Stablecoin disruption risks hit US regional banks by 2028

Concerns are rising inside traditional finance that stablecoin disruption could accelerate deposit flight from U.S. banks and reshape the core revenue model of regional lenders.

Standard Chartered flags a looming threat for U.S. banks

Standard Chartered has warned that U.S. regional banks are the most exposed to the growth of stablecoins because their revenues lean heavily on net interest margin (NIM). These banks depend on interest income from customer deposits far more than diversified giants or investment firms.

Moreover, the bank’s latest analysis argues that a structural shift in how deposits are held is underway, driven by digital assets rather than conventional competitors. This shift is not just a profitability issue, it is a direct challenge to the funding base of the regional banking system.

Projected $500 billion stablecoin-linked deposit outflow by 2028

According to Standard Chartered, around one-third of the expanding stablecoin market could be sourced from developed-market bank deposits by 2028. That would translate into an estimated $500 billion outflow from traditional banks into tokenized cash instruments over the period.

With the overall stablecoin market cap forecast to reach $2 trillion by 2028, the report estimates that this half-trillion shift will unfold over the next three years. However, the bank stresses that the impact will not be evenly distributed, with regionals facing the sharpest hit from this potential wave of stablecoin market outflows.

Washington’s regulatory bottleneck and trillion-dollar banking risk

The report argues that a regulatory bottleneck in Washington is obscuring what it calls a trillion-dollar threat to the U.S. banking core. While stablecoins initially grew as tools for emerging markets and cross-border flows, their use is now expanding into domestic payments and savings, turning them into a direct competitor to bank deposits.

That said, the core concern is not only about volume but about the quality and stickiness of deposits that might migrate. The rise of these digital instruments is increasingly seen as a structural challenge to the traditional deposit franchise that underpins U.S. lending.

Net interest margin in focus as primary risk

The main danger for U.S. lenders lies in the erosion of net interest margin erosion, according to Geoff Kendrick, head of digital assets research at Standard Chartered. NIM reflects the spread between the interest banks earn on assets such as loans and securities, and the interest they pay on deposits.

However, the deposits being attracted into stablecoins are often the same low-cost, sticky retail balances that help support NIM. As customers shift savings into tokenized dollars, that margin compresses, pressuring earnings and potentially constraining credit growth across the economy.

Why U.S. regional banks are especially exposed

Standard Chartered’s modeling suggests that U.S. regional banks exposure is materially higher than for large diversified banks or investment banks. Regionals lean more on traditional interest income and have fewer offsetting revenue streams from trading, wealth management, or global operations.

Moreover, because regional lenders depend so heavily on so-called sticky retail deposits, any shift into digital assets hits their bottom line disproportionately hard. “We find that regional U.S. banks are more exposed on this measure than diversified banks and investment banks, which are least exposed,” the report notes.

Stablecoins, payment rails, and reserve strategies

Stablecoins function as the crypto economy‘s primary payment rails and cross-border settlement tools, while staying pegged to relatively stable reserves such as fiat currencies or gold. The sector is led by Tether’s USDT, with Circle’s USDC in second place, and together they dominate liquidity on major trading venues.

However, these issuers hold only a small portion of their backing assets in commercial bank deposits, limiting any recycling of funds back into the incumbents they disrupt. According to Standard Chartered, Tether keeps just 0.02% of its reserves in bank deposits, while Circle allocates around 14.5%, underscoring the challenge for banks hoping to retain balances through stablecoin reserve holdings.

Tether, Circle, and the new push into U.S. domestic markets

The competitive landscape is also evolving as stablecoin giants move deeper into the United States. The market remains dominated by Tether and Circle, but Tether is now pushing into the U.S. domestic payments space through USAT, a dollar-backed token issued in partnership with Anchorage Digital Bank.

Moreover, this emerging tether circle competition over domestic payment flows could intensify the pressure on mid-sized banks. As stablecoins become more embedded in day-to-day transactions, they may increasingly pull deposits out of traditional checking and savings accounts.

Market structure legislation and the interest-yield standoff

The key catalyst for widespread stablecoin disruption, in Standard Chartered’s view, will be U.S. market structure legislation now stalled in the Senate. The latest draft bill would bar stablecoin issuers from paying interest to holders, a provision strongly supported by big banks but opposed by many crypto industry stakeholders.

However, industry advocates argue that such a ban could stifle innovation and cement advantages for incumbents, especially if stablecoins cannot offer yield that rivals bank accounts or money market funds. Despite the ongoing standoff, Standard Chartered expects the bill to be approved by late Q1 2026, setting clearer rules for issuers and banks alike.

Domestic deposit flight risks and the long-term outlook

Standard Chartered frames the situation as part of broader domestic deposit flight risks, with stablecoins emerging as a parallel money system for both trading and payments. The bank believes that as regulation is clarified, these instruments will move even further into mainstream financial activity, including everyday commerce within the United States.

That said, the report notes that banks could, in theory, mitigate some of the damage if stablecoin issuers held a larger share of their reserves in traditional deposits. For now, though, the low banking share in reserves and the sizable projected deposit outflows together highlight a mounting structural challenge for the U.S. regional banking model.

In summary, Standard Chartered’s analysis depicts a future in which stablecoins drain as much as $500 billion from developed-market banks by 2028, compressing NIM and intensifying competition for deposits. Unless banks and policymakers adapt, regional lenders in particular may see their funding base and profitability eroded by the rapid ascent of tokenized dollars.