Leading banking organizations in the United States are advocating for revisions to specific provisions of the newly enacted GENIUS stablecoin Act, expressing concerns about aspects of the law that may impact the traditional financial sector.
Summary
- U.S. banking organizations are urging lawmakers to revisit certain aspects of the GENIUS stablecoin Act.
- Banks assert that the existing framework creates an uneven competitive landscape that could endanger the viability of traditional financial institutions.
- Crypto industry representatives have countered that these provisions are essential for fostering innovation and preserving consumer options.
On Aug. 25, the Financial Times reported that U.S. banking organizations are actively petitioning lawmakers to reevaluate certain provisions of the GENIUS legislation.
Passed in July, the GENIUS Act represents the inaugural stablecoin legislation in the United States, aimed at regulating the billion-dollar market and ensuring the country’s leadership in the field. A key component of this regulation prohibits issuers from directly providing interest or yields to stablecoin holders, a measure designed to safeguard system stability.
This regulation means that while banks can create their own stablecoins, they cannot offer any form of interest. In contrast, crypto exchanges can continue to provide rewards to holders of third-party stablecoins like Circle’s USDC (USD Coin) or Tether (Tether). These groups describe this regulation as a “loophole” that indirectly benefits crypto exchanges at the expense of traditional banks, cautioning that it may drive customers to move deposits to platforms offering better returns, fostering an uneven market environment.
The organizations referenced an April Treasury report estimating that stablecoins enabling yield could divert as much as $6.6 trillion from the traditional banking framework, warning that such capital flight could undermine the stability of the banking sector.
Nonetheless, crypto industry spokespeople have reportedly countered the banks’ initiative, arguing that the concerns are exaggerated.
Crypto industry pushback: GENIUS Act “loophole” is not a flaw
Advocacy organizations, including the Crypto Council for Innovation and the Blockchain Association, contend that the so-called “loophole” identified in the GENIUS Act by banks is not a defect but rather a crucial element for sustaining competition and innovation within the sector.
They argue that limiting exchanges from providing rewards to stablecoin holders would disproportionately shield banks while curtailing consumer choices. Industry figures, such as Coinbase’s chief legal officer Paul Grewal, have also denounced these concerns, stressing that the industry should advance without undue limitations.
The GENIUS stablecoin has been hailed as a regulatory breakthrough for the industry, heralding much-awaited clarity for this asset class. However, the ongoing dispute highlights the tensions arising as regulations crystallize, emphasizing the imperative of achieving a careful equilibrium to ensure both innovation and stability.
