In August 2025, a coalition of US banking industry groups (including several heavyweight institutions, with the Bank Policy Institute, BPI, among them) 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 US GDP. This warning reveals and highlights the tension between the traditional financial system and emerging digital assets, as well as the potential impact of stablecoins as a new financial instrument on the existing financial order. The banking coalition's concerns are well-founded; stablecoins like USDT and USDC are widely used on major exchanges such as Coinbase and Kraken, which attract users with various "yield programs," posing an unprecedented threat to the deposit base of traditional banks.
The GENIUS Act Loophole: The "Gray Area" of Stablecoin Yield
On July 18, 2025, "the Donald," Trump, signed the Guidance for Establishing National Innovation for U.S. Stablecoins Act (GENIUS Act). This act establishes a federal regulatory framework for payment stablecoins, requiring issuers to maintain 1:1 reserves, prohibiting algorithmic stablecoins, and clarifying that stablecoins are not securities or commodities. However, a key loophole exists in the act: while it explicitly prevents stablecoin issuers from paying interest or yield directly to holders, it does not extend this prohibition to cryptocurrency exchanges or affiliated entities, thereby opening a "backdoor" for stablecoins to earn yield through third-party channels.
JDSupra analysis indicates that "payment stablecoins" are defined by the GENIUS Act as digital assets used for payments or settlement. Their issuers must be subsidiaries of insured depository institutions, federally qualified nonbank entities, or state-qualified issuers, and they must publish monthly audited reserve reports. However, the GENIUS Act is notably ambiguous on the core issue of "yield provision," creating room for regulatory arbitrage. The Bank Policy Institute pointed out that while Circle's USDC itself does not offer yield, on partner exchanges like Coinbase, users holding USDC can receive annualized rewards of 2-5%. This essentially allows the issuer to indirectly provide yield through affiliates, completely circumventing the restrictions of the GENIUS Act.
Market Reality: Stablecoins' "Contradictory State"
The banking industry has issued stern warnings, but the actual size of the stablecoin market is still negligible compared to the US M2 money supply of $22.118 trillion. This data comparison fuels debate over the "urgency of the threat." Proponents believe the current risk is entirely manageable and the banking industry is overreacting. Opponents, however, emphasize that the growth potential and network effects of stablecoins could lead to a systemic risk akin to "boiling a frog alive."
In practical applications, stablecoins already play a significant role in payments. NOWPayments data shows that in the first half of 2025, stablecoins accounted for 57.08% of merchant crypto payments, with USDT and USDC combined making up over 95%. In scenarios like cross-border payments, e-commerce settlement, and remittances in emerging markets, stablecoins offer advantages of low cost and rapid settlement, gradually replacing traditional bank transfers and remittance services. For instance, stablecoin transaction volume in Kenya, Africa, grew by 43% in 2025, primarily used for cross-border trade and salary payments, demonstrating the unique value of stablecoins in meeting practical financial needs.
The $6.6 Trillion Transfer Risk: The Banking Industry's "Doomsday Scenario"
In its letter to Congress, the Bank Policy Institute (BPI) cited data from an April US Treasury report, warning 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 the total deposits in all US commercial banks). Should this happen, banks' credit creation capacity would be severely weakened, loan interest rates would be pushed higher, and ultimately, the financing costs for ordinary households and businesses would suffer. BPI stressed that banks rely on deposits to make loans. The feature of high yield from stablecoins might entice depositors to move funds from traditional bank accounts to crypto exchanges, a risk that becomes more pronounced during economic instability.
This concern is not unfounded given the current stablecoin market. According to CoinStats data as of August 20, 2025, the total market capitalization, though only $288.7 billion, is growing at an astonishing rate. The US Treasury estimates the stablecoin market size could reach $2 trillion by 2028. Growth could accelerate further if affiliated entities are allowed to provide yield. The top two stablecoins, Tether (USDT) and USDC, hold over 80% market share. USDT has a market cap of $167.1 billion, and USDC $68.3 billion. Their "yield programs" on platforms like Coinbase and Kraken are key tools for attracting users. Coinbase offers USDC holders an annualized reward of 3.5%, compared to a mere 0.5% interest rate on bank checking accounts, making it quite attractive to depositors.
Regulatory Game: The "Balancing Act" Between Innovation and Stability
In this financial regulatory game, the positions of various parties are clear. The banking coalition advocates for a complete ban on any form of stablecoin yield, believing it necessary to protect the stability of the financial system. The crypto industry promotes "precision regulation," banning only abusive practices without hindering innovation. On August 19, the US Treasury issued a statement saying it is soliciting public comments on the implementation of the GENIUS Act, particularly focusing on the use of technologies like digital identity verification and blockchain monitoring to prevent illicit financial activities.
Some experts propose compromise solutions, such as requiring stablecoin issuers to bear joint liability for the yield activities of affiliates 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 "enemy," but regulatory arbitrage is. What is needed is a regulatory framework that protects consumers and financial stability while also promoting innovation—a view shared by many industry insiders. They believe the GENIUS Act has good intentions but needs to use technical means and more detailed rules to plug 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 coalition's demands are met and affiliates are prohibited from providing stablecoin yield, the risk of deposit outflow might be temporarily contained. However, the innovative potential of stablecoins could also be stifled, potentially pushing the market towards unregulated offshore platforms. If the status quo is maintained, traditional banking could be eroded faster by stablecoins, though this might also push banks to accelerate digital transformation and launch more competitive products.
The financial choices of ordinary users will be directly affected by the outcome of this regulatory game. Answers to questions such as whether the high yield of stablecoins can be sustained, whether traditional banks will raise deposit rates to compete, and whether the regulatory arbitrage space will be completely closed, will gradually emerge in the coming years. Regardless, stablecoins are a bridge connecting traditional finance and the crypto economy, and their development trajectory is already irreversible. Finding a balance between innovation and stability will be a long-term challenge shared by regulators, industry players, and users.
Conclusion: The Financial "New Frontier" of the Digital Age
The action by the US banking coalition to demand the closure of the GENIUS Act loophole is essentially a "counterattack" by the traditional financial system in the face of the digital wave. Although the risk of a $6.6 trillion deposit outflow might be exaggerated, it reflects the inevitability of change in the financial industry landscape. Stablecoins are not only a new payment tool but also a catalyst for the upgrade of financial infrastructure. They are forcing traditional banks to rethink their business models and prompting regulators to update outdated rule systems.
In this "New Frontier" of digital finance, there are no absolute winners or losers, only those who adapt and those who are left behind. We all need to understand the nature of this transformation and grasp knowledge of emerging financial tools like stablecoins; this will be a crucial skill for future financial decision-making. Furthermore, regardless of how the GENIUS Act is ultimately amended, the integration of digital assets and traditional finance is an inevitable trend. Those who can navigate this trend will secure an advantageous position in the future financial landscape.
