Standard Chartered: 500 billion in TradFi deposits will migrate to stablecoins before 2028

Standard Chartered’s Head of Digital Asset Research, Jeff Kendrick, predicted on Monday that by the end of 2028, up to $500 billion in U.S. bank deposits could shift into stablecoins, accounting for about one-third of total deposits. He emphasized that “the tail is starting to wag the dog,” indicating a rapid expansion of stablecoin influence. Regional banks, heavily reliant on net interest margins, face the greatest risks, and delays in the “CLARITY Act” could accelerate this shift.

Threat of $500 Billion Outflow in 2028 to the Banking Industry

Standard Chartered warned as early as October last year that stablecoins pose a threat to traditional finance (TradFi) banks. Now, the bank has issued another warning with a specific timeline. In a report released Monday, Jeff Kendrick forecasted that by the end of 2028, as much as $500 billion could transfer from the U.S. banking system into stablecoins. This figure represents about one-third of total U.S. bank deposits and is large enough to reshape the entire banking landscape.

“The tail is starting to wag the dog,” Kendrick vividly described the growing impact of stablecoins on traditional banking. This metaphor suggests that stablecoins, once seen as marginal substitutes, are now becoming the dominant force in the financial system. In the past, banks could ignore cryptocurrencies as a niche market, but when hundreds of billions of dollars in deposits face potential outflows, it is no longer a threat that can be overlooked.

Kendrick pointed out that this shift is not limited to emerging markets but is increasingly important in developed markets including the U.S. He previously predicted that deposit outflows in emerging markets could reach about $1 trillion during the same period. Combining this with the $500 billion in the U.S., a total of up to $1.5 trillion in global bank deposits could move into stablecoins. Such a massive transfer of funds would fundamentally alter how the global financial system operates.

Why are deposits moving en masse into stablecoins? The core reason is the yield advantage offered by stablecoins. Traditional bank deposit rates are usually well below market benchmarks because banks need to earn profits from the interest spread. In contrast, some stablecoin issuers invest reserves in high-yield instruments like short-term U.S. Treasuries, enabling them to offer higher returns to holders. When this yield gap is large enough, rational depositors will naturally choose to shift into stablecoins.

Additionally, the convenience provided by stablecoins is a significant driving factor. Users can transfer funds 24/7, cross-border payments are nearly instantaneous, and transaction fees are much lower than traditional bank wire transfers. For individuals and businesses that frequently need international remittances, this efficiency can be more attractive than interest rates. When convenience and yield advantages combine, the value proposition of stablecoins becomes hard to resist compared to traditional bank deposits.

Standard Chartered’s Stablecoin Threat Assessment

U.S. Market Outflow Forecast: up to $500 billion by 2028

Emerging Markets Outflow Forecast: during the same period, $1 trillion

Global Total: up to $1.5 trillion may shift into stablecoins

Estimated Share: about one-third of total U.S. bank deposits

Regional Banks Most Vulnerable as Net Interest Margins Face Collapse

Kendrick uses the percentage of net interest income (NIM) in total revenue as a risk indicator, believing regional banks face the greatest danger. NIM is the difference between interest income earned from loans and interest paid to depositors, and it is the primary profit source for traditional banks. Deposits remain the core driver of NIM, meaning that large-scale fund flows into stablecoins could directly impact bank earnings.

Regional banks’ business models are highly dependent on NIM income. Unlike large diversified banks, regional banks often lack other major revenue streams such as investment banking, wealth management, or trading services. Their income structure is relatively simple: attract deposits, make loans, and profit from the interest spread. When deposits are heavily drained, these banks not only lose their NIM base but may also be forced to raise funds through more expensive channels, further squeezing profit margins.

In contrast, diversified and investment banks have broad revenue sources, making them less vulnerable. These large financial institutions benefit from securities underwriting, M&A advisory, asset management, and trading services. While deposit outflows can impact profits, they do not threaten their survival. Moreover, large banks typically enjoy stronger brand recognition and customer loyalty, making them more resilient in competition with stablecoins.

This differentiated risk exposure suggests that the rise of stablecoins could accelerate the consolidation of the U.S. banking industry. When regional banks face financial distress due to deposit losses, they may be compelled to merge with larger institutions. This would further increase industry concentration, reduce the number of small community banks, and potentially harm financial system diversity and competitiveness.

Furthermore, deposit outflows pose a direct threat to banks’ lending capacity. Banks fund loans through deposits; when deposits decline, the available lending pool shrinks. This could lead to credit tightening, making it harder for businesses and individuals to obtain loans, thereby impacting economic growth. From a macroeconomic perspective, large-scale shifts of deposits into stablecoins could have unintended consequences for overall financial stability.

Kendrick emphasizes: “I am trying to identify which banks are more or less vulnerable to this risk… regional banks are the most affected.” This clear risk stratification provides guidance for investors: avoid regional banks with high dependence on NIM income and instead focus on larger, more diversified financial institutions.

Delays in the CLARITY Act Accelerate Stablecoin Adoption

The U.S. “CLARITY Act,” which aims to establish a comprehensive regulatory framework for digital assets, has recently experienced delays. Ironically, this may accelerate the adoption of stablecoins. The latest draft prohibits digital asset service providers from paying interest or yields to users holding stablecoins. This restriction prompted Coinbase to delist some stablecoin products, sparking strong industry opposition.

This prohibition on yields clearly favors traditional banking interests. As Array VC founder Andrew Scaramucci pointed out: “The whole system is collapsing: banks don’t want to face competition from stablecoin issuers, so they block yields. Meanwhile, China is issuing yield-bearing stablecoins—do you think emerging countries will choose a system with or without yields?”

Although Kendrick expects the CLARITY Act to be passed by the end of Q1 2026, the delay highlights ongoing challenges the U.S. banking sector may face as digital assets become more widespread. During the delay, stablecoin issuers can continue operating in a gray area, attracting more users. Once users become accustomed to the convenience and yield benefits of stablecoins, they may be reluctant to return to traditional banking even if future regulations restrict them.

This risk is not merely theoretical. Stablecoins could shift core banking functions like payments and deposits away from traditional financial institutions, posing structural challenges to banks heavily reliant on deposit income. Standard Chartered’s senior executives advise that especially regional banks should prepare for potential large-scale deposit outflows in the coming years.

Therefore, Standard Chartered’s latest analysis expands concerns from emerging markets to developed markets, signaling a global reassessment of banks’ digital asset exposure. Institutional investors should closely monitor banks’ reliance on NIM, while bank management needs to develop strategies—such as creating their own stablecoins, enhancing digital services, or acquiring fintech firms to gain technological advantages.