In August 2025, the American Banking Association (comprising several heavyweight institutions, including the Bank Policy Institute) submitted an urgent letter to Congress. The letter warns that the GENIUS Act has a potential 'regulatory loophole' that could allow up to $6.6 trillion in bank deposits to flow into the stablecoin market, an amount approaching nearly one-third of the U.S. GDP. This warning reveals and highlights the tense relationship between the traditional financial system and emerging digital assets, as well as the potential impact of stablecoins as new financial tools on the existing financial order. The concerns of the banking alliance are well-founded, as stablecoins like USDT and USDC are widely used on mainstream exchanges such as Coinbase and Kraken, which attract users with various 'yield programs,' posing an unprecedented threat to the deposit base of traditional banks.
GENIUS Act loophole: The 'gray area' of stablecoin yields
On July 18, 2025, former President Donald Trump signed the (Guidance and Establishment of the U.S. Stablecoin National Innovation Act) (GENIUS Act), which constructs a federal regulatory framework for payment stablecoins. It requires issuers to maintain reserves at a 1:1 ratio and prohibits algorithmic stablecoins, while also clarifying that stablecoins are not securities or commodities. However, the act has a critical loophole; while it explicitly prohibits stablecoin issuers from directly paying interest or yields to holders, it does not extend this ban to cryptocurrency exchanges or related enterprises, thus opening a 'backdoor' for stablecoins to earn yields through third-party channels.
JDSupra analysis states that 'payment stablecoins' are defined by the GENIUS Act as digital assets used for payment or settlement. Their issuers must be subsidiaries of insured depository institutions, federally qualified non-bank entities, or state-qualified issuers, and they must publish audited reserve reports monthly. However, the GENIUS Act is quite vague on the core issue of 'yield provision,' leaving a loophole for regulatory arbitrage. The Bank Policy Institute mentions that while Circle's USDC itself does not provide yields, users holding USDC on cooperating exchanges like Coinbase can earn annualized rewards of 2-5%. This effectively allows the issuer to indirectly provide yields through related parties, thereby completely circumventing the restrictions of the GENIUS Act.
$6.6 trillion transfer risk: The 'doomsday scenario' for the banking sector
The Bank Policy Institute (BPI) warned in a letter to Congress, citing data from a U.S. Treasury report in April, that if this loophole is not closed, it could trigger an outflow of $6.6 trillion in bank deposits (a figure equivalent to one-third of all commercial bank deposits in the U.S.). If this happens, the banks’ ability to create credit would be severely weakened, and loan interest rates would rise, ultimately harming the financing costs for ordinary households and businesses. BPI emphasized that banks rely on deposits to issue loans, and the high yields of stablecoins could lead depositors to shift their funds from traditional bank accounts to cryptocurrency exchanges, making this 'deposit migration' risk more pronounced during economic instability.
The current concerns regarding the stablecoin market are not unfounded. As of August 20, 2025, CoinStats data shows that its total market capitalization is only $288.7 billion, but the growth rate is astonishing. The U.S. Department of the Treasury estimates that the stablecoin market could reach $2 trillion by 2028. If related parties are allowed to provide returns, this growth may accelerate further, with the two largest stablecoins, Tether and USDC, accounting for over 80% of the market share. USDT has a market cap of $167.1 billion, while USDC reaches $68.3 billion. The 'yield programs' on platforms like Coinbase and Kraken have become important means of attracting users. Coinbase offers USDC holders an annualized reward of 3.5%, while the interest rate on bank savings accounts is only 0.5%, which is quite attractive for depositors.
Market situation: The 'ice and fire' of stablecoins
The banking sector has issued stern warnings, but the actual size of the stablecoin market is still trivial compared to the U.S. M2 money supply of $22.118 trillion. This data comparison has sparked debate about the 'urgency of threat'; supporters believe that the current risks are entirely manageable and that the banking sector is overreacting. Opponents, however, emphasize that the growth potential and network effects of stablecoins could lead to systemic risks akin to 'boiling a frog in water'.
In practical applications, stablecoins have already taken on an important role in the payment sector. NOWPayments data indicates that in the first half of 2025, stablecoins accounted for 57.08% of merchant cryptocurrency payments, with USDT and USDC together making up over 95%. In scenarios such as cross-border payments, e-commerce settlements, and remittances in emerging markets, stablecoins are gradually replacing traditional bank transfers and remittance services due to their low cost and fast transaction times. For instance, in Kenya, stablecoin transaction volumes are expected to grow by 43% in 2025, primarily for cross-border trade and salary payments, demonstrating the unique value of stablecoins in meeting actual financial needs.
Regulatory game: The 'balance beam' of innovation and stability
In this financial regulatory game, the positions of all parties are clearly defined. The banking alliance advocates for a complete ban on any form of stablecoin yields, arguing that this is necessary to protect the stability of the financial system. In contrast, the crypto industry advocates for 'precise regulation,' banning only abusive practices without hindering innovation. On August 19, the U.S. Department of the Treasury stated that it is seeking public input on the implementation of the GENIUS Act, particularly focusing on the use of technologies such as digital identity verification and blockchain monitoring in preventing illegal financial activities.
Some experts have proposed compromise solutions, such as requiring stablecoin issuers to bear joint liability for the yield activities of related parties or setting yield caps to prevent excessive competition. In a speech in February 2025, Federal Reserve Board member Christopher Waller stated that stablecoins are not the 'deadly enemy'; regulatory arbitrage is. What we need is a regulatory framework that can protect consumers and financial stability while also fostering innovation, a view shared by many industry insiders. They believe that while the GENIUS Act has good intentions, it needs to use technical means and more detailed rules to close loopholes, rather than simply banning all yield activities.
The GENIUS Act is set to be implemented by 2027 or earlier, leaving little time for regulators and market participants. If the demands of the banking alliance are met, related parties would be prohibited from providing stablecoin yields. While the risk of deposit outflow may be temporarily curtailed, the innovative potential of stablecoins might also be stifled, pushing the market towards unregulated offshore platforms. If the status quo is maintained, traditional banking could be more rapidly eroded by stablecoins, but this could also prompt banks to accelerate their digital transformation and launch more competitive products.
The financial choices of ordinary users will be directly influenced by the outcome of this regulatory game, and whether the high yields of stablecoins can be sustained, whether traditional banks will raise deposit rates to compete, and whether regulatory arbitrage will be completely blocked, are questions whose answers will gradually emerge in the coming years. In any case, stablecoins serve as a bridge connecting traditional finance and the crypto economy; their development trajectory is already set in stone, and finding a balance between innovation and stability will be a long-term challenge faced by regulators, practitioners, and users alike.
Conclusion: The financial 'new frontier' in the digital age
The American Banking Association has taken action to demand the closure of the loophole in the GENIUS Act. Essentially, this is a 'self-defense counterattack' of the traditional financial system in the face of the digital wave. Although the risk of $6.6 trillion in deposit outflows may be exaggerated, it reflects the inevitability of transformation in financial structures. Stablecoins are not only a new payment tool but also a catalyst for upgrading financial infrastructure, forcing traditional banks to rethink their business models and prompting regulators to update outdated regulatory frameworks.
In this 'new frontier' of digital finance, there are no absolute winners or losers; only adapters and those who are eliminated. Each of us must understand the essence of this transformation and master the knowledge of emerging financial tools like stablecoins, which will be an important capability for future financial decision-making. Moreover, regardless of how the GENIUS Act is ultimately amended, the integration of digital assets and traditional finance is an inevitable trend, and those who can navigate this trend will secure advantageous positions in the future financial landscape.
