(GENIUS Act) triggers a strong rebound in the U.S. banking industry, raising concerns that stablecoins will siphon off a large amount of deposits under uneven regulation, impacting their core business and financial stability. (Background: The market capitalization of USDe and USDS has skyrocketed! 'Yield Arbitrage' is attempting to counter the GENIUS Act's ban on interest for stablecoins.) (Contextual background: With the implementation of the GENIUS Act, how should we cautiously approach the narrative around stablecoins?) The GENIUS Act has been in effect for less than a month, and an unexpected battle has begun in Washington. On August 16, 52 banks, lobbying groups, and consumer organizations led by the American Bankers Association (ABA) jointly issued a letter to the Senate Banking Committee, publicly calling for amendments to the (GENIUS Act). The core demand of the joint action directly targets the special provisions in the (GENIUS Act), arguing that it poses a threat to the existing financial system in the United States. Behind the joint letter lies a multi-faceted game of power between old and new forces surrounding regulatory authority, credit models, and sources of profit. The traditional banking sector is concerned that if the (GENIUS Act) is implemented in its current form, it may threaten its core position in the financial industry chain. Background Recap: The Rise of the Trillion-Dollar Stablecoin Market. The passage of the (GENIUS Act) coincides with the exponential growth of the stablecoin market. Over the past three years, the stablecoin market has steadily grown, continuously reaching new highs. As of August 19, the total size of the stablecoin market approached $267.5 billion. Among them, USDT and USDC occupy over 85% of the market share, with market capitalizations exceeding $165 billion and $66 billion respectively, creating a highly concentrated market structure that gives Tether and Circle, the two major stablecoin issuers, significant influence. Both Standard Chartered Bank and U.S. Treasury Secretary Yellen's forecasts indicate that under the regulatory framework of the (GENIUS Act), the stablecoin market is expected to reach $2 trillion by the end of 2028. This anticipated explosive growth suggests that stablecoins are undergoing a role transformation from 'crypto speculative tools' to 'major buyers of U.S. Treasuries.' Due to the strict limitations on reserve assets imposed by the (GENIUS Act), short-term U.S. Treasuries, backed by national credit, extremely low default risk, and high liquidity, have become the ideal choice for stablecoin issuers. Tether has become the seventh largest holder of U.S. Treasuries, with holdings exceeding $120 billion, a figure that surpasses the U.S. Treasury holdings of sovereign countries like Germany. The systemic trend of massive dollar capital converting into demand for U.S. Treasuries offers the U.S. government a new stable 'funder.' This also means that the impact of stablecoin development has far exceeded the realm of the crypto market, gradually manifesting its influence on the U.S. fiscal and global financial landscape. The Banking Sector's Outcry: A Battle for Interests Amid Multiple Concerns. The cause of the two-way game is the panic in the TradFi system regarding the deep structural impact stablecoins are starting to have. The 52 organizations led by the American Bankers Association (ABA) publicly expressed serious concerns about the (GENIUS Act) in their letters. Although the bill overall lays the groundwork for banks to issue crypto assets, the core demand of the banking industry is to repeal Section 16(d), which is seen as a 'time bomb.' Section 16(d) of the (GENIUS Act) grants state-chartered depository institutions that are not federally insured the ability to open stablecoin subsidiaries, allowing them to operate fund transfers and custody activities nationwide, meaning such institutions can evade licensing requirements and regulatory rules in their operating states. The banking sector believes that Section 16(d) provides certain non-bank entities with 'chartered permissions,' allowing them to operate across state lines like federally regulated banks without bearing the same consumer protection and prudential regulatory obligations. Such regulatory arbitrage behavior would not only destroy the balance between state and federal agencies in the U.S. financial system but also weaken states' power to protect their consumers. Under traditional frameworks, depository institutions not federally insured must obtain approval and be subject to regulation from the custodial state to operate in other states. However, Section 16(d) of the (GENIUS Act) disrupts that balance, opening a backdoor for institutions seeking to evade strict regulation and increasing the financial risks consumers face in the event of institutional bankruptcy. The deeper concern of the banking sector lies in the threat stablecoins pose to their low-cost deposit base on which they rely for survival. If stablecoin issuers or their associated platforms attract users through payment rewards or returns, a massive outflow of deposit funds may occur from the traditional banking system to the stablecoin system. A report from the U.S. Treasury estimates that if stablecoins are authorized to provide returns, it could lead to an outflow of up to $6.6 trillion in deposits, with a more significant impact on small and medium-sized banks. An article published in the ABA banking journal also pointed out that if the stablecoin market reaches a scale of $2 trillion, it would lead to a loss of approximately $1.9 trillion in bank deposits, nearly 10% of total bank deposits in the U.S. Such large-scale deposit outflows would trigger a series of chain reactions: 1) Banks must seek new sources of funds to fill the deposit gap, such as high-cost financing through repurchase agreements, interbank lending, or issuing long-term debt. According to ABA DataBank calculations, if 10% of core deposits flow out, the average cost of funds for banks could rise by 24 basis points. 2) Deposits are the source of funds for banks to issue loans. Deposit outflows will directly weaken the banks' credit supply capacity, forcing them to reduce credit supply. 3) Rising funding costs and credit contraction in banks will translate into higher loan rates, thereby increasing borrowing costs for SMEs and households, suppressing real economic activity. In addition to the structural threat of deposit outflows, the large-scale adoption of stablecoins will also erode the banks' sources of profit. Moody's analysts believe that as stablecoins penetrate the payment sector, banks' service fee income from cash management, clearing, and remittances will be under long-term pressure. The essence of the two-way game is the competition of different business models: banks profit through 'accepting low-cost deposits - lending high-interest loans,' while stablecoin issuers earn interest income by 'absorbing dollars - purchasing high-yield U.S. Treasuries.' Although the (GENIUS Act) prohibits stablecoin issuers from directly paying interest to users, their partnered CEXs can still attract funds by offering rewards to circumvent the ban, strengthening the siphoning effect on bank deposits. For instance, USDC has already collaborated with exchanges like Coinbase and Binance to launch limited-time deposit reward campaigns. However, it is interesting to note that the American Bankers Association (ABA) has not maintained a consistent stance; on one hand, it opposes certain provisions of the (GENIUS Act), while on the other hand, it has previously praised the act for opening up 'tokenized deposits' issuance channels for banks. The contradictory attitude of the American Bankers Association (ABA) also reflects a key strategy of the banking industry: they do not oppose crypto assets but hope to participate in a way that benefits themselves, that is, by mastering the dominant position in the crypto economy through innovations like 'tokenized deposits' while vehemently resisting non-bank entities from obtaining equal treatment, ensuring their core position in the financial industry chain. The Game Between Old and New Forces: Potential Collaboration Models Between Banks and Stablecoin Issuers. Although the competition between the two sides is gradually heating up, the business world is not just a zero-sum game of 'you die, I live.' Banking giants like JPMorgan have already begun exploring new business models like 'tokenized deposits,' which combine the credibility of traditional banks with the immediate settlement capabilities of blockchain technology, blurring the lines between banks and stablecoin issuers. Banks are not only competitors to stablecoin issuers but can also become important partners. With the implementation of the (GENIUS Act), compliant stablecoin issuers...

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