Counteroffensive from Crypto Industry Against Banking Proposals

The crypto industry is mounting a counteroffensive against Wall Street bankers’ bid to rewrite the U.S. stablecoin law. They argue that attempts to roll back core provisions of the Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act would disadvantage them against traditional banks.

In a letter to Senate Banking Committee leaders dated Aug. 19, the Crypto Council for Innovation and the Blockchain Association urged lawmakers to reject proposals from the American Bankers Association, Bank Policy Institute, and state banking groups. These proposals called for the removal of Section 16(d) of the law, which bans yield programs offered by affiliates of stablecoin issuers.

Section 16(d) permits subsidiaries of state-chartered institutions to conduct money transmission across state lines in support of stablecoin issuer activities, ensuring holders can redeem tokens nationwide without requiring separate state licenses.

Banking groups have warned that allowing state-chartered, uninsured institutions to issue stablecoins could result in regulatory arbitrage, bypassing state licensing regimes. They also claim that the law allows a loophole by banning issuers from offering interest while not stopping affiliates or exchanges from doing so, which they estimate could deplete up to $6.6 trillion in deposits from the U.S. banking system.

However, the crypto groups’ Aug. 19 letter dismissed these concerns as unfounded. Citing a study by Charles River Associates, they stated there’s no statistically significant link between stablecoin adoption and community bank deposit outflows. They emphasized that most stablecoin reserves remain within the financial system in commercial banks and Treasury securities, which continue to support lending.

Moreover, sharing rewards with stablecoin users promotes fair competition, particularly for underbanked consumers underserved by traditional banks. Currently, the average U.S. checking account yields only 0.07% APY, significantly below inflation, contrasted with the Federal Reserve’s benchmark interest rate of 4.25%-4.50%.

The letter warned that removing these features for stablecoin users while permitting them in the banking sector would unfairly benefit legacy institutions.

While the GENIUS Act is currently law, the broader Digital Asset Market Clarity Act, passed by the House and pending in the Senate, may still modify stablecoin policy before regulators begin drafting implementing rules. Bankers are leveraging this process to advance their agenda, while crypto groups are fighting to maintain the law’s integrity.

Republican Tim Scott of South Carolina, the Senate Banking chairman, indicated he expects the bill to be finalized by the end of September, with potentially 18 Democratic supporters. Still, he noted possible opposition from Sen. Elizabeth Warren of Massachusetts and her allies.

The final version will need to align with the House’s Digital Asset Market Clarity Act, which could offer bankers the opportunity to alter stablecoin provisions before regulators draft rules.