Stablecoins, digital assets pegged to the US dollar, are emerging as a backbone to the next evolution of money. As adoption continues to grow, the financial world is asking, “What happens when deposits start to flow into stablecoins instead of banks?”
Stablecoins were originally designed to quickly move value between crypto platforms, but their utility continues to expand. Mainstream use cases like cross-border payments, merchant settlements, and treasury operations are starting to become the norm. As stablecoins continue to be used in these real-world scenarios, they are starting to resemble the functions that traditional banks serve today.
The Upcoming Disruption
The President’s Working Group on Financial Markets published a report in 2021 warning that widespread stablecoin usage could “fragment the deposit base” of traditional banks. When digital dollars are held by businesses or consumers in wallets rather than bank accounts, these funds are effectively removed from being part of the traditional banking system. The result means fewer deposits for banks to lend against, foundationally altering how modern banking works.
In practice, this type of financial shift could look like.
- Companies are ditching checking accounts to use stablecoins to manage liquidity.
- Funds being stored in wallet apps by retail customers, which offer yield on stablecoins.
- International remittances and B2B payments bypassing the SWIFT system.
These example scenarios chip away at the core function of banks, being holding deposits and moving money.
A Parallel System?
The rise of stablecoins could essentially result in a dual-track financial system. By this, I mean one that is traditional, regulated, and based on bank reserves, and another that is decentralized on the blockchain. These two systems may be able to co-exist, but the flow of capital will likely increasingly favor the more efficient option.
In response, banks may be forced to:
- Offer their own tokenized deposits (a model JPMorgan is already exploring)
- Partner with regulated stablecoin issuers to offer custody or rails
- Rethink their fee and yield structures to stay competitive
Regulation & Compliance
The Genius Act, which recently passed the U.S. Senate, offers one step towards bringing stablecoins under the same type of scrutiny as Fed-issued money. Regulation may accelerate institutional use of stablecoins by providing clearer guard rails through recent regulation. While some banks see this as a threat, many more will see this as a great opportunity.
Who Holds the Float?
In the future where traditional deposits are competing with stablecoins, it won’t just be about who moves the money but who holds it. Whoever controls the float, controls the future of banking.
