The $6 Trillion Stablecoin Threat: How Deposit Migration Risks Upend Traditional Banking and Reshape Financial Markets

The rise of stablecoins has ushered in a new era of financial innovation, but it has also introduced systemic risks that threaten to destabilize traditional banking systems. By late 2025, stablecoins had achieved a market capitalization of $311 billion, with transaction volumes surging to over $50 trillion annually. While these figures highlight their growing utility in cross-border payments and institutional finance, they also underscore a critical concern: the potential for stablecoins to displace bank deposits on a scale that could destabilize the global financial system. Bank of America CEO Brian Moynihan has warned that up to $6 trillion in U.S. bank deposits could migrate to stablecoins under specific legislative scenarios, a figure derived from a Treasury Department study. This article examines how deposit migration and regulatory arbitrage in digital assets are reshaping financial markets, creating vulnerabilities that demand urgent attention.

The Systemic Risks of Deposit Migration

Stablecoins are increasingly competing with traditional banks for deposits, particularly as they offer yields and liquidity that mirror-or even surpass-conventional banking services. For instance, Circle's USDC generates income from interest earned on reserve assets, a model that could incentivize users to shift funds from bank accounts to stablecoin balances. If stablecoin reserves are held outside of bank deposits-such as in Treasury bills or repurchase agreements- this could reduce the volume of deposits available to commercial banks, raising liquidity risks and increasing funding costs.

The Federal Reserve has warned that such disintermediation could create a feedback loop during periods of financial stress. If stablecoin issuers gain access to Federal Reserve master accounts, they could bypass the banking system entirely, leading to massive deposit losses at commercial banks. This dynamic is not hypothetical: in 2025, major financial institutions like JPMorgan Chase and Bank of America began exploring cooperative token projects, signaling a shift in how banks perceive stablecoins as both a threat and an opportunity.

Regulatory Arbitrage and Fragmented Oversight

The lack of a unified global regulatory framework for stablecoins has exacerbated systemic risks by enabling regulatory arbitrage. Jurisdictions like the U.S. and the EU have adopted divergent approaches, with the U.S. passing the GENIUS Act and the EU enforcing MiCA regulations according to research. These frameworks create a patchwork of compliance requirements, allowing stablecoin issuers to exploit weaker regimes. For example, the U.S. GENIUS Act permits state-level regulatory variations, leading to a "race to the bottom" as states compete to attract issuers by diluting oversight.

This fragmentation has real-world consequences. In 2025, the North Korean hack of Bybit demonstrated how unregulated or lightly supervised technologies-such as decentralized exchanges-can be exploited for illicit financial activities. Similarly, the delisting of major stablecoins from European exchanges due to MiCA compliance requirements highlighted the regulatory divide between the U.S. and EU. Such inconsistencies not only undermine financial stability but also create opportunities for criminal actors to exploit gaps in oversight.

Case Studies in Systemic Vulnerability

The risks of regulatory arbitrage are further illustrated by the contrasting strategies of G20 nations. While the U.S. promotes stablecoin innovation and restricts central bank digital currency (CBDC) development, China has banned cryptocurrency trading while advancing its CBDC initiatives. This divergence has led to incompatible financial infrastructure, increasing transaction costs and complicating cross-border coordination. Meanwhile, the Trump administration's pro-crypto policies-such as rescinding SEC restrictions on bank custody services for digital assets-have encouraged institutional participation in stablecoins but raised questions about how these assets will integrate into traditional systems.

The Path Forward: Mitigating Risks Through Coordination

Addressing the $6 trillion stablecoin threat requires global coordination to harmonize regulatory frameworks and close arbitrage opportunities. The Financial Stability Board (FSB) and Financial Action Task Force (FATF) have emphasized the need for cross-jurisdictional information sharing to combat illicit activities. Additionally, robust technical safeguards-such as formal verification of smart contracts and multi-signature controls-are essential to mitigate risks like depegging events and oracle manipulation.

For traditional banks, the challenge lies in adapting to a landscape where stablecoins are no longer niche instruments but critical components of global finance. Institutions must either integrate stablecoins into their operations or risk being left behind. As the outcomes of landmark legal cases-such as SEC v. Ripple Labs and SEC v. Coinbase-shape the regulatory landscape, the coming years will determine whether stablecoins will be a force for innovation or a catalyst for systemic instability.