Who touched the bank's cheese?
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Who touched the bank's cheese?
A financial regulatory game involving $6.6 trillion.
Navigating Web3 tides with focused insightsAuthor: Max.S
In August 2025, the U.S. Banking Alliance (a coalition including major institutions such as the Bank Policy Institute, BPI) submitted an urgent letter to Congress. The letter warned that the GENIUS Act contained potential "regulatory loopholes" that could allow up to $6.6 trillion in bank deposits to flow into the stablecoin market—a sum nearly equivalent to one-third of U.S. GDP. This warning highlights the growing tension between the traditional financial system and emerging digital assets, as well as the potential disruption stablecoins pose as a new financial instrument to the existing financial order. The banking sector's concerns are grounded in reality: stablecoins like USDT and USDC are widely used on mainstream exchanges such as Coinbase and Kraken, which attract users through various "yield programs," thereby threatening the deposit base of traditional banks in an unprecedented way.
GENIUS Act Loophole: The "Gray Area" of Stablecoin Yields
On July 18, 2025, former President Trump signed the "Guidance and Establishment of National Innovation for U.S. Stablecoins Act" (GENIUS Act). This legislation established a federal regulatory framework for payment stablecoins, requiring issuers to maintain 1:1 reserves, banning algorithmic stablecoins, and clearly stating that stablecoins are neither securities nor commodities. However, the act contains a critical loophole: while it explicitly prohibits stablecoin issuers from directly paying interest or yields to holders, it does not extend this prohibition to cryptocurrency exchanges or their affiliated entities, thereby creating a "backdoor" for stablecoins to generate returns through third-party channels.
According to JDSupra analysis, "payment stablecoins" are defined under the GENIUS Act as digital assets used for payments or settlements, issued by subsidiaries of insured depository institutions, federally qualified non-bank entities, or state-qualified issuers, with monthly audited reserve reports required. Yet the act remains highly ambiguous on the core issue of "yield provision," leaving room for regulatory arbitrage. As noted by the Bank Policy Institute, although Circle’s USDC does not offer yield directly, partner exchanges like Coinbase provide users holding USDC with annualized rewards of 2–5%. This effectively allows issuers to indirectly offer yield through affiliates, completely circumventing the restrictions of the GENIUS Act.
$6.6 Trillion Transfer Risk: The Banking Sector's "Doomsday Scenario"
In its letter to Congress, the Bank Policy Institute (BPI) cited data from a April report by the U.S. Treasury, warning that if this loophole remains unaddressed, it could trigger an outflow of $6.6 trillion in bank deposits—equivalent to one-third of all commercial bank deposits in the United States. Such an event would severely weaken banks’ credit creation capacity, push up lending rates, and ultimately harm financing costs for ordinary households and businesses. BPI emphasized that banks rely on deposits to issue loans, and the high-yield nature of stablecoins may incentivize depositors to shift funds from traditional bank accounts to crypto exchanges. This "deposit migration" risk becomes even more pronounced during periods of economic instability.
These concerns about the current stablecoin market are not unfounded. As of August 20, 2025, CoinStats data shows that while the total market cap of stablecoins stands at only $288.7 billion, their growth rate is astonishing. The U.S. Treasury projects that the stablecoin market could reach $2 trillion by 2028. If affiliated entities are allowed to continue offering yield, growth could accelerate further. The two largest stablecoins, Tether and USDC, already account for over 80% of the market. With USDT at $167.1 billion and USDC at $68.3 billion in market cap, "yield programs" on platforms like Coinbase and Kraken have become key tools for user acquisition. For instance, Coinbase offers an annualized 3.5% reward for holding USDC, compared to just 0.5% for a typical bank checking account—an attractive difference for depositors.
Market Reality: Stablecoins in the "Fire and Ice"
While the banking industry has issued strong warnings, the actual size of the stablecoin market remains negligible compared to the U.S. M2 money supply of $22.118 trillion. This stark contrast fuels debate over the immediacy of the threat. Supporters argue that current risks are fully manageable and that the banking sector is overreacting. Opponents, however, stress that the growth potential and network effects of stablecoins could lead to systemic risks akin to the "boiling frog" phenomenon.
In practice, stablecoins have already gained significant ground in payments. NOWPayments data indicates that in the first half of 2025, stablecoins accounted for 57.08% of merchant crypto payments, with USDT and USDC together making up over 95%. In cross-border payments, e-commerce settlements, and remittances to emerging markets, stablecoins offer advantages of low cost and fast settlement, gradually replacing traditional bank transfers and remittance services. For example, in Kenya, stablecoin transaction volume grew by 43% in 2025, primarily used for cross-border trade and salary disbursements—highlighting the unique value of stablecoins in meeting real-world financial needs.
Regulatory Battle: Walking the Tightrope Between Innovation and Stability
In this financial regulatory battle, positions are sharply divided. The banking alliance strongly advocates for a complete ban on any form of stablecoin yield, viewing it as essential to protect financial stability. Meanwhile, the crypto industry promotes "precision regulation"—targeting abusive practices without stifling innovation. On August 19, the U.S. Treasury stated it was soliciting public input on the implementation of the GENIUS Act, particularly focusing on the use of technologies such as digital identity verification and blockchain monitoring to prevent illicit financial activities.
Some experts have proposed compromise solutions, such as holding stablecoin issuers jointly liable for yield-generating activities by affiliates, or setting yield caps to prevent excessive competition. In a February 2025 speech, Federal Reserve Governor Christopher Waller stated that stablecoins are not the "enemy"—regulatory arbitrage is. What is needed, he argued, is a regulatory framework that protects consumers and financial stability while fostering innovation. Many industry insiders share this view, believing that while the GENIUS Act had good intentions, its loopholes must be closed using technical measures and more nuanced rules—not by simply banning all yield-bearing activities.
The GENIUS Act is set to take effect in 2027 or earlier, leaving little time for regulators and market participants. If the banking alliance succeeds in banning affiliated entities from offering stablecoin yields, the risk of deposit outflows might be temporarily contained—but this could also stifle the innovative potential of stablecoins, pushing the market toward unregulated offshore platforms. If the status quo persists, traditional banking operations may be eroded faster by stablecoins, but this could also drive banks to accelerate digital transformation and launch more competitive products.
The outcome of this regulatory battle will directly impact ordinary users' financial choices. Whether high stablecoin yields can persist, whether traditional banks will raise deposit rates to compete, and whether regulatory arbitrage will eventually be eliminated—answers to these questions will unfold over the coming years. Regardless, stablecoins are a bridge connecting traditional finance and the crypto economy, and their development trajectory is now irreversible. Finding a balance between innovation and stability will remain a long-term challenge for regulators, practitioners, and users alike.
Conclusion: The Financial "New Frontier" in the Digital Age
The U.S. Banking Alliance's move to close the loopholes in the GENIUS Act is, at its core, a "defensive counterattack" by the traditional financial system in the face of the digital wave. While the $6.6 trillion deposit outflow risk may be overstated, it reflects the inevitability of financial transformation. Stablecoins are not merely new payment tools—they are catalysts for upgrading financial infrastructure, forcing traditional banks to rethink their business models and regulators to modernize outdated rulebooks.
In this digital financial "new frontier," there are no absolute winners or losers—only adapters and those left behind. Everyone must understand the essence of this transformation and acquire knowledge of emerging financial tools like stablecoins, as this will become a crucial skill for future financial decision-making. Moreover, regardless of how the GENIUS Act is ultimately revised, the integration of digital assets and traditional finance is an inevitable trend. Those who can navigate this trend will secure a favorable position in the future financial landscape.
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