Major banking groups in the United States are advocating for changes to certain provisions of the recently enacted GENIUS stablecoin Act. These groups are expressing concerns over aspects of the law that they believe could impact the traditional financial industry.
Summary
- U.S. banking groups are lobbying lawmakers to reconsider certain provisions of the GENIUS stablecoin Act.
- Banks argue that the current structure creates an uneven playing field that could threaten the future of traditional financial institutions.
- Crypto industry groups have pushed back, stating that the provisions are a necessary feature to support innovation and maintain consumer choice.
Recent reports have revealed that U.S. banking groups are actively engaged in efforts to urge lawmakers to revisit specific provisions of the GENIUS legislation. The GENIUS Act, which was passed in July, aims to regulate the stablecoin market in the U.S. and uphold the country’s position as a leader in the industry.
One particular provision of the law prohibits stablecoin issuers from offering interest or yield directly to holders, with the intention of safeguarding system stability. While banks are permitted to issue their own stablecoins under this regulation, they are restricted from providing any form of interest. On the other hand, crypto exchanges can still incentivize holders of third-party stablecoins with rewards, such as Circle’s USDC or Tether.
Banking groups argue that this provision creates a loophole that indirectly favors crypto exchanges over traditional banks, potentially leading customers to transfer deposits from banks to platforms offering higher returns. They caution that this could result in an unequal playing field and pose a risk to the stability of the banking sector, referencing a Treasury report that projected significant outflows from traditional banks if stablecoins offering yield were allowed.
Conversely, representatives from the crypto industry have contested the concerns raised by the banking groups, asserting that the perceived loophole in the GENIUS Act is not a flaw but a vital element for promoting competition and innovation within the sector.
Crypto industry stance: GENIUS Act “loophole” is essential for progress
Advocacy groups like the Crypto Council for Innovation and the Blockchain Association maintain that restricting exchanges from offering rewards to stablecoin holders would unfairly shield banks while limiting consumer choice. Industry leaders, including Coinbase’s chief legal officer Paul Grewal, have criticized the banks’ apprehensions, emphasizing the importance of allowing the industry to evolve without unnecessary constraints.
While the GENIUS stablecoin Act has been commended as a significant regulatory milestone for the crypto industry, the ongoing debate underscores the tensions that arise as regulations are established. It emphasizes the necessity of striking a delicate balance to facilitate both innovation and stability within the sector.