Stablecoins and the banking system: what happens to bank deposits?

Written by Lamine Brahimi, Co-Founder, Taurus

By 2026, stablecoins have moved well beyond their early crypto-native use cases. Legislative clarity in the US under the GENIUS Act, the rollout of MiCA in the EU and advancing frameworks in the UK and Middle East have brought greater clarity to issuance, reserves and oversight. Once regulation is in place, the debate changes. The question is no longer whether stablecoins belong in the financial system; it is what they mean for its foundations, especially bank deposits. Our recent Taurus study on stablecoins and the banking system examines that issue directly. If regulated stablecoins begin to function as always-available digital cash for payments and settlement, how much transactional liquidity could shift away from bank deposits? And what would that mean for bank balance sheets?

Where the funding pressure begins

To understand the impact, it helps to start with the basics; commercial banks fund lending largely through deposits. Among them, transactional balances are one of the cheapest and most reliable sources of funding — they are central to the banking model. Digital assets introduce another way to hold value, and stablecoins are part of that shift. Even if they have not yet become mass-market payment tools, they are part of a broader change in how value is stored and moved. The market is already large enough to matter — by mid-2025, stablecoin supply stood at about $260bn, with the potential to rise sharply by 2030. At the same time, financial institutions reported an average 17 per cent year-on-year increase in digital cash adoption, and one in four said they were involved in a digital cash project in 2025. In the US, the most exposed part of the deposit base is demand deposits, which amount to about $6.8tn. In Europe, it is overnight deposits, at about €8.5tn.

These are the balances most likely to come under pressure as digital assets become a more normal part of portfolios and institutional activity.

In a 2030 high-adoption scenario, potential deposit flight could reach $0.7tn-$2.6tn, or roughly 5 to 15 per cent of demand deposits.

That is not a prediction of a sudden break from the banking system; deposits remain tied to operating accounts, cash management and broader banking relationships. But it does point to a clear structural sensitivity: even limited migration could affect the category of deposits banks value most.

Why liquidity may move

The logic is straightforward. If digital assets become a larger part of how households and institutions store value, some funds that would otherwise sit in deposits may shift into crypto assets and stablecoins instead. However, this does not require stablecoins to replace retail payments overnight. Outside hyperinflationary economies, stablecoins are still used mainly as gateways into cryptocurrencies and decentralised finance rather than as standalone means of payment — they have not yet proved that they can scale into retail payment systems. But that does not make the issue less important. Pressure on deposits can build before stablecoins become everyday money. If more households and institutions hold digital assets as part of their savings, trading activity or treasury operations, some liquidity is likely to move with them. Furthermore, that process is likely to be gradual. Deposits remain embedded in broader banking relationships, and not all balances are equally mobile. But gradual movement still matters when it affects low-cost funding. In practice, pressure builds at the margin before it becomes visible in headline deposit numbers.

Regulation shapes the outcome

How far this shift goes will depend in part on regulation.

The current scenario assumes existing regulatory frameworks and does not account for the emergence of yield-bearing stablecoins. It also assumes that by 2030 around 15 per cent of stablecoin reserves will be invested in cash, considering MiCA’s 30 per cent requirement. Under those assumptions, the main risk is concentrated in demand and overnight deposits. But if stablecoins begin to offer competitive yields, time and savings deposits could also come under pressure, and that would broaden the part of the deposit base at risk. In other words, regulation does not remove the question for banks — it shapes how and where competition emerges.

Strategic imperatives for banks

Banks, therefore, face a strategic choice. They can try to resist the shift or they can compete with it. The defensive route is familiar; banks and regulators can argue for bans, lobby against yield-bearing stablecoins or push for stricter reserve rules. But each option has limits. A ban is not realistic if investors can simply move funds offshore. Restricting yield may reduce the attractiveness of stablecoins, but it does not stop clients from moving into other digital assets. Stricter reserve rules may keep more deposits inside the system whilst also increasing concentration and counterparty risk. The more durable response is to build capabilities. Banks can process stablecoin payments, offer crypto-asset trading, issue their own stablecoin or issue tokenised deposits. Each path comes with trade-offs, but the underlying point is straightforward: as digital assets grow, banks need a credible way to retain client assets and remain relevant in digital money flows. One practical point is especially important: giving clients access to digital assets through a third-party sub-custodian does not solve the deposit flight problem. The funds still move out. Hence, where it makes sense, banks should control the technology and keep the assets themselves.

The next phase of banking

Deposits will remain central to banking. That is not in doubt, but what may change is their composition. As digital assets become more widely held and more deeply integrated into financial activity, some of the most operationally useful deposits may come under pressure first. That is why this is not only a question about innovation — it is a question about funding. The next phase of banking will not only be shaped by who offers the best digital asset product, it will also be shaped by which institutions understand the balance-sheet implications early enough to respond. Banks that treat digital money as core infrastructure, rather than as a peripheral trend, will be in a stronger position to adapt.

The real issue, then, is not whether stablecoins replace deposits — it is whether banks move quickly enough to respond to a financial system in which value is becoming steadily more digital, more mobile and more competitive.

Stablecoins and the banking system: what happens to bank deposits? was originally published in Coinmonks on Medium, where people are continuing the conversation by highlighting and responding to this story.