tl;dr
Major US banking groups, led by the Bank Policy Institute, urge regulators to close a loophole in the GENIUS Act’s stablecoin regulations that currently bans stablecoin issuers from paying interest directly to holders but does not prohibit affiliated entities or exchanges from offering yields. They ...
Several major US banking groups, led by the Bank Policy Institute (BPI), have called on regulators to close a perceived loophole in the new stablecoin regulations under the GENIUS Act. They warn that failing to address this gap could allow stablecoin issuers and their affiliates to offer interest or yields on stablecoins indirectly, potentially disrupting the traditional banking system.
The GENIUS Act bans stablecoin issuers from paying interest or yields directly to token holders. However, it does not explicitly extend this prohibition to crypto exchanges or affiliated entities, which might enable these issuers to circumvent the law by offering yields through partners. This yield offering remains one of the most effective tools for stablecoin issuers to attract users, with platforms like Coinbase and Kraken rewarding holders of stablecoins such as Circle’s USDC.
Banking groups, including the American Bankers Association and Consumer Bankers Association, emphasize that stablecoins differ fundamentally from bank deposits and money market funds, as they do not fund loans or invest in securities to generate yield. They caution that allowing interest payments on stablecoins could trigger up to $6.6 trillion in deposit outflows from traditional banks, destabilizing the credit system. This potential deposit flight poses risks such as reduced credit availability, higher interest rates, fewer loans, and increased costs for businesses and households.
Currently, the stablecoin market holds a market capitalization of about $280.2 billion, a small portion compared to the US dollar money supply, which stands at $22 trillion. The market is predominantly controlled by Tether (USDT) and USDC, accounting for $165 billion and $66.4 billion respectively. The GENIUS Act, signed into law on July 18 by President Donald Trump, aims to strengthen the US dollar’s dominance by promoting dollar-pegged stablecoins, potentially growing the stablecoin market to $2 trillion by 2028.