A report from Standard Chartered reveals USD stablecoin holdings offering rewards and interest could see US banks suffer, although regulation and blockchain alternatives could alleviate fears.
US dollar stablecoins could take up to $500bn in deposits out of US banks by 2028, according to new research from Standard Chartered.
Analysis from Standard Chartered, reported by multiple news outlets on January 27, revealed that regional US banks are the most at risk of losses due to stablecoins, based on the differences in how much a bank earns in interest loans and what it pays out in interest deposits.
This was defined as net interest margin, and due to smaller, regional banks typically relying more on interest income than larger commercial banks, their bottom lines will be more affected as stablecoins become more popular.
Geoff Kendrick, Global Head of Digital Assets Research at Standard Chartered, believes there is a “shift” from payment networks and core banking activities over to stablecoins, posing a risk to US bank deposits.
He emphasised the total amount in bank deposits at risk varies on how much reserves stablecoin issuers hold in a traditional banking system for the collateral of its stablecoins. Kendrick argued this could reduce deposit flight if stablecoin reserve numbers are large enough.
Standard Chartered analysed the reserve holdings of Tether and Circle, issuers of the world’s two-largest stablecoins; USDT and USDC, respectively.
The analysis found that Tether holds just 0.02% of its reserves in traditional banking systems, while Circle holds 14.5% of its reserves in banks. Tether’s USDT market cap is currently $186bn, while USDC’s is $71.5bn, according to CoinMarketCap.
Furthermore, Tether is looking to increase the adoption of stablecoins after launching the first federally regulated US dollar-denominated; USA₮.
Bank fears crossed over into the Senate
A share of US banks have been somewhat standoffish toward crypto companies, with policymakers having to mediate and legislate to carve a new path forward.
Banks lobbied to secure a provision in the latest draft of the CLARITY Act – marked up by the Senate Banking Committee – which would ban stablecoins from paying interest or offering holding rewards.
Fears have grown amongst traditional banks that there could be a surplus of customers transitioning from TradFi to DeFi platforms who may be enticed to make stablecoin deposits to then hold in wallets, taking away deposit fund interest from banks.
US banks are also proposing stronger regulatory oversight, particularly from the Securities and Exchange Commission (SEC) to ensure crypto companies fall in line with existing banking regulations.
The Banking Committee was set for a vote on its markup of the CLARITY Act on January 15 before Coinbase pulled its support for the bill completely, citing issues with the proposals made from banks and affording greater regulatory control to the SEC.
However, fears among banks still linger. The lobbyists found a loophole within the GENIUS Act which allows crypto affiliate platforms to earn interest and offer rewards on stablecoin holdings.
Banks and crypto companies are clashing heads over whether stablecoin interest could cause instability throughout the US banking system, or whether banning interest is an anti-competitive move from the banks.
Why banks have shifted to Tokenised Deposits
In the midst of the surge in stablecoin popularity last year, banks in the US and across the world began to take an interest in tokenised deposits.
Tokenised deposits are digital representations of traditional fiat currency bank deposits, but powered by a blockchain network or distributed ledger technology (DLT). They exist within the same regulatory parameters as traditional bank deposits and enable interest, as well as 24/7 near-instant settlements.
Banks are issuers of tokenised deposits which is why the likes of JP Morgan launched its dedicated JPM Coin token in November 2025. Citi has also explored multi-currency tokenised deposits for cross-border settlement, while Lloyd’s became the first UK bank to settle in Sterling in January.
Potentially cautious over banks’ lack of control over stablecoins and their current regulatory ambiguity, tokenised deposits offer banks similar instant payment speed and transparency.
Naveen Mallela, Global Co-Head of Kinexys by JP Morgan, labelled tokenised deposits as a “superior alternative to stablecoins”, as banks like JP Morgan can limit and control these deposits’ liquidity.
