Projected Transition to Stablecoins
According to Geoff Kendrick, the Global Head of Digital Assets Research at Standard Chartered, approximately $500 billion is projected to transition from traditional bank deposits to stablecoins by 2028. This figure represents a more cautious assessment compared to his previous estimation of $1 trillion, issued in October.
Context of the CLARITY Act
Kendrick’s insights were shared in a recent note to Decrypt and come in the context of ongoing discussions in Washington D.C. regarding the Digital Asset Market Clarity Act (CLARITY Act). This legislation aims to establish a federal regulatory framework for digital assets and includes potential restrictions on the interest that stablecoin holders might earn.
Impact on Traditional Banking
Should stablecoins be permitted to offer yields, they could significantly draw funds away from conventional banks. Despite delays in advancing the CLARITY Act, Kendrick remains optimistic that it could reach President Donald Trump by the end of the first quarter of the year.
He highlighted the implications of decreased bank deposits on net interest margin (NIM) income—a crucial revenue source for banks, which represents the difference between the interest they make on loans and the interest they pay on deposits.
“As deposits shrink, NIM income, which is vital for bank profitability, will also decrease,” Kendrick noted.
He explained that NIM is essential for comparing revenue from banks to income from stablecoins. Kendrick pointed out that regional U.S. banks might be more vulnerable to this trend than larger, diversified banks, which are less reliant on NIM.
Revenue Sources for Banks
Data compiled by Kendrick using Bloomberg insights shows that institutions like Huntington Bancshares, M&T Bank, Truist Financial, and Regions Financial generate over 60% of their revenue from NIM. In stark contrast, investment banks such as Goldman Sachs and Morgan Stanley rely on NIM for less than 20% of their revenue.
Outlook for Regional Banks
However, Kendrick does not foresee the rise of yielding stablecoins leading to the downfall of regional banks. He argues that if stablecoin issuers maintain a significant portion of their reserves in traditional banking systems, it could mitigate the potential loss of deposits from banks.
Essentially, if funds are withdrawn from a bank to purchase stablecoins, yet those stablecoins’ issuers keep their reserves in the same bank, there will not be a net loss of deposits.
