Recently, the United States passed the (GENIUS Act), introducing a regulatory framework for the stablecoin market, a move that has sparked enthusiastic reactions in the cryptocurrency community but has raised alarms in traditional banking. The act not only regulates the $288 billion stablecoin market but also triggered intense debate due to its potential 'loopholes', which could lead to billions of dollars flowing from traditional banks to cryptocurrency exchanges, thus reshaping the global financial landscape.
Why are banks feeling the pressure?
(GENIUS Act) stipulates that stablecoin issuers cannot pay interest directly, but allows third-party exchanges to provide yields for stablecoins like Circle or Tether. This rule means that banks can issue their own stablecoins but cannot offer interest on these deposits. This has sparked widespread concern in the banking industry: cryptocurrency exchanges may attract customers by offering higher returns, leading to a loss of traditional bank deposits.
Industry organizations such as the American Bankers Association, the Bank Policy Institute, and the Consumer Bankers Association have explicitly opposed the act, labeling it a legal 'loophole'. They are concerned that customers may shift funds to cryptocurrency platforms in pursuit of higher returns, weakening the funding base of banks. Citi's future financial services head, Ronit Ghose, warned that the rise of high-yield alternatives like stablecoins could trigger capital outflows similar to the money market fund craze of the late 1970s to early 1980s. At that time, the size of money market funds surged from $4 billion in 1975 to $235 billion in 1982, far surpassing bank deposits, as regulated interest rates diminished the competitiveness of banks. According to Federal Reserve data, between 1981 and 1982, bank withdrawals exceeded new deposits by $32 billion.
PwC's Sean Viergutz further pointed out that if exchanges offer attractive returns while banks are constrained by interest rate caps, consumers may transfer funds on a large scale. This not only threatens the liquidity of banks but could also have far-reaching implications for the entire financial system.
Optimistic voices in the cryptocurrency community
Despite concerns in the banking sector, cryptocurrency supporters believe the (GENIUS Act) presents opportunities for financial innovation. Cryptocurrency entrepreneur Lark Davis stated that stablecoins will not threaten the financial system; rather, they may drive bank innovation, creating a more vibrant financial ecosystem. He emphasized that stablecoins operate on Layer-1 platforms like Ethereum, and every tokenized dollar of stablecoin increases the demand for blockchain networks (such as Ethereum). This is also why institutional investors are competing to accumulate Ethereum (ETH). Davis believes that stablecoins will provide consumers and institutions with more flexible and competitive financial options, fundamentally transforming the landscape of traditional banking services.
Global competition intensifies
The implementation of the (GENIUS Act) not only affects the United States but has also stirred waves globally. The Trump administration and Treasury Secretary Scott Bessent stated that stablecoins could stimulate demand for U.S. bonds, enhancing the global influence of the dollar. Meanwhile, industry leaders in the UK are calling for a national stablecoin strategy to maintain competitiveness in the digital finance sector. China is also exploring a stablecoin backed by the renminbi, aiming to elevate the global status of its currency.
Conclusion
(GENIUS Act) is both a milestone for the stablecoin market and an unprecedented challenge for traditional banking. Its 'loopholes' could result in funds flowing from banks to cryptocurrency exchanges, reminiscent of historical capital flight phenomena. However, the cryptocurrency community sees it as an opportunity for financial innovation, promoting a more competitive and adaptive financial ecosystem. As countries around the world accelerate stablecoin strategies, competition in the digital payment sector will intensify, and the transformative potential of stablecoins is becoming evident globally. In the future, the rivalry between traditional banks and emerging digital finance will profoundly impact the evolution of the global financial landscape.
