Stablecoin Flow: The $46T Liquidity Threat to Bank Deposits

The scale of stablecoin adoption is now a primary driver of global financial flow. These tokens power $46 trillion in annual transactions, a figure that rivals the total payment volumes of traditional giants like Visa and PayPal. This isn't speculative activity; it's the foundational liquidity for a new layer of commerce.

The velocity of this adoption is explosive. In the first half of 2025, U.S. crypto activity surged by around 50% compared to the same period the prior year. This rapid growth cemented the United States as the world's largest crypto market by transaction volume. More critically, stablecoins have become embedded in this commercial flow, now comprising 30% of all on-chain crypto transaction volume. This share represents their highest annual volume to date, signaling a shift from niche use to mainstream payment rails.

The bottom line is a flood of on-chain liquidity that is directly competing with traditional banking deposits. With stablecoins handling a quarter of all crypto transactions and that total volume reaching $46 trillion annually, the infrastructure for a parallel financial system is already operational. The disruption is no longer theoretical; it is measured in trillions of dollars of real, on-chain value moving each year.

The Yield-Bearing Competition

The research is clear: adoption of yield-bearing stablecoins directly siphons liquidity from the banking system. A recent paper models the impact and finds that growth in these tokens will reduce the amount of bank deposits and bank lending. In the model's extreme scenario, the threat of competition could drive bank deposits to zero. This isn't a theoretical risk; it's a direct flow of capital from traditional savings to on-chain assets.

The mechanism is straightforward competition for deposits. When stablecoins pay yield, they create a direct alternative to bank savings accounts. This forces banks to either offer competitive yields to retain their funding base or watch their deposit liabilities shrink. The pressure on funding costs is immediate and material, as banks must now pay more to attract the same pool of customer liquidity.

This institutional shift is being accelerated by policy. The passage of the GENIUS Act last year marked a critical turning point for digital assets, conferring legitimacy that is driving adoption. With 13% of large institutions already using stablecoins and 54% of non-users planning to adopt by year-end, the flow of institutional liquidity into yield-bearing tokens is a structural trend, not a fad.

The Banking Response and Catalysts

Banks face a clear strategic imperative: adopt digital wallets to retain customers. Stablecoins are the critical bridge between traditional finance and blockchain, acting as the essential "glue" for on-chain transactions and tokenized assets. Ignoring this shift risks losing customer accounts as both businesses and consumers lean toward the new technology. The 13% of large institutions already using stablecoins and the 54% planning to adopt by year-end signal a structural flow of liquidity that banks must integrate.

The key watchpoint for flow shifts is the growth rate of yield-bearing stablecoin issuance versus bank deposit balances. Research models show that growth in these tokens will reduce the amount of bank deposits and bank lending. This creates a direct, measurable competition for deposits. Banks must monitor this divergence closely, as it will dictate the pressure on their funding costs and the urgency of their own digital product development.

Regulatory clarity is reducing fragmentation and enabling cross-border flows. The EU's MiCAR framework is now in place, with firms obtaining licenses and accelerating cross-border services. This creates a more predictable environment for stablecoin adoption, allowing banks to plan for a future where digital assets are part of core financial infrastructure. The bottom line is that banks must act now, as the catalysts for on-chain liquidity are converging from technology, regulation, and institutional demand.