TLDR
- US banks urge Congress to close a loophole in the GENIUS Act allowing yield-bearing stablecoins.
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Stablecoin issuers may bypass the GENIUS Act’s yield ban via affiliate companies.
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Bank groups warn stablecoin yields could trigger $6.6 trillion deposit outflows.
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Stablecoin market still small but growing, with $280 billion in total market cap.
Several US banking groups, including the Bank Policy Institute (BPI), are calling on Congress to address what they describe as a loophole in the GENIUS Act related to stablecoin yield. The banking groups argue that, while the GENIUS Act prohibits stablecoin issuers from offering interest or yields directly, it fails to extend this ban to affiliated entities like crypto exchanges. This could allow stablecoin issuers to bypass the law and offer yield-bearing products through their partners.
In a letter to Congress, the banking groups warned that such actions could result in significant disruptions to the traditional banking system. They noted that stablecoin yields are one of the main selling points for attracting users, making it a critical issue for regulators to address. According to the groups, allowing this loophole to remain open could cause up to $6.6 trillion in deposit outflows from the banking system.
GENIUS Act Stablecoin Yield Ban and Its Potential Loophole
The GENIUS Act, signed into law in July 2025, prohibits stablecoin issuers from offering yields to holders of the tokens directly. However, it does not explicitly extend this ban to crypto exchanges or affiliated firms.
Stablecoin issuers, such as Circle, have been offering yields on their USDC token when held on platforms like Coinbase and Kraken. This setup allows users to earn rewards while holding stablecoins, which could undermine the intent of the law, according to the banking groups.
The current situation presents a risk, as stablecoin issuers could indirectly circumvent the rules. By working with affiliates, they could continue offering yield on stablecoins without directly violating the law. The banking groups have expressed concern that this could create an unregulated environment for yield-bearing stablecoins, which could significantly shift how financial systems operate.
Banking Groups Warn of Risks to Credit System
In their letter to Congress, the banking groups highlighted the broader financial risks posed by this issue.
They argued that if stablecoins were allowed to offer yield, it could lead to a “reshuffling” of funds from traditional bank deposits into stablecoins, creating a risk to credit creation in the economy.
The BPI warned that such a shift could lead to reduced access to credit, higher interest rates, and fewer loans for businesses and consumers. This would, in turn, hurt economic activity and increase costs for American families. “The result will be greater deposit flight risk, especially in times of stress,” BPI noted in its letter.
Stablecoin Market’s Growth and the Debate Over Regulation
Despite these concerns, the stablecoin market remains relatively small in comparison to the overall US money supply. As of June 2025, the market cap of all stablecoins is about $280.2 billion, which represents just a fraction of the $22 trillion money supply tracked by the Federal Reserve.
However, the stablecoin market is growing quickly, with the Treasury Department projecting it could reach $2 trillion by 2028.
Currently, stablecoins such as Tether (USDT) and USDC dominate the market, together accounting for over 80% of the total stablecoin market cap. While these figures may seem small relative to the broader economy, the potential for rapid growth has triggered concerns among regulators and bankers about their impact on the financial system.
