TLDR
- John Deaton criticizes the Bank Policy Institute’s call to close the stablecoin yield loophole.
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BPI warns that stablecoin yields could lead to $6.6 trillion in deposit outflows.
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Deaton supports greater competition in the banking sector, including for crypto.
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The GENIUS Act bans yield on stablecoins, but BPI seeks further restrictions.
John Deaton has voiced strong opposition to the Bank Policy Institute (BPI) following their push to close what they refer to as the “stablecoin yield loophole” in the GENIUS Act. This move, backed by banking groups including the American Bankers Association (ABA), comes in the wake of concerns that stablecoin issuers might sidestep restrictions on yield offerings. Deaton’s response highlighted the broader issue of traditional banks fearing competition from the growing cryptocurrency market, with stablecoins posing a challenge to the status quo.
In his comments, Deaton stressed that the efforts of the BPI, which is led by Jamie Dimon, should be resisted. He believes that these moves are meant to prevent the free market from fostering competition, which, in turn, would spur innovation and reduce costs for consumers. Deaton’s remarks resonate with those in the crypto space who view such regulatory actions as barriers to progress, rather than protective measures for the economy.
BPI’s Argument on the GENIUS Act’s Loophole
The Bank Policy Institute, along with other banking organizations, has raised alarms about a potential loophole in the GENIUS Act, a piece of legislation that regulates stablecoin issuance. According to the BPI, the GENIUS Act prohibits stablecoin issuers from offering interest or yield directly to holders.
However, they argue that the law does not extend this ban to crypto exchanges and other affiliated businesses, allowing stablecoin issuers to potentially offer yield through those channels. This concern is based on the fact that some stablecoins, like USDC, offer yield through platforms such as Coinbase and Kraken, which do not fall under the same regulatory framework as banks.
The Bank Policy Institute, with Jamie Dimon as its Chairman, wrote @ewarren’s anti-crypto Bill, which banned the self-custody of Bitcoin.
As a matter of principle, ANYTHING the BPI is pushing should likely be opposed.
The Banks are SCARED of competition. I hope @coinbase… https://t.co/DSzFYb5MnL
— John E Deaton (@JohnEDeaton1) August 15, 2025
The BPI fears that these yield-bearing stablecoins could lead to a massive flow of deposits away from traditional banks, threatening the stability of the current banking system. They estimate that if left unchecked, this could result in up to $6.6 trillion in deposit outflows, severely disrupting the financial ecosystem. The organization is calling for Congress to act swiftly to close the loophole, arguing that such a move would protect the integrity of the banking system.
Stablecoins and Their Challenge to the Banking System
The banking sector’s resistance to the growth of stablecoins is rooted in the role that traditional banks play in the U.S. financial system. Banks rely on attracting deposits with competitive interest rates in savings products, which in turn allow them to make loans and invest in securities.
Stablecoins, however, do not offer the same kind of backing. Instead, they maintain their value through algorithmic mechanisms or by being pegged to traditional fiat currencies, like the U.S. dollar.
Despite these differences, stablecoins are seen as a competitor to traditional deposits because they provide users with the ability to earn yield without the same regulatory requirements banks face. Some argue that the ability for stablecoin issuers to offer yield creates an unfair advantage over traditional financial institutions, which are constrained by regulations that prevent them from offering similar yields. As the adoption of cryptocurrencies and stablecoins grows, banks are increasingly concerned about their ability to compete on a level playing field.
John Deaton Call for Free Market Competition
John Deaton has consistently championed the idea that free market capitalism should allow for the emergence of competition, especially in industries like banking and finance. He advocates for the equal treatment of cryptocurrency and traditional banking entities, believing that competition will lead to innovation and better outcomes for consumers.
Deaton’s stance aligns with the broader crypto community, which has argued that regulations should not stifle innovation but rather ensure fairness in the market. By limiting the ability of crypto companies to operate freely, Deaton and others believe that regulators are preventing the industry from realizing its full potential. His remarks reflect a belief that the current banking system needs reform to remain competitive in the rapidly changing financial landscape.
In a related post, Paul Grewal, General Counsel at Coinbase, pointed out that 376 members of Congress rejected attempts to limit competition, criticizing what he called an “unrestrained effort” to suppress market forces. Grewal’s comment, along with support from Deaton, reflects growing frustration with the political forces trying to block competition from crypto entities.
