Thanks to the passing of the GENIUS Act last year, stablecoins are a board- or executive team-level topic of discussion in 63% of banks. Nearly 1 in 10 will invest in or deploy stablecoin-related capabilities in 2026.
Half of the banks surveyed by Cornerstone Advisors said deposit retention or generation is driving their interest in stablecoins, with competitive threats from fintechs and crypto firms also cited as a strong influence.
Despite the nascent nature of stablecoins in the U.S., 4 in 10 bankers believe that tokenized money — e.g., tokenized deposits, stablecoins — will become a common utility, similar to ACH or debit rails.
The U.S. Department of the Treasury estimates that stablecoins could displace “up to $6.6 trillion” in deposits currently held in U.S. banks if they offer interest.
“Up to $6.6 trillion” isn’t a helpful estimate for community banks, however. They need to know where, when, and through what channels stablecoins will siphon value from banks —and what to do about it — now.
The Three Layers of Stablecoin
Stablecoins aren’t speculative cryptocurrencies. They’re dollar claims packaged in a programmable, interoperable, and globally accessible wrapper. And thanks, in part, to the GENIUS Act, many banks think about stablecoins from just a balance-sheet perspective. But stablecoin stability and risk plays out across three layers:
1. The Balance Sheet Layer
The GENIUS Act addresses the question: Does a stablecoin issuer hold enough high-quality assets to be solvent if redemptions are demanded? The answer: Mostly yes, but a capital buffer analysis reveals some issues and ironies.
The issuers most enabled by the GENIUS Act — e.g., Circle, PayPal, Paxos — earn Treasury rates on their reserve assets, pay nothing to stablecoin holders (GENIUS prohibits interest payments on stablecoins), and pocket the spread. That spread funds operations and builds capital.
The problem is that T-bill rates minus operating costs produces razor-thin equity cushions. Circle’s leverage ratio hovers around 0.1% to 0.2%. Under bank standards that’s not just undercapitalized, it makes them candidates for receivership.
The irony is that the safer the backing asset (shorter duration, higher quality), the lower the yield, the thinner the spread, and the thinner the capital buffer.
An issuer holding Bitcoin and corporate bonds like Tether generates more excess capital because those riskier assets yield more. The regulation creates a perverse incentive structure where the most GENIUS-enabled issuers are the most capital-fragile.
By itself, balance sheet fragility doesn’t necessarily kill a stablecoin. A 0.2% leverage ratio is terrifying for a bank because bank assets are illiquid loans that can’t be rapidly monetized. In normal conditions, a stablecoin issuer holding overnight repos could liquidate its entire balance sheet in 24 hours.
The balance sheet layer, however, interacts with the plumbing layer, and that’s where the real problem lives.
2. The Plumbing Layer
The plumbing question is: Even if the balance sheet is solvent, can the redemption mechanism actually function under stress? The answer: Not reliably, and for a structural reason that isn't going away.
A redemption requires the stablecoin issuer to sell Treasuries to get bank deposits to pay the redeemer. That sale goes through a broker-dealer who has to take the Treasuries onto its balance sheet (at least temporarily), which pushes its supplementary leverage ratio toward its regulatory floor.
When dealer banks are already operating near that floor, their capacity to absorb incremental Treasury selling is severely constrained.
The worst Treasury market disruption in decades involved a net selloff of less than $100 billion. Current stablecoin market cap is roughly $230 billion. Even a modest redemption run of 15% to 20% of outstanding stablecoins approaches that amount. And a run wouldn’t likely happen in isolation — it would happen during a period of broader market stress when dealer balance sheets are already under pressure.
Here’s why the plumbing layer is so important: People (i.e., consumers, businesses, institutions) will hold stablecoins because they don’t have to worry about the underlying mechanics. The moment those mechanics become visible or unstable, confidence will collapse.
3. The Technology Layer
The technology layer asks: Even if the balance sheet is solvent and the plumbing can process the redemption, can the actual blockchain transaction execute reliably? The answer: Sometimes no, for reasons entirely outside the issuer's control.
Smart contract risks — logic bugs, upgrade vulnerabilities, bridge failures, key mismanagement — are real.
When Paxos accidentally minted $300 trillion of PYUSD in October 2025, its financial reserves were fine, the plumbing was intact, but a software error briefly destroyed confidence and broke the peg anyway. That’s a technology layer failure.
A recent report from MIT makes a case that as stablecoin volume grows, the economic incentive to attack the underlying blockchain grows faster than the cost of mounting the attack.
The reward for a successful attack scales with transaction volume, but the cost doesn’t. This creates a widening gap between attack incentive and attack deterrence that’s intrinsic to the architecture, and not solvable through better issuer practices.
What Community Banks Need to Know
If you only evaluate stablecoins through the balance-sheet lens, you miss the risks that show up when markets are stressed or systems fail. A stablecoin can be “fully backed” and still fail if redemption plumbing clogs or if the technology layer breaks.
What bankers need to know:
1. Stablecoins don’t just “steal deposits.” They transmit liquidity stress. Even if a bank never issues a stablecoin, token-driven flows can create sharper day-to-day liquidity swings. If a bank partner (or customer) operates in a stablecoin ecosystem, directly or through a fintech, the bank could inherit a set of balance-sheet dynamics that look a lot like “hot money,” because redemption behavior can change quickly and at scale.
This isn’t theoretical. Stablecoins are built for speed. The very feature that makes them attractive — instant movement — also means outflows can accelerate faster than traditional deposit runoff patterns.
2. Stablecoin risk is as much about market plumbing as it is about reserves. Redemption at par depends on more than holding safe assets. It depends on the ability to convert those assets into cash under stress, which can mean reliance on Treasury market liquidity, repo markets, dealer balance sheets, and operational capacity at intermediaries. In good conditions, this all looks smooth. In stress, it can get noisy fast.
Community bank takeaway: You can’t evaluate stablecoin exposure the way you’d evaluate a money market fund. Stablecoins introduce a blend of liquidity, market microstructure, and operational risks that most banks aren’t staffed to underwrite.
3. The biggest threat is interception, not replacement. Stablecoins don’t have to replace deposits to hurt community banks. They just need to capture payments and settlement to push banks into a commodity role as on/off ramps and compliance wrappers while value accrues to wallets, platforms, and networks.
The parts of the bank value chain where stablecoins can intercept economics include merchant settlement and e-commerce payouts, cross-border transfers and remittances, B2B supplier payments and platform payouts, disbursements (e.g., gig workers, insurance claims, payroll), and treasury “operating cash” that becomes more mobile and programmable.
If stablecoins become a default rail for moving dollars, the risk for community banks is being relegated to slow, expensive plumbing that customers use only because they must—not because they want to.
What Community Banks Need to Do (Now)
Community banks can’t assume that “we’re not in crypto” equals “we’re not exposed.” They can be exposed through their customers’ behavior, vendors’ integrations, and their own rail economics.
Every bank, big or small, needs a stablecoin strategy (now). That’s not a choice. The choice is to what extent do you play offense or defense. For both approaches, a bank’s stablecoin strategy should address the three layers described above:
1) Balance sheet actions need to defend and price for volatility. This means:
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Treating stablecoin-adjacent deposits as hot money. If you bank fintechs, processors, exchanges, or large digital platforms, assume higher runoff risk and manage it accordingly.
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Updating liquidity stress tests for token-speed outflows. Model intraday spikes, rapid outflows, and correlated payment demands.
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Setting concentration limits and triggers. If stablecoin-linked balances exceed a threshold, require additional buffers and senior-level review.
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Repricing treasury relationships for liquidity intensity. If a client drives volatile settlement and redemption flows, get paid for the liquidity burden.
2) From a plumbing layer perspective, know where dollars go when tokens move:
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Map exposure across rails. Identify which clients are sending/receiving funds to on/off ramps, and where token-linked flows show up in wires, ACH, RTP, and FedNow.
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Demand a “redemption dossier” from partners. If a fintech partner touches stablecoins, require clarity on authorized redeemers, redemption cutoffs, intraday funding needs, liquidity backstops, and stress contingencies.
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Compete on settlement optionality. Banks can’t afford to be slow, opaque, and expensive. Even a defensive strategy requires better real-time payments capability and a treasury experience that doesn’t make clients look elsewhere.
3) From a technology perspective:
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Treat stablecoin rails as regulated third-party technology. If you integrate to token networks, directly or via vendors, your risk program must cover smart contract risk, custody/key management, governance/upgrade controls, monitoring, incident response, etc.
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Be “token-aware.” Few community banks will need to mint their own stablecoin. What they need to do is help customers accept token-based payments, convert/settle efficiently, provide compliant reporting, and offer treasury tools that make stablecoins unnecessary for most domestic use cases. And that means modernizing settlement speed and transparency.
Stablecoins won’t rock community banks overnight. But they will pressure deposit economics at the margin, reroute payments value, and introduce new liquidity and operational risks, especially for banks that, directly or indirectly, touch the stablecoin ecosystem.
Ron Shevlin is managing director and chief research officer at Cornerstone Advisors. Tune in to Ron’s What’s Going On In Banking podcast and follow him on LinkedIn and X.