GENIUS Act, Centered on Stablecoins, Marks a Turning Point for Banks

The GENIUS Act, focused on stablecoins and enacted in July, is expected to prompt a shift of deposits from conventional bank accounts to higher-yield stablecoins, according to a co-founder of Multicoin Capital.

“The GENIUS Bill marks a turning point for banks’ ability to exploit retail depositors with negligible interest,” stated Tushar Jain, co-founder and managing partner at Multicoin Capital, in a post on X this past Saturday.

“Following the GENIUS Bill, I anticipate major tech corporations like Meta, Google, and Apple will begin competing with banks for retail deposits,” Jain elaborated, suggesting they might offer superior yields on stablecoins along with a better user experience for instant settlements and 24/7 payments compared to traditional banks.

He pointed out that banking institutions attempted to “protect their profits” in mid-August by urging regulators to close a perceived loophole that could permit stablecoin issuers to provide interest or yields on stablecoins through their affiliates.

The GENIUS Act forbids stablecoin issuers from providing interest or yield to token holders but does not outrightly extend this prohibition to crypto exchanges or affiliated entities, allowing issuers a potential workaround by offering yields through these partners.

US banking groups express concerns that the widespread adoption of yield-bearing stablecoins could destabilize the traditional banking framework, which depends on banks attracting deposits to support lending.

$6.6 trillion could exit the banking system

Widespread adoption of stablecoins could result in an outflow of about $6.6 trillion from traditional banks, as estimated by the US Department of the Treasury in April.

“This will lead to increased deposit flight risk, particularly in periods of stress, undermining credit creation across the economy. The consequent reduction in credit supply will lead to higher interest rates, fewer loans, and elevated costs for Main Street businesses and households,” noted the Bank Policy Institute in August.

To remain competitive, “banks will need to offer higher interest rates to depositors,” Jain asserted, noting that “their profits will be significantly impacted as a consequence.”

Stablecoins provide users up to 10X greater interest

The average interest rate for savings accounts in the US is 0.40%, while in Europe, it sits at 0.25%, according to Patrick Collison, CEO of online payments platform Stripe, who mentioned last week.