A coalition of leading cryptocurrency firms is urging lawmakers on the Senate Banking Committee to reject specific provisions concerning stablecoins outlined in the recently passed GENIUS Act. 

This push, coordinated by the Blockchain Association, comes as more than 125 participants from the crypto industry voice their opposition to a proposed reinterpretation of an existing prohibition on stablecoin interest.

Among the organizations backing this letter are the Bitcoin Policy Institute, the Crypto Council for Innovation, the DeFi Education Fund, the Solana Policy Institute, the Digital Chamber, as well as major players like a16z Crypto, Coinbase, Gemini, Kraken, and Ripple.

The GENIUS Act, signed into law by President Trump in July, is designed to set a regulatory framework for dollar-backed digital tokens, commonly known as stablecoins. A key element of this legislation is a provision that prevents stablecoin issuers from offering “any form of interest or yield.” 

However, this provision has ignited a contentious debate between the crypto and banking sectors regarding its extent and the necessity for any amendments.

Summer Mersinger, CEO of the Blockchain Association, addressed these concerns in comments to The Hill. “Reopening the issue before we have even started rulemaking just doesn’t make sense,” she stated, emphasizing the importance of maintaining legislative certainty. 

She argued that if Congress can revisit a bill immediately after it has been enacted, it raises questions about the law’s reliability for the marketplace.

The banking industry contends that the prohibition on interest should also apply to other entities that provide rewards to holders of stablecoins. They describe this stance as a crucial measure to address what they view as a “loophole,” asserting that it undermines the original intent aimed at stabilizing the financial ecosystem.

In contrast, the cryptocurrency sector maintains that the existing law strikes a careful balance that enables stablecoins to remain competitive in the payment services market. The letter from industry leaders outlines this perspective, stating: 

Congress prohibited stablecoin issuers from paying interest or yield to those holding stablecoins while intentionally preserving the ability of platforms, intermediaries, and other third parties to offer lawful rewards or incentives to consumers. 

At the heart of the debate are concerns from banks about potential deposit outflows. Financial institutions fear that allowing rewards could incentivize individuals to shift funds into stablecoins, thereby reducing the amount of capital available for lending.

In response to these concerns, the crypto industry has cited an analysis from Charles River Associates, which found no significant correlation between the adoption of stablecoins and levels of deposits at community banks.

Furthermore, they pointed out that it seems contradictory to claim that banks are truly constrained by deposits when approximately $2.9 trillion in bank reserves are currently earning interest at the Federal Reserve (Fed) rather than being utilized for loans.

The industry’s letter challenges the banking sector’s position, stating, “Opposition to stablecoin rewards reflects protection of incumbent revenue models, not safety and soundness concerns.”

Democrats believe that it is possible to find a balanced approach, stating, “Congress can find solutions to this issue that protect the banking system while still permitting rewards and incentives.”

Featured image from DALL-E, chart from TradingView.com 

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