Conflict Between Traditional Banking and Cryptocurrency
The ongoing conflict between traditional banking institutions and the cryptocurrency sector regarding yield-bearing stablecoins is heating up in Washington. Will Beeson, the CEO and founder of RWA liquidity platform Multiliquid and Uniform Labs, highlighted the necessity for the stablecoin market to explore diverse options for providing returns to its users. He stated to Decrypt,
“In a competitive environment where various entities issue their own stablecoins, finding methods to attract users to your product becomes crucial. The capability to provide yield can notably enhance that attractiveness.”
GENIUS Act and Its Implications
These remarks come in the wake of the enactment of the GENIUS Act, which was signed into law by former President Donald Trump in July. This legislation aims to establish a formal regulatory framework in the United States for the issuance and trading of stablecoins. While the law prohibits stablecoin issuers from directly offering yields, it does not prevent third parties such as exchanges from providing interest or rewards for holding stablecoins. As an example, Coinbase, a major cryptocurrency exchange, offers interest on USDC deposits made via Circle’s stablecoin, thereby facilitating yield for users through an intermediary.
Beeson clarified,
“What GENIUS restricts is the authority of stablecoin issuers to pay interest directly to their holders. However, it does not stop intermediaries from incentivizing these holders.”
This regulatory grey area has sparked a significant lobbying effort. According to Beeson, the current regulatory framework may have been influenced by bankers concerned about yield-bearing stablecoins being seen as more appealing alternatives to traditional bank deposits, which typically yield lower returns.
Banking Sector’s Response
In an effort to counter this, the banking sector has urged lawmakers to eliminate this perceived loophole. A letter dated August 12 from the Bank Policy Institute and several other influential trade organizations asserted that failing to address this issue could result in a staggering $6.6 trillion exit from the U.S. banking system. The letter warned that without explicit restrictions on exchanges—key distribution channels for stablecoin issuers—the intentions of the GENIUS Act could be undermined, leading to potential instability in the credit market.
The letter continued to express concerns about the implications of deposit flight, suggesting it could culminate in higher interest rates and diminished lending opportunities for individuals and small businesses.
Pro-Crypto Organizations Push Back
In contrast, pro-crypto organizations have pushed back against these claims. On August 20, both the Blockchain Association and the Crypto Council for Innovation sent a letter defending the industry against bank pressures, arguing that the $6.6 trillion figure was exaggerated and lacked basis in fact. They cautioned that halting yield offerings would stifle innovation, putting American firms at a disadvantage on the global stage. They emphasized that allowing well-regulated platforms to offer yields is a beneficial characteristic that enhances financial inclusion and supports U.S. leadership in future payment systems.
Future Legislative Changes
Despite the vigorous debate, Beeson remains skeptical about imminent legislative changes, estimating a less than fifty percent chance of modification in the near future due to the prevailing legislative paralysis in Washington.
