Written by: 100y.eth
Compiled by: Saoirse, Foresight News
Under the GENIUS Act, stablecoin issuers are prohibited from paying interest to stablecoin holders.
However, Coinbase is currently offering a 3.35% reward to users holding USDC on the platform. This is possible because the GENIUS Act only prohibits issuers from paying interest, without restricting distributors.
However, before the relevant committee of the U.S. Senate deliberated on the Crypto Markets Structure Act on January 15 (which aims to systematize cryptocurrency regulation), a debate had already begun on whether the ban on stablecoin interest rates should be extended to the distribution stage.
Strong opposition from the banking industry
The American Bankers Association (ABA) is the leading group calling for a complete ban on interest payments on stablecoins. In an open letter released on January 5, the ABA argued that the interest payment ban under the GENIUS Act should not only apply to issuers but should be interpreted broadly to extend its scope to related parties. They are pushing to explicitly include this interpretation in the Crypto Markets Structure Act.
Reasons behind the banking sector's strong opposition
The reason why the banking industry is so determined to completely ban stablecoin interest payments is actually quite simple:
- Concerns about the outflow of bank deposits;
- Decreased deposits mean reduced lending capacity;
- Stablecoins are not protected by the Federal Deposit Insurance Corporation (FDIC).
Ultimately, stablecoins are threatening the stable and highly profitable business model that the banking industry has relied on for decades.
The crypto industry's counterattack
From the perspective of the crypto industry, this move by the banking sector is a major problem. If, due to lobbying pressure from the banking sector, the Crypto Market Structure Act is passed to expand the restrictions of the GENIUS Act, it would effectively be a disguised rewriting and restriction of this already passed act. Unsurprisingly, this action has triggered strong opposition from the crypto industry.
Coinbase's position
Coinbase Chief Policy Officer Faryar Shirzad countered, citing research indicating that stablecoins have not caused a substantial outflow of bank deposits. He further elaborated on the debate by citing news of interest payments from the digital yuan.
Paradigm's perspective
Alexander Grieve, Vice President of Government Affairs at crypto investment firm Paradigm, offered another perspective. He argued that even if stablecoins used only for payments were allowed to earn interest, it would still amount to a de facto "holding tax" for consumers.
What is the situation in China and South Korea?
While China and South Korea have lagged behind some Asian countries in the pace of their cryptocurrency-related policy developments, both have recently introduced a series of new initiatives surrounding central bank digital currencies (CBDCs) and stablecoins. The policy differences between the two countries on the issue of interest payments are particularly noteworthy.
The People's Bank of China has decided to pay interest on the digital yuan, treating it the same as ordinary bank deposits, in order to promote the widespread adoption of the digital yuan.
South Korea's policy direction is closer to that of the United States: it prohibits issuers from paying interest, but does not explicitly prohibit distributors from doing so.
From a macro perspective, China's aggressive policy stance is not difficult to understand. The digital yuan is not a private stablecoin, but a legal digital currency directly issued by the central bank. Promoting the digital yuan can both counterbalance the dominant position of private platforms such as Alipay and WeChat Pay and strengthen the financial system centered on the central bank.
Conclusion
New technologies give rise to new industries, and the rise of new industries often poses a threat to traditional industries.
Traditional financial institutions, represented by banks, are facing an irreversible trend of transitioning to the era of stablecoins. At this juncture, resisting change will do more harm than good; embracing change and exploring new opportunities is the wiser choice.
In fact, even for existing market participants, the stablecoin industry holds enormous opportunities. Many banks have already begun proactively positioning themselves in this sector.
Bank of New York Mellon is expanding its operations around stablecoin reserve custody services.
Cross River Bank acts as an intermediary for Circle's USDC fiat currency deposit channel through an application programming interface (API).
JPMorgan Chase is testing the waters with tokenized deposit services.
Major card organizations also have vested interests in this matter. As the scale of on-chain payments continues to expand, the business of traditional card organizations may face shrinkage. However, companies such as Visa and Mastercard have not chosen to fight against this trend; instead, they are actively supporting stablecoin payment settlements and seeking new development opportunities.
Asset management institutions are also entering the fray. Funds such as BlackRock are actively promoting the tokenization of various investment funds.
If the banking sector's lobbying ultimately succeeds and a clause banning stablecoin interest payments is written into the Crypto Markets Structure Act, the crypto industry will suffer a severe blow.
As someone working in the crypto industry, I can only hope that the Crypto Market Structure Act will not include provisions that would effectively undermine the GENIUS Act.
