Stablecoin: clash between crypto and US banking lobbies

An unprecedented coalition of over 125 cryptocurrency companies and industry advocacy groups has launched a coordinated offensive against US banking lobbyists. The united front, which includes such giants as Coinbase, Gemini and Kraken, aims to counter pressure from traditional financial institutions to restrict the operation of stablecoins.

At the heart of this high-risk clash is a fundamental issue: the right to pay interest on stablecoin deposits, a market that is redefining the boundaries of modern finance.

The Node of the GENIUS Act and the "Escapade" of Return

The dispute revolves around the GENIUS Act, a recently passed legislation that explicitly prohibits issuers of stablecoins (such as Tether) from paying dividends directly to holders. However, there is a grey area in the current regulatory framework: a 'loophole' that allows third-party platforms, such as cryptocurrency exchanges, to pass on the returns from stablecoins to their users.

Traditional banking lobbies are lobbying Congress hard to close this channel, calling it a form of 'regulatory arbitrage'. According to banking industry representatives, allowing unregulated fintech platforms to offer high returns on cash-equivalent tokens poses a systemic risk to the entire global financial architecture.

The Banks' Warning: Capital Flight for 6.6 trillion

In recent briefings on Capitol Hill, the banks issued a shock warning: maintaining the current rules could trigger a massive capital flight. Estimates produced by lobbyists speak of potential deposit outflows from commercial banks to digital platforms of up to $6.6 trillion.

This shift, traditional lenders argue, would empty the capital base needed to underwrite mortgages and business loans, forcing institutions to reduce lending capacity and increase borrowing costs for American households.

The Crypto Coalition's Response

The industry's reaction was not long in coming. In a letter sent on 18 December to the US Senate Banking Committee, the coalition urged lawmakers to reject any attempt to expand the reach of the GENIUS Act.

The signatory companies dismissed the banks' concerns about stability as a mere protectionist effort to maintain a monopoly on low-interest deposits. According to the coalition, the banks would be trying to protect their profit margins by preventing consumers from accessing the 4% yields currently available in the Treasury bond market.

Tyler Winklevoss, co-founder of Gemini, has criticised the banking lobby's manoeuvre harshly, calling it an attempt to "reopen a legislative issue that has already been largely settled".