Stablecoins do not yet replace traditional bank deposits, but this may change soon, according to analysts at Morgan Stanley (NYSE:MS).
Although stablecoins currently lack deposit insurance and do not earn interest, their utility in fast transactions and global access to dollars may make them increasingly attractive—especially for institutional users.
"Banks should not be complacent," note analysts led by Betsy L. Grasek, adding that some are already responding by developing tokenized deposits, as JPMorgan has done with JPM Coin and the planned JPMD.
Stablecoins are already changing short-term funding markets. Tether, the largest stablecoin, held 66% of its reserves in U.S. Treasury bills as of March 2025, accounting for about 2% of the entire Treasury bill market.
According to Morgan Stanley, "ongoing growth may increase demand for short-term Treasury bonds and give the U.S. Treasury more flexibility in issuing debt."
Compared to money market funds, stablecoins are subject to regulation under the Genius Act, which prohibits interest payments and treats holders as unsecured creditors.
In contrast, money market funds can offer yields and provide investors with ownership rights similar to stocks. However, both instruments share similarities in functions—they provide stable, cash-like instruments backed by high-quality liquid assets.
"They aim to maintain a stable value—money market funds target a net asset value of $1 (NAV), while stablecoins strive to maintain a 1:1 peg to fiat currency, such as the U.S. dollar. During periods of market stress, both instruments tend to attract inflows as investors seek safety," analysts explain.
The market capitalization of stablecoins, which currently stands at $263 billion, is presently driven by retail use of cryptocurrencies, but further adoption is expected from institutions seeking faster transaction speeds and greater collateral mobility.
"Unlike traditional bank deposits, which are locked within a single institution, stablecoins can move freely between blockchain platforms," continues the Morgan Stanley team, suggesting broader financial utility.
Although some liquidity may shift from bank deposits to stablecoins, analysts suggest that this shift may be temporary. When the U.S. Treasury utilizes funds raised through debt issuance, part of that capital often returns to the banking system, potentially offsetting outflows.
The regulatory environment is also evolving. The Genius Act has passed through the Senate, while the Clarity Act is still being discussed in the House of Representatives.
Morgan Stanley notes that the final form of these frameworks "will significantly influence how stablecoins interact with the broader financial system."
As the issuance of CBDCs in the U.S. appears less likely, current legislation favors private sector solutions, potentially accelerating the integration of stablecoins into the mainstream financial system.
