US Banks Demand Congress Shut Down Stablecoin Yield Loophole—GENIUS Act in Crosshairs
Wall Street sharpens knives as crypto's 'risk-free' yields threaten deposit dominance.
The Playbook:
Traditional banks—suddenly very concerned about 'regulatory parity'—want stablecoin issuers barred from offering interest without the same compliance burdens they face. Never mind that banks themselves exploit regulatory arbitrage daily.
Why Now?
With $150B+ in stablecoins circulating, even 2% yields siphon billions from bank deposits. The GENIUS Act could force stablecoins into the same interest-reporting hell as savings accounts—killing their main retail appeal.
The Irony:
Banks cry 'unfair competition' while paying 0.01% APY on your checking account. Maybe innovate instead of legislate?
Risk to the U.S. credit system
The signatories, including the American Bankers Association, Consumer Bankers Association, Independent Community Bankers of America, and the Financial Services Forum, stated that stablecoins that bear yields are not comparable with bank deposits or money market funds. They neither lend nor invest in securities, which are the operations that enable controlled financial institutions to make profits.
As per the letter, a sudden boom in stablecoin usage may elevate the danger of deposit flight during financial turmoil. This would cause a decline in the amount of capital available to lend and result in an increase in interest rates, as well as providing less of a credit outlet to households and small businesses. The groups cautioned that the effect would be serious and would interrupt economic growth.
One of the charts attached to the letter, provided by the Treasury Department, showed what the money supply could look like in case the yield restrictions were not enforced. BPI reported that mass flooding of capital into stablecoins may accelerate in the case of financial uncertainty, increasing the risks to the credit system.
Stablecoin yield practices under scrutiny
The stablecoin yield offering has emerged as the major marketing strategy. Some issuers pay holders directly, and some work with exchanges that compensate customers who retain tokens on their exchanges. USDC, a stablecoin issued by Circle, is pegged at $0.9997 but can accrue interest in storage in exchanges like Coinbase and Kraken.
Banking executives emphasized that interest payments are a valid instrument to attract deposits in a regulated banking system, but can destabilize when used as interest on stablecoins. They claim that stablecoins must be a steady payment-oriented asset, without yield functionalities competing with conventional deposits.
According to the Treasury Department, the stablecoin market may expand up to $2 trillion by 2028, against the current volume of approximately $280.2 billion. Over 80% of those accounts are Tether (USDT) and USD Coin (USDC), which have market caps of $165 billion and $66.4 billion, respectively, according to CoinGecko.
Even with the limits of the GENIUS Act, significant crypto enterprises are still providing incentives to stablecoin holders. Examples include Coinbase and PayPal, where both companies have said they will continue operating their yield schemes, claiming that the legislation only covers issuers and not platforms that host customer assets.
Brian Armstrong, the CEO of Coinbase, recently told shareholders that the company does not consider its payouts as interest. Armstrong said, “We don’t pay interest or yield, we pay rewards.”
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