As digital dollars become more integrated into payments and financial services, Reeve Collins, co-founder of Tether and chairman at WeFi, believes traditional banks may have to fight harder to retain the low-cost deposits that underpin their lending businesses.
"For banks, I would focus on deposits," Collins told MarketDash in an exclusive email interview.
Customer deposits provide banks with funding for loans and other financial activities. Low-cost deposits are particularly valuable because they can help banks fund lending without relying as heavily on more expensive alternatives.
For JPMorgan Chase & Co. (JPM), Bank of America Corp. (BAC) and Wells Fargo & Co. (WFC), the longer-term question is whether stablecoins and digital wallets could change where customers choose to hold and use their money.
More Than a Payments Story
"When the wallet becomes the place people keep and use their money, the bank has to earn that relationship again," he said.
If consumers increasingly manage cash, investments, borrowing and payments through a single digital wallet, traditional banks could face greater competition for customer balances. That does not mean deposits are already fleeing banks for stablecoins, but it highlights a potential pressure point investors should watch.
Stablecoins Change the Competition
Part of the stablecoin appeal includes moving money across blockchain networks without relying on every step of traditional payment infrastructure.
Circle Internet Group Inc. (CRCL), issuer of the USDC stablecoin, offers investors a different way to gain exposure to this shift. Collins noted that Circle earns income on its reserves, making interest rates an important driver of its business.
That creates a different investment equation. Circle's opportunity depends on stablecoin usage and reserve economics, while banks must also consider the potential implications for deposit funding. Stablecoin adoption alone, however, does not establish that banks will lose deposits: the impact depends on how consumers use digital dollars, where issuers hold reserves and how financial institutions respond.
What Bank Investors Should Watch
For JPMorgan, Bank of America and Wells Fargo, the key signals are deposit growth, funding costs and changes in the mix of customer balances. If deposit competition intensifies, banks could face pressure to offer more attractive rates or seek alternative funding, potentially hurting profitability.
For Circle, investors should watch whether USDC adoption translates into durable growth, while accounting for the sensitivity of reserve income to interest rates.
Collins' warning is ultimately about who controls the customer relationship. Stablecoins may become a stronger competitive force if consumers start using digital wallets as their primary financial hub.
For bank investors, the important question is not simply how quickly stablecoins grow, but whether that growth changes the economics of holding deposits.
