Key Takeaways:
- Crypto groups urge Congress to protect the GENIUS Act from Wall Street-backed amendments.
- Research shows stablecoins don’t threaten bank liquidity and reserves remain in banks or Treasuries.
- Section 16(d) safeguards cross-state redemption, while crypto yields drive competition for consumers.
Two of the biggest crypto advocacy groups are encouraging lawmakers not to succumb to Wall Street’s pressure as a battle rages over the newly enacted GENIUS Act, the United States’ landmark stablecoin legislation.
The Crypto Council for Innovation (CCI) and the Blockchain Association issued a letter to the Senate Banking Committee and urged Congress to reject amendments proposed by the American Bankers Association (ABA) and other financial institutions.
The advocacy group, called the Bank Policy Institute (BPI), which is led by traditional financial institutions, sent a letter on August 12th to the Senate and urging Congress that the current version of the GENIUS Act has a loophole that might allow exchanges or stablecoin issuers to pay out returns indirectly. However, the current version of the regulation does not allow stablecoin issuers to offer yields themselves. But affiliates or key business partners, such as cryptocurrency exchanges, are able to offer yields. The BPI believes affiliates offering returns might erode the nation’s banking deposit bases and could potentially drain approximately $6.6 trillion if yield-bearing stablecoins gained traction with savers.
In response to that, Crypto Council for Innovation (CCI) and the Blockchain Association sent a joint letter to the Senate, arguing that, according to research by Charles River Associates, there is little evidence that yield-bearing stablecoin products would drain liquidity from the banking system. Statistically, no significant relationship was found between stablecoin adoption and deposit outflows from major community banks. The letter also states that the majority of stablecoin reserves would remain locked up in commercial banks’ deposits or short-term Treasuries, enhancing liquidity in the banking system.
The letter also argues against removing Section 16(d) of the GENIUS Act because it protects stablecoin holders by allowing them to redeem their coins across state lines without requiring additional permits. Removing it would allow states to prevent redemptions, resulting in a complex, fragmented system that restricts access to financial goods and damages interstate commerce.
The advocacy groups argued that while the Federal Reserve’s interest rates are above 4%, banks are still offering near-zero returns on national average checking and savings accounts, which are at 0.07% and 0.38% respectively, according to the letter. Leaving consumers losing to inflation. They said banks capture the yield gap as profit, while third-party platforms offering rewards and yield programs create real competition that benefits consumers.
The stablecoin market is currently valued at $288 billion, a small part of the $22 trillion US money supply. The Blockchain Association and the Crypto Council for Innovation strongly believe that altering the regulations already enacted in the GENIUS Act would stifle innovation and hinder the growth of the digital assets industry.
