US Banks Demand Congress Crush Stablecoin Yield Loophole—Crypto Fights Back

Wall Street's old guard just declared war on DeFi's favorite hack. US banking giants are lobbying Congress to slam the door on stablecoin yield strategies—the same tricks that let everyday investors bypass traditional finance's paltry savings rates.

Why the panic? Billions are fleeing banks for algorithmic yield farms. And when banks can't skim their usual vig, they suddenly remember where the legislative levers are.

The playbook's transparent: Frame innovation as 'risk,' then regulate your competitors into oblivion. Never mind that these 'dangerous' yields often beat FDIC-insured accounts by 10x.

Crypto's counterattack? A decentralized middle finger—protocols already drafting code forks to route around any ban. Because nothing terrifies bankers more than open-source workarounds they can't lobby away.

Final thought: Banks spent decades privatizing gains while socializing losses. Now they want to socialize their incompetence by outlawing better options. How very... public-spirited of them.

Large-Scale Shift To Stablecoins Could Drive Up Borrowing Costs

Banks have traditionally relied on deposits to fund their loans. However, they now run the risk of users parking their funds in yield-bearing stablecoins that could siphon those deposits away, potentially driving up borrowing costs for families and businesses alike.

In their letter to Congress, the banking groups have put their foot down and demanded that payment stablecoins should not offer interest in a manner indistinguishable from banks or money market funds that operate under strict regulatory oversight.

Unlike traditional financial (TradFi) institutions, stablecoin issuers do not lend or invest in securities to generate returns, fundamentally differing from TradFi bodies in their yield mechanism.

Still, the issue remains. Yield is one of the main drivers of stablecoin adoption. Stablecoin issuers have historically avoided paying interest directly. However, users can still earn returns via affiliated platforms.

Case in point, holding USDC on exchanges like Coinbase or Kraken can generate yield, positioning stablecoins as an enticing alternative to traditional savings accounts.

Banking groups argue that this dynamic introduces the risk of deposit flight, especially during periods of economic stress. As funds shift away from TradFi bodies, the resulting contraction in credit supply could result in higher interest rates, fewer loans and an increased cost of borrowing for everyday users.

Coinbase And PayPal Still Offering Stablecoin Yield

While the stablecoin market is still modest compared to the $22 trillion US money supply, the US Treasury projects that it could balloon up to $2 trillion by 2028.

Currently, the global stablecoin market, valued at $280.2 billion, is dominated by Tether’s USDT and Circle’s USDC, accounting for over 80% of the total valuation, with Tether holding $165 billion and USDC holding $66.4 billion in circulation.

Meanwhile, in the backdrop of the banking groups petitioning Congress, Coinbase and PayPal, two of the largest US-based crypto firms, are progressing full steam ahead with their respective stablecoin reward programs.

Coinbase & PayPal found the GENIUS Act loophole! Both offering stablecoin "rewards" despite yield ban – Coinbase 4.1% on USDC, PayPal 3.7% on PYUSD.

Their defense: "We're not issuers, we pay rewards not interest." Critics say it weakens the law's intent to separate…

— Dr Efi Pylarinou (@efipm) August 10, 2025

Executives from both companies have stated in their earnings calls that they plan to continue rewarding users who hold stablecoins on their platforms, with Coinbase CEO Brian Armstrong stating, “We are not the issuer. We don’t pay interest or yield—we pay rewards.”

Key Takeaways

• TradFi bodies have petitioned Congress to resolve wording in the GENIUS Act, resulting in a stablecoin yield loophole
• Platforms such as Coinbase and Kraken give back rewards, prompting users to park their funds on their platforms rather than traditional deposits in a bank
• The stablecoin market could balloon up to $2trillion by 2028, underscoring its growing influence on global liquidity and financial infrastructure