The bank lobby’s recently requested amendments to the GENIUS Act, a piece of legislation designed to regula…

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The bank lobby’s recently requested amendments to the GENIUS Act, a piece of legislation designed to regulate stablecoins, have drawn sharp criticism from cryptocurrency industry leaders and advocacy groups. These changes, if implemented, are viewed by some as a threat to market competition that could ultimately weaken the global position of the U.S. dollar. On Tuesday, the Blockchain Association expressed strong opposition to a move by community bankers that seeks to prohibit stablecoin issuers from offering yield to tokenholders through third-party intermediaries. The association described this effort as a last-ditch attempt by large banking institutions to block competition following the establishment of a careful, bipartisan agreement in Congress.

The core of the dispute involves the current state of the GENIUS Act, which officially bans stablecoin issuers from directly offering interest or yield to their users. However, community banks have argued that rewards are still reaching users through alternative channels, and they are now advocating for the closure of this perceived loophole. These banking groups maintain that such a step is crucial for protecting their traditional lending abilities, which they claim are being undermined by the current landscape. This push for stricter regulation comes as industry participants warn that the progress made toward a stable regulatory environment for digital assets could be at risk of being undone by incumbent financial interests seeking to preserve their market share.

Context

The tension between traditional financial institutions and the burgeoning stablecoin market has intensified as the GENIUS Act enters a critical phase of discussion. While the act already contains a ban on direct yield from issuers, the ongoing debate centers on the legality and impact of rewards provided through third parties. Community banks have highlighted these rewards as a significant concern, arguing that the ability to offer yield gives stablecoins an advantage that threatens the traditional banking model’s lending stability. In direct contrast, the Blockchain Association has stated that there is currently no evidence to suggest that stablecoin adoption is dismantling traditional financial institutions. The association argues that the pressure from bank lobbies is not rooted in new risks or evidence, but rather in a desire to maintain market dominance.

Furthermore, the advocacy group pointed out the differing impacts of these financial models on the public. They noted that:

• Low-yield bank accounts are described as primarily benefiting large incumbent institutions.
• Stablecoin rewards are viewed as providing a greater financial benefit to everyday individuals.
• The industry views the current regulatory push as a move to shut out innovation in favor of protecting legacy systems.

Advocates suggest that the existing bipartisan deal reached by Congress was a balanced approach that is now being challenged by bankers seeking to regain control over financial services that are increasingly moving toward digital alternatives. The industry remains firm that stablecoin adoption has not shown evidence of hurting banks.

Impact

The potential implications of the bank lobby’s requested changes extend beyond domestic market competition, reaching into the realm of international relations and financial security. John Deaton, a pro-crypto lawyer, warned on Wednesday that making significant changes to the legislation could create a national security trap for the United States. The primary concern is that by restricting the competitive features of dollar-based stablecoins—such as the ability to provide rewards—the U.S. may inadvertently incentivize global users to adopt foreign alternatives. Specifically, Deaton highlighted the risk posed by China’s interest-bearing digital yuan (e-CNY), which has already officially begun paying interest to its holders, making it a direct competitor to the U.S. dollar.

As the digital yuan becomes a yield-bearing competitor to the U.S. dollar, any regulatory move that limits the attractiveness of American stablecoins could weaken the dollar’s global standing. Critics of the proposed amendments argue that the stakes are exceptionally high because the digital yuan is now a direct rival in the global market. If U.S. legislation makes it difficult for dollar-pegged assets to compete on a yield basis, the global preference for the dollar as a reserve and transaction currency could be compromised. This perspective frames the GENIUS Act debate not just as a domestic regulatory issue, but as a critical factor in the ongoing competition for global digital currency dominance between the United States and China, where the lack of competitive rewards could squander the U.S. position.

Outlook

Looking forward, the debate over the GENIUS Act’s rewards provisions is expected to intensify as industry leaders call on Congress to stand by its previous agreements. Alexander Grieve, the government affairs vice president at Paradigm, has warned that undoing these provisions would effectively squander the progress that has been made in establishing a functional regulatory framework for stablecoins. He characterized the banks’ recent efforts as being based on alarmist cries rather than factual risks, suggesting that the industry must resist the pressure to reverse course on rewards. The sentiment within the crypto sector remains one of frustration with what is perceived as the banking industry’s refusal to adapt to technological changes.

This frustration was echoed by Galaxy Digital CEO Mike Novogratz, who characterized the banking lobby’s complaints as being similar to those of frustrated schoolchildren. Novogratz suggested that the United States would be acting as fools if it chose to reverse the law in response to pressure from traditional banks. He argued that instead of seeking legislative protections to shut out competition, banks should focus on innovation and competition. The outcome of this legislative struggle will likely determine the future of stablecoin utility in the U.S. and whether the country will allow digital assets to provide competitive benefits to users or if it will side with traditional institutions to maintain the status quo. The coming months will be pivotal in seeing if the bipartisan consensus holds against the bank lobby’s influence.