History Repeats Itself: How the Rise of Stablecoins Challenges the Survival Model of Community Banks in the United States?

In the 1970s, the emergence of money market funds had significantly siphoned off deposits from traditional savings accounts, causing a huge impact on community and regional banks. Half a century later, these banks are facing another powerful new competitor: stablecoins. Although stablecoins currently appear to be a "small player" in the face of the $18 trillion deposits in the U.S. banking industry, their rapid rise, high rewards, and convenience increasingly pose a threat to the most critical funding sources for banks, forcing them to respond quickly.

History Repeats: The Threat of Stablecoins to Banks

According to Bloomberg, just as the emergence of money market funds in the 1970s almost overnight drained the cheapest source of funds for banks, today, stablecoins pose a similar threat to the survival models of community and regional banks. These banks rely on customer deposits to provide loans for farms, factories, or towns, and the rise of stablecoins may lead to a drain on deposits, thereby weakening their ability to support local communities.

Bill Bickle, the Chief Credit and Risk Officer of Stockman Bank in Montana, stated that stablecoins have transformed from a 'theoretical' issue into 'a very significant mainstream competitor for bank funding' in just a few months. Similarly, Jackie Reses, the CEO of Lead Bank in Kansas City, Missouri, also expressed 'reasonable concerns' about deposit outflows, particularly regarding funding for agricultural banks and small communities.

Why Are Stablecoins Attractive?

Unlike Bitcoin, which experiences significant price fluctuations, stablecoins aim to maintain a 1:1 value peg with traditional fiat currencies, such as the US dollar. Several key drivers are behind their rapid rise:

Political and Institutional Support: In July 2025, President Donald Trump signed the GENIUS Act, creating a regulatory framework for stablecoin issuers. Large financial institutions such as Citigroup and JPMorgan Chase have also begun to develop relevant strategies.

Rapid Rise in Scale: The circulating supply of top dollar-pegged stablecoins has surged by over 50% in the past year, approaching $250 billion by August. Standard Chartered estimates that the market could reach $2 trillion within the next three years.

High Yield Appeal: Although the Genius Act prohibits stablecoin issuers from paying interest, platforms like Coinbase Global Inc. blur the lines through “rewards programs.” For example, it offers a 4.1% reward on USDC balances issued by Circle Internet Group Inc. This is much higher than the average yield of 0.39% for savings accounts or 0.07% for checking accounts in the United States.

Efficient Trading: For retailers looking to avoid credit card transaction fees (which typically range from 1% to 3%) and consumers needing to make quick cross-border transfers, stablecoins present an attractive alternative.

Traditional Banks' Response Strategies and Challenges

Despite the fact that there are still more than $18 trillion in deposits within the U.S. banking system, which is several times the value of circulating stablecoins, some banks have begun to actively respond.

Launch of Competitive Products: Some banks are following the example of banks in the 1980s by introducing money market deposit accounts to respond to money market funds. VersaBank has already launched a pilot project to test a "digital deposit receipt" supported 1:1 by USD or CAD, which operates on blockchains such as Algorand, Ethereum, and Stellar, but still obtains insurance from the Canada Deposit Insurance Corporation and FDIC like regular deposits.

Serve as a settlement layer: Wade Peery, the Chief Innovation Officer of FirstBank, stated that some regional banks will find ways to act as a settlement layer between stablecoins and fiat currencies. He urged banks to stop avoiding and to "stop worrying and start looking for solutions."

Potential Risks: Camden Fine, CEO of Calvert Advisors LLC, warned that clients may not realize that while the reserves of stablecoins may be held in FDIC-insured banks, the issuers of stablecoins themselves are not covered by FDIC insurance. He is concerned that issuers may choose to deposit funds in "too big to fail" large banks, which would further harm small banks that conduct "the vast majority of small business loans."

Conclusion

The rise of stablecoins poses an unprecedented survival challenge to communities and regional banks over the past 50 years, with the core issue being that they directly threaten the most fundamental source of funds for banks—customer deposits. Although regulatory, trust, and technological issues still exist, the temptation of high yields and convenience is very real and cannot be ignored. As mentioned in the text, if banks continue to "bury their heads in the sand" and ignore this trend, they will face a significant risk of deposit loss. In the future, if traditional banks want to remain competitive, they must actively innovate by integrating blockchain technology into their services and launching digital products that can compete with stablecoins, thereby finding their place in the new financial landscape.