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Deposit cannibalization threat

pushes banks to act on stablecoin

BY CLAIRE LAWSON

According to a September Stephens
Banks are worried about deposit
cannibaliza�on following recent stablecoin moves from report, 63% of bankers surveyed
government agencies, fintechs, credit unions and banks find that while business impacts of
stablecoin are possible, it is too
large and small.
soon to tell or take any ac�on, and
a further 10% think direct impact is
Stablecoin's current market cap was es�mated by Goldman
Sachs to be $270 billion, but growth projec�ons stretch into unlikely. However, 26% of bankers Claire Lawson is a Banking
the trillions. On the low end, Coinbase, a cryptocurrency surveyed were already exploring Reporter for S&P Global
Market Intelligence an ACB
pla�orm, predicts the stablecoin market could reach a $1.2 op�ons with core or outside Preferred Solutions Provider
trillion market cap by 2028. The US Treasury Department in providers, and some financial ______________
April projected a $2 trillion market cap by the same year, ins�tu�ons have already made Thomas Mason contributed
and Bernstein expects the space to reach a $4 trillion cap by moves. to this article.
2035. At those levels, the industry could shed anywhere
between 6.6% and 22.1% of deposits from the current For example, St. Cloud Financial CU announced in
September plans to launch its own stablecoin, the "Cloud
$18.103 trillion in the banking system.
Dollar," in the fourth quarter, working with two outside
providers. In late August, VersaBank's banking subsidiary
With trillions in deposits on the line, government support
for the new payment op�on and compe�tors' recent moves launched a tokenized deposit pilot program, also aiming to
in the space, banks are feeling the pressure to act now on finish up by the end of the year. The bank's move follows
stablecoin in order to remain ahead of the curve, industry JPMorgan Chase & Co.'s trail-blazing tokenized deposit
experts said. program, JPMD, released in late June.
While the biggest banks can adapt, the smallest banks will
"The threat is there. The threat is real. We don't know
necessarily how to quan�fy it and in what �me," Moody's "feel the pinch" if stablecoins become on par with deposits,
Ra�ngs Vice President of Digital Economy Cris�ano Stein Smith said.
Ventricelli said in an interview with S&P Global Market
Intelligence "Ul�mately, there is a risk to those smaller and independent
banks for sure," he said.
Banks' worries and efforts are evidenced in recent
regulatory filings and investor presenta�ons. Threats are coming from outside the banking system, too.
Wyoming, which has a history of fintech innova�on,
released a stablecoin pegged to the US dollar, the Fron�er
Men�ons of the word "stablecoin" in banks' earnings calls or
other conference calls have surged in recent months, with Token, in mid-August. At the same �me, crypto companies
141 men�ons between July 1 and Sept. 18, up from just looking to become compliant with requirements laid out in
three �mes between Jan. 1 and March 31 and 13 �mes the GENIUS Act have submi�ed a flurry of bank charter
between April 1 and June 30. The surge coincides with the applica�ons and are seeking Federal Reserve Master
Accounts.
passage of the GENIUS Act in July.
Nonbanks have been mo�vated by the current
Banks have also men�oned stablecoins in their yearly Form
10-K filings more, nearly doubling to 23 men�ons in 2024 administra�on's support for digital assets, with recent
from 12 in 2021 ". (see charts at right) rhetoric from Trump-appointed banking officials posi�ve
toward stablecoin adop�on.
The outlook for private-led stablecoins is much more
op�mis�c now as we sort of enter the home stretch of 2025 Stablecoins are "simply another choice available to
than it arguably has ever been," CUNY Lehman College consumers and businesses, where they have signaled a need
Associate Professor and Wall Street Blockchain Alliance in the market to further improve payments," Fed Governor
Advisory Board member Dr. Sean Stein Smith said in an Christopher Waller said at a conference Sept. 29. "If
interview.

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