Rich by Coin

Jefferies’ new report cautions that as digital dollars are used in payments and the cryptocurrency market, bank deposits could gradually decline, potentially prompting lenders to seek more expensive funding. The firm notes that stablecoins are unlikely to trigger sudden withdrawals of U.S. bank deposits, but earnings may be slowly eroded as digital dollar use spreads. It estimates that stablecoin adoption could reduce core deposits by about 3% to 5% over five years, raising funding costs and compressing net interest income by roughly 3%. The GENIUS Act’s revenue ban on passive stablecoin holders could mitigate abrupt outflows, but banks will need to roll out tokenized payments solutions to stay ahead of profitability pressures.

Crypt firms and traditional banks are locked in a war over stablecoins, and Jefferies analysts assess that broader digital dollar adoption could impose persistent headwinds on bank earnings. While stablecoins do not pose an immediate existential threat, analysts warn that gradual deposit outflows could materialize as opportunity-driven revenues emerge from on-chain payments, settlements, and DeFi staking and lending protocols offering activity-based rewards. A moderate pressure scenario could subtract around 3% from average bank earnings over five years. David Chiaverini, the lead analyst, wrote that such gradual pressure should not be overlooked amid emerging on-chain revenue opportunities.

A new Jefferies report cautions that the spread of digital dollars and broader stablecoin adoption could gradually erode traditional bank profits. As stablecoins gain traction in payments and settlements, bank deposits may fall slowly, prompting lenders to seek more expensive funding. The firm estimates core deposits could decline about 3% to 5% over five years, pressuring funding costs and compressing net interest income by roughly 3%. The report notes that a revenue ban on passive stablecoin holders under the GENIUS Act could mitigate abrupt deposit outflows, but banks will need to roll out tokenized payments solutions to stay ahead of rising profitability pressures.

It also highlights ongoing battles between crypto firms and traditional banks over stablecoins, with increasing digital dollar use potentially imposing persistent headwinds on earnings. While stablecoins do not pose an immediate existential threat, the analysts warn that gradual deposit outflows could materialize as opportunity-driven revenues emerge from on-chain payments and settlement activities, along with DeFi staking and lending protocols offering activity-based rewards. A moderate pressure scenario could subtract around 3% from average bank earnings over five years.