TLDR
- GENIUS Act bans direct interest on stablecoins, but allows affiliate payments.
- Big Tech firms may soon offer stablecoin yields, competing with traditional banks.
- Stablecoin adoption could lead to $6.6 trillion in deposit outflows from banks.
- Traditional savings accounts offer low interest, while stablecoins provide higher yields.
The stablecoin-focused GENIUS Act, which was passed in July, is expected to spark a shift in the financial landscape. Tushar Jain, the co-founder and managing partner of Multicoin Capital, believes the act signals the end of banks underpaying retail depositors. He suggests that large tech companies like Meta, Google, and Apple will soon compete with traditional banks by offering better yields on stablecoins, leaving the banking industry to adapt or face significant challenges.
The GENIUS Act and the End of Low Bank Yields
The GENIUS Act prohibits stablecoin issuers from offering direct interest payments to token holders. This law, however, does not close a potential loophole: stablecoin issuers might be able to offer yields through their affiliates, such as crypto exchanges. This loophole has caused concerns among banking groups, who have called for regulators to address it, fearing it could undermine the traditional banking system.
Jain argues that this shift will allow for more competitive rates on stablecoins compared to the low interest rates offered by traditional banks. With traditional savings accounts offering average rates of around 0.40% in the US and 0.25% in Europe, stablecoins like Tether (USDT) and USD Coin (USDC) are providing significantly higher returns through lending platforms. These platforms currently offer rates as high as 4%, which puts pressure on banks to raise their own deposit interest rates to stay competitive.
Potential for Big Tech to Enter the Financial Sector
Jain also predicts that major tech companies like Meta, Google, and Apple will start competing with banks for retail deposits. These companies, with their vast customer bases and technological capabilities, could offer superior stablecoin yields and enhanced user experiences. If they enter the stablecoin market, they could offer instant, 24/7 payments that rival traditional banking services.
This change could give consumers more options for managing their money, potentially shifting large amounts of capital away from banks. As tech giants explore stablecoin issuance to lower fees and improve cross-border transactions, they might attract users looking for higher yields and better service than traditional banks can provide.
Risks of Mass Stablecoin Adoption
The U.S. Treasury Department has warned that the widespread adoption of stablecoins could result in substantial outflows from traditional banking systems. According to estimates, this could amount to $6.6 trillion in lost deposits. Such a shift would increase the credit risk for banks and businesses, as fewer deposits would be available to fund loans.
A decrease in available capital for banks could lead to higher interest rates and fewer loans, which could hurt businesses and households. The Treasury’s concerns reflect the potential challenges that banks would face if consumers flock to stablecoins for better yields. Traditional banks might struggle to maintain their deposit base while trying to offer competitive returns without sacrificing profitability.
The Growing Stablecoin Market
Despite concerns, the stablecoin market continues to grow. As of now, the market cap for stablecoins is valued at $308.3 billion, with USDT and USDC leading the charge. The Treasury Department projects that the market will grow substantially in the coming years, reaching $2 trillion by 2028. As stablecoins become more widely used, they could change how people manage their finances, leading to more competition and innovation in the financial sector.
The GENIUS Act, with its potential to reshape how stablecoins operate, could play a key role in the future of finance. If tech companies do enter the market, traditional banks will have to evolve to maintain their relevance in a rapidly changing environment. The act sets the stage for a new era of financial services where consumers might enjoy better yields and more efficient payment systems.
