The first U.S. law regulating stablecoins is already sparking friction between banks and the crypto industry. Major American banking groups are urging lawmakers to revise parts of the newly enacted GENIUS Stablecoin Act, warning that current provisions could disadvantage traditional lenders while giving crypto platforms an edge.
The GENIUS Act, passed in July, was hailed as a landmark in digital asset regulation. It set out clear rules for the fast-growing stablecoin market, aiming to strengthen oversight while keeping the U.S. competitive in global finance. One key restriction prevents stablecoin issuers—including banks—from paying direct interest or yield to holders.
That clause has become the heart of the dispute. Banks argue it leaves them at a disadvantage: while they cannot offer returns on their own stablecoins, exchanges such as Coinbase can still provide rewards on third-party tokens like Circle’s USDC or Tether’s USDT. The American Bankers Association and other groups have described this as a regulatory loophole, warning it could drive depositors away from banks in search of higher yields.
An April report from the U.S. Treasury estimated that if interest-bearing stablecoins gain traction, as much as $6.6 trillion could shift out of the traditional banking system—an outcome banks say could undermine financial stability.
Crypto advocates, however, reject the banks’ concerns. Groups including the Crypto Council for Innovation and the Blockchain Association argue the provision is intentional, not a flaw. They maintain that allowing exchanges to offer incentives supports competition and consumer choice, while shielding banks from competition would stifle innovation.
Paul Grewal, chief legal officer at Coinbase, has been among those pushing back, saying the industry needs room to evolve without what he described as unnecessary restrictions designed to protect incumbents.
The GENIUS Act was celebrated as a long-awaited milestone, offering clarity to an asset class that has operated in a regulatory gray area. But the pushback from banks highlights the difficult balancing act ahead: crafting rules that safeguard stability without smothering technological progress.
As lawmakers weigh potential adjustments, the debate underscores how high the stakes have become—both for Wall Street and for the future of digital finance.
