There is a war going on between crypto firms and traditional banks over stablecoins, and Jefferies analysts said that they could become a steady drag on bank earnings as digital dollar use spreads.

While stablecoins aren’t going to be an immediate existential threat to banks and aren’t likely to trigger a sudden run on U.S. bank deposits, Jefferies analysts estimate banks could see 3% to 5% core deposit runoff over the next five years. This would likely raise funding costs and chip away at banks’ profitability.

“The intermediate-term risk of gradual deposit runoff from emerging activity-based yield opportunities and payments use cases should not be ignored,” analysts led by David Chiaverini wrote in a report on Tuesday.

That “modest pressure” scenario would leave the average bank facing a roughly 3% hit to earnings, the analysts said.

It’s not hard to see why banks should be worried about growth in the stablecoin, which are cryptocurrencies designed to maintain a stable value and are typically pegged 1:1 to fiat currencies like the U.S. dollar or the euro.

They are already widely used in crypto trading, but since the GENIUS Act passed last year in the U.S., the market is expanding into payments, treasury management, and cross-border transfers. Supply reached $305 billion at the end of 2025, up 49% from a year earlier, while adjusted stablecoin transfer volume rose to $11.6 trillion in 2025, the report said.

The total market cap of the stablecoin sector currently sits around $314 billion, up from about $184 billion in 2022, according to DefiLlama data. And according to Jefferies’ calculations, it could reach $800 billion to $1.15 trillion in the next five years.

That growth matters for banks because stablecoins can serve as digital cash that moves around the clock and plugs into decentralized finance platforms that offer yields above most bank accounts.

In fact, Bank of America CEO Brian Moynihan warned earlier this year that the broader banking system could be harmed by the “possibility of $6 trillion in deposits” moving into stablecoins and stablecoin-linked products offering yield-like returns.

The long-term threat

Jefferies’ core argument for stablecoins not being an immediate threat is that the new market structure bill in U.S. rules, as it stands now, limits their appeal as simple savings products, even as the bill’s passage is uncertain.

“CLARITY [act] would codify stablecoins as payment instruments, rather than savings products, by closing the ‘stablecoin yield loophole’ left open in GENIUS.”

The GENIUS Act, passed in July 2025, bars regulated stablecoin issuers from paying yield directly to passive holders. That restriction reduces the chance of a sharp near-term shift out of checking and savings accounts.

Also, banks and other traditional financial giants are either launching their own stablecoins or thinking about it to get ahead of the competition. Fidelity Investments launched its first stablecoin, the Fidelity Digital Dollar (FIDD). Bank of America’s Moynihan said the bank will issue a stablecoin if Congress legalizes it, and Goldman CEO said his bank has “an enormous number of people at the firm extremely focused on tokenization, stablecoins.”

Still, the report argues the longer-term risk should not be ignored.

“We see the potential for activity-based rewards for stablecoin transactions, payments, and settlement, as well as rewards from DeFi staking and lending protocols to pose a similar risk to bank deposits.”

So which banks are more exposed to this risk?

According to Jefferies, banks with larger concentrations of retail and interest-bearing deposits appear more exposed than custody banks or large institutions already investing in digital asset infrastructure.

“We view WTFC, FLG, WBS, EGBN and AX as the most exposed banks under coverage, given that they have the highest concentration of retail and interest-bearing deposits.”

Read more: Stablecoin market hits $312 billion as banks, card networks embrace onchain dollars