Led by the Bank Policy Institute (BPI), several U.S. banking groups are urging regulators to close a loophole that allegedly allows stablecoin issuers and their affiliates to pay interest or yields on stablecoins indirectly.
On Tuesday, the BPI sent a letter to Congress warning that if this loophole in the new stablecoin regulations under the GENIUS Act is not closed, it could disrupt the flow of credit to U.S. businesses and households, potentially triggering a $6.6 trillion outflow of deposits from the traditional banking system.
The GENIUS Act prohibits stablecoin issuers from offering interest or yields to token holders but does not explicitly prohibit cryptocurrency exchanges or affiliated companies. This could allow issuers to circumvent the law by providing yields to users through these partners.
Offering yields is one of the main marketing strategies for stablecoin issuers to attract users. Some provide direct yields to holders, while others, like Circle's USDC, offer holding rewards to users who hold the stablecoin on exchanges like Coinbase and Kraken.
Banking groups believe that if yield-bearing stablecoins become widely used, it could undermine the banking system's ability to attract deposits through high-yield savings products, thereby supporting loan issuance.
In a letter signed by the American Bankers Association, the Consumer Bankers Association, the Independent Community Bankers of America, and the Financial Services Forum, the BPI pointed out that stablecoins are fundamentally different from bank deposits and money market funds because they do not provide yields through loans or investments in securities.
The BPI noted that allowing interest or yields on stablecoins could lead to a $6.6 trillion outflow of deposits, citing a report from the U.S. Treasury in April.
The BPI added that such a large-scale shift in the financial system could pose serious risks to the U.S. credit system.
The total market capitalization of stablecoins currently stands at $280.2 billion, which is just a small fraction of the $22 trillion money supply reported by the Federal Reserve at the end of June.
According to CoinGecko, the market capitalizations of Tether (USDT) and USDC are currently $165 billion and $66.4 billion, respectively, together accounting for over 80% of the stablecoin market share.
U.S. President Trump signed the GENIUS Act on July 18, and many analysts in the crypto industry have stated that this will enhance the dominance of the dollar by promoting stablecoins pegged to the dollar, competing with other currencies, and strengthening the dollar's role as the world's primary reserve currency.
The U.S. Treasury expects the stablecoin market to grow to $2 trillion by 2028.
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Original article: “U.S. Banking Groups Call for Closure of Stablecoin Yield ‘Loophole’ in GENIUS Act”
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