Several U.S. banking groups, led by the Bank Policy Institute (BPI), are calling on regulators to close a loophole that could indirectly allow stablecoin issuers and their affiliated companies to pay interest or returns.
In a letter submitted to Congress on Tuesday, the BPI warned that if the loophole in the new stablecoin law of the GENIUS Act is not closed in a timely manner, it could disrupt the flow of credit to U.S. businesses and households, potentially triggering a $6.6 trillion loss in deposits.
Although the GENIUS Act prohibits stablecoin issuers from offering interest or returns to token holders, it does not explicitly extend the ban to cryptocurrency exchanges or affiliated companies, which may allow issuers to provide returns through these partners to circumvent the law.
Offering returns is one of the main ways to attract users. Banking groups believe that widespread adoption of interest-bearing stablecoins could undermine the banking system, which relies on high-interest deposits to attract funds.
Banks say stablecoins could undermine the credit system.
The letter points out that stablecoins are fundamentally different from bank deposits and money market funds because they do not provide returns through loans or investments in securities.
These distinctions make paying interest on stablecoins different from the returns offered by regulated banks or money market funds.
Allowing the payment of interest or returns could lead to a $6.6 trillion loss in deposits, the BPI cited a report from the U.S. Treasury in April. Such a significant shift in the financial system could pose serious risks to the U.S. credit system, increasing interest rates, reducing loans, and raising costs.
The stablecoin market remains a small part of the U.S. money supply.
The total market capitalization of the stablecoin market is $280.2 billion, only a small part of the $22 trillion U.S. money supply reported by the Federal Reserve at the end of June.
The stablecoin market is dominated by Tether (USDT) and USDC, which together account for over 80%, valued at $165 billion and $66 billion, respectively.
U.S. President Trump signed the GENIUS Act on July 18, which is expected to see the stablecoin market grow to $2 trillion by 2028.
