What happened?
Major U.S. banking trade groups have called on Congress to close a loophole in the GENIUS Act that allows stablecoin issuers and their affiliates to pay interest to token holders. These banking associations argue that without this change, banks could see significant deposit outflows, which would impact their ability to lend money. The debate over this issue is part of a broader discussion on the role of stablecoins in the financial system.
Who does this affect?
The proposed changes primarily affect stablecoin issuers, exchanges, and their affiliated partners who are currently able to offer interest on stablecoins due to the loophole. It also has implications for banks, as they fear losing deposits to stablecoins with interest offerings, which could impact their lending capabilities. Additionally, businesses and households could be affected by potential increases in borrowing costs if banks face funding pressures.
Why does this matter?
Closing the interest-payment loophole for stablecoins could significantly impact the market, especially for U.S.-issued stablecoins competing internationally where regulated yield-bearing tokens may be allowed. It could also influence domestic credit stability and the competitive edge of U.S. stablecoins in global markets. Political shifts and international regulatory norms may further shape how aggressively restrictions on stablecoins are enforced or adapted, affecting their future use and market dynamics.