Bank Rails vs DeFi: How $3.6T of “Digital Cash” Bypasses Bitcoin and Ethereum

BNY Mellon joined Citi, Bernstein, and others in projecting up to $3.6 trillion in digital cash by 2030. This projection hinges on the assumption that stablecoins and tokenized deposits will become central to financial systems, replacing traditional correspondent banking and transforming corporate treasury operations. However, this raises a critical question: Will such a system materialize in practice, and if so, what implications will it have for Bitcoin and Ethereum liquidity?

BNY Mellon's report forecasts approximately $1.5 trillion in fiat stablecoins and $2.1 trillion in tokenized bank deposits and money market funds by 2030. Similarly, Citi sees a base case of $1.6 trillion for stablecoins, with a bullish estimate of $3.7 trillion and a bear scenario of $500 billion if regulation falters. Conversely, Bernstein anticipates $2.8 trillion by 2028, driven by DeFi, payments, and remittances. On the other hand, JPMorgan offers a pessimistic view, projecting below $500 billion by 2028, citing concerns over regulation and unclear use cases.

As of now, the global stablecoin market cap stands at around $304 billion, with more than 90% pegged to the US dollar, dominated by USDT and USDC. Usage remains focused on crypto infrastructure, including trading, perpetuals, and DeFi collateral. Real-world applications like payments and settlements form a smaller share. Wall Street's projection of a 5-12x expansion within five years hinges on significant advancements in banking, compliance, and user experience (UX).

Achieving a multi-trillion-dollar digital cash ecosystem requires three critical factors:

1. Regulated Issuance: Standards like the GENIUS Act (2025) mandate audited, 100% reserve-backed stablecoins and AML compliance. Regulatory frameworks from the EU’s MiCA, Hong Kong, and others play pivotal roles. However, restrictive models like the Bank of England’s cap system could stifle growth.

2. Bank Participation: Large banks must issue tokenized deposits used for liquidity, wholesale payments, and more. Without their involvement, the market risks stagnating between $400 billion to $800 billion, falling short of its potential.

3. Seamless Integration: Interoperability with existing financial rails is vital. Blockchains need to integrate rather than replace traditional systems, enabling T+0 settlement and interoperability standards. Without this infrastructure, much of tokenized cash will remain experimental.

Compliance and UX are essential to scaling this market. Institutional adoption necessitates robust Know Your Customer (KYC) and anti-money laundering (AML) protocols, transparent reserves, and globally standardized regulation. Poor design risks isolating much of this liquidity in permissioned, walled gardens. Simultaneously, user experience must be frictionless, with stablecoin integration into familiar apps (e.g., Cash App, PayPal) and enterprise tools like ERP systems. High-throughput solutions like Solana or Base must eliminate gas fees and complexity to meet adoption goals.

The future of digital cash lies in three possible scenarios:

1. Integration Max (Bullish Case): Full implementation of frameworks like GENIUS, MiCA, and others. Multiple global banks issue tokenized assets, and stablecoin integration into payment and financial systems becomes ubiquitous. Digital cash reaches $3.6 trillion, but much stays locked in permissioned systems.

2. Rails Fragmentation (Base Case): Mixed regulatory adoption leads to fragmented growth. Stablecoins fall within the $600 billion to $1.6 trillion range, with visible but moderate impact on Bitcoin and Ethereum liquidity.

3. Regulatory Shock (Bear Case): Regulatory scandals or overreaction could stall growth, capping the market below $500 billion, where stablecoins remain confined to crypto-centric use cases.

If digital cash reaches $3.6 trillion, liquidity for Bitcoin and Ethereum will depend on how much of it remains composable on public chains. If 30-50% of stablecoins function on open networks, the float for Bitcoin and Ethereum could expand to $450 billion to $750 billion, enhancing depth, reducing friction, and enabling more leverage. However, if most liquidity is locked in permissioned ecosystems, the increase will bypass Bitcoin and Ethereum entirely, favoring stablecoin use for institutional plumbing rather than crypto liquidity. Ultimately, the bullish case for crypto hinges on how much digital cash integrates with decentralized ecosystems rather than staying isolated in centralized pools.