In August 2025, the American Banking Alliance (comprising several heavyweight institutions, including the Bank Policy Institute, BPI) submitted an urgent letter to Congress. The letter warned of potential "regulatory loopholes" in the GENIUS Act that could lead to up to $6.6 trillion in bank deposits flowing into the stablecoin market, an amount close to 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 instruments 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, "King of Understanding" Donald Trump signed the "Guidance and Establishment of the National Stablecoin Innovation Act" (GENIUS Act), which established 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 crypto exchanges or affiliated entities, thus opening a "backdoor" for stablecoins to obtain yields through third-party channels.
According to JDSupra's analysis, "payment stablecoins" are defined by the GENIUS Act as digital assets used for payments or settlements, and their issuers must be subsidiaries of deposit-taking institutions, federally qualified non-bank entities, or state-qualified issuers, with audited reserve reports published monthly. However, the GENIUS Act is vague on the core issue of "yield provision," leaving room for regulatory arbitrage. The Bank Policy Institute noted that while Circle's USDC does not provide yields itself, users holding USDC on partner exchanges like Coinbase can earn annual rewards of 2-5%. This essentially allows the issuer to indirectly provide yields through affiliated parties, completely circumventing the restrictions of the GENIUS Act.
$6.6 Trillion Transfer Risk: The "Doomsday Scenario" for Banking
In its letter to Congress, the Bank Policy Institute (BPI) cited data from a report by the U.S. Treasury in April, warning that if this loophole is not closed, it could trigger an outflow of $6.6 trillion in bank deposits (an amount equivalent to one-third of all commercial bank deposits in the U.S.). If this occurs, the banks' ability to create credit would be severely weakened, and loan interest rates would be pushed higher, 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 may lead depositors to transfer funds from traditional bank accounts to crypto exchanges. This risk of "deposit migration" is more pronounced during times of economic instability.
The current concerns regarding the stablecoin market are not unfounded. As of August 20, 2025, data from CoinStats shows that while its total market capitalization is only $288.7 billion, its growth rate is astonishing. The U.S. Treasury estimates that the stablecoin market could reach $2 trillion by 2028. If affiliated parties are allowed to provide yields, this growth could accelerate further, with the top two 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, and their "yield programs" on platforms like Coinbase and Kraken have become important tools for attracting users. Coinbase offers USDC holders an annual reward of 3.5%, while traditional bank savings accounts only yield 0.5%, making it quite attractive for depositors.
Market Status: The "Ice and Fire" of Stablecoins
The banking industry has issued stern warnings, yet the actual scale of the stablecoin market is still negligible compared to the U.S. M2 money supply of $22.118 trillion. This comparison raises controversy over the "urgency of the threat," with supporters arguing that the current risks are entirely manageable and that the banking industry's response is overblown. Opponents, however, emphasize that the growth potential and network effects of stablecoins could lead to systemic risks akin to "boiling frogs."
In practical applications, stablecoins have already taken on an important role in the payment sector. Data from NOWPayments indicates that in the first half of 2025, stablecoins accounted for 57.08% of merchant crypto 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 quick settlement advantages. For instance, in Kenya, stablecoin transaction volume grew by 43% in 2025, primarily for cross-border trade and salary payments, reflecting the unique value of stablecoins in meeting actual financial needs.
Regulatory Game: The "Balancing Beam" of Innovation and Stability
In this financial regulatory game, the positions of various parties are clear-cut. The banking alliance advocates for a complete ban on any form of yield from stablecoins, believing it is necessary to protect the stability of the financial system. In contrast, the crypto industry calls for "precise regulation," prohibiting only abusive practices without stifling innovation. On August 19, the U.S. Treasury announced 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 be jointly liable for the yield activities of affiliated parties or setting yield caps to prevent excessive competition. In a speech in February 2025, Federal Reserve Governor Christopher Waller stated that stablecoins are not the "deadly enemy," but rather regulatory arbitrage is. What we need is a regulatory framework that can protect consumers and financial stability while promoting innovation, a view shared by many industry insiders. They believe that while the GENIUS Act has good intentions, it needs to use technological means and more detailed rules to close loopholes rather than simply banning all yield activities.
The GENIUS Act is set to take effect in 2027 or earlier, leaving little time for regulators and market participants. If the banking alliance's demands are met, affiliated parties would be prohibited from providing yields on stablecoins. While the risk of deposit outflow may be temporarily curtailed, the innovative potential of stablecoins could also be stifled, pushing the market toward unregulated offshore platforms. If the status quo is maintained, traditional banking operations may be eroded more quickly 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 the space for regulatory arbitrage will be completely closed off are questions that will gradually be answered in the coming years. Regardless, stablecoins serve as a bridge connecting traditional finance and the crypto economy, and their developmental trajectory is already set. Finding a balance between innovation and stability will be a long-term challenge faced by regulators, practitioners, and users alike.
Conclusion: The "New Frontier" of Finance in the Digital Age
The American Banking Alliance is taking action to close the loopholes in the GENIUS Act, which essentially represents a "self-defense counterattack" by the traditional financial system in the face of the digital wave. While the risk of $6.6 trillion in deposit outflow may be exaggerated, it reflects the inevitability of transformation in the financial landscape. 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 those who adapt and those who are eliminated. Each of us must understand the essence of this transformation and acquire knowledge about emerging financial tools like stablecoins, as this will be an important capability for future financial decision-making. Moreover, regardless of how the GENIUS Act is ultimately revised, 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.
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