Wall Street banks are stepping up the pressure on lawmakers to shut a regulatory gap that enables crypto platforms to provide yield on stablecoins, threatening it could siphon trillions from bank deposits.
According to the recent post, the controversy revolves around the GENIUS Act, July to control the $288 billion stablecoin market. The Act bans issuers such as Circle and Tether from offering interest payments directly but does not bar exchanges from distributing revenues with customers.
Exchanges like Coinbase and PayPal have employed this design to provide nearly 4% APY on stablecoin balances, financed by stablecoin reserve profits.
According to the Financial Times report, bank associations such as the American Bankers Association, the Bank Policy Institute, and the Consumer Bankers Association contend this sets an unlevel playing field.
They caution yield-paying stablecoins can precipitate widespread deposit flight, particularly during times of stress, which would sap banks’ capacity to lend and increase businesses’ and households’ borrowing costs.
A Treasury report issued earlier this year put the risk at as much as $6.6 trillion in possible deposit flight. Crypto companies, though, are pushing back.
The Crypto Council for Innovation and the Blockchain Association informed senators that banks are attempting to restrict competition and safeguard legacy business models.
Coinbase chief legal officer Paul Grewal rejected the banks’ assertions, labeling the loophole “no loophole at all.The confrontation underscores escalating tensions between Wall Street and the cryptocurrency space as stablecoins become increasingly mainstream financial tools, with the result set to determine the direction of digital finance in America.
Also Read: US Banks Ready with In-House Stablecoins as GENIUS Act Passes
