highest risk
According to Kendrick, however, stablecoin adoption will likely impact regional banks that heavily depend on a deposit-funded lending model for interest income (orange).
But diversified (green) and investment banks (yellow) had moderate to low risk to the ‘deposit flight’ fears due to low dependence on interest income.
This was part of the simmering tensions behind the scenes over stablecoin yield that have pitted the crypto and banking industries and threatened to derail the crypto market structure bill.
Although the White House had instructed the parties to reach a ‘compromise’ on the issue to let the bill advance out of the committee vote, progress on this has not yet been made public, as of writing.
Final Thoughts
- Standard Chartered projected that U.S. regional banks may lose $500 billion in deposits due to the stablecoin boom by 2028.
- But Galaxy’s Thorn has pushed back against the ‘deposit flight’ framing, claiming that money will just ‘migrate’ to competitive alternatives.
