Major banking groups in the United States are raising concerns about certain provisions of the recently passed GENIUS stablecoin Act, arguing that these provisions could have a negative impact on the traditional financial industry. The GENIUS Act, which was enacted in July, aims to regulate the stablecoin market and uphold the United States’ position as a leader in the sector.
One of the key provisions of the GENIUS Act prohibits stablecoin issuers, including banks, from offering interest or yield to stablecoin holders. This measure is intended to safeguard stability in the system. However, banks are expressing apprehension about this restriction, as it creates a disparity between banks and crypto exchanges. While banks are restricted from offering interest on their stablecoins, crypto exchanges are still able to provide rewards to holders of third-party stablecoins like USDC and Tether. Banks argue that this discrepancy could lead customers to withdraw their deposits from banks in favor of crypto exchanges offering higher returns, thereby posing a threat to the traditional banking sector.
According to a report by the Treasury in April, the provision prohibiting stablecoin yield could result in as much as $6.6 trillion being redirected away from banks, potentially destabilizing the banking sector. In response, banking groups are lobbying lawmakers to reconsider this provision of the GENIUS Act.
On the other hand, representatives from the crypto industry have defended the provision, stating that it is essential for promoting competition and innovation in the sector. Advocacy groups such as the Crypto Council for Innovation and the Blockchain Association argue that restricting exchanges from offering rewards to stablecoin holders would stifle consumer choice and hinder the evolution of the industry. Coinbase’s chief legal officer, Paul Grewal, has also voiced support for maintaining a balance between regulation and innovation in the stablecoin market.
The GENIUS Act has been hailed as a significant regulatory milestone for the crypto industry, providing much-needed clarity for the asset class. However, the ongoing debate between banking groups and crypto advocates highlights the challenges of establishing regulations that support both innovation and stability in the burgeoning stablecoin market. As the industry continues to evolve, finding a delicate balance between regulatory oversight and fostering innovation will be crucial for ensuring the long-term success of stablecoins in the United States.