The GENIUS Act, enacted in July 2025, is sparking debate and could trigger a significant shift in the financial landscape, potentially marking the end of an era for traditional banking "rip-offs," according to Tushar Jain, co-founder and managing partner of Multicoin Capital.
Jain posted on X on Saturday that the GENIUS Act will trigger an exodus of deposits from traditional bank accounts into higher-yield stablecoins. He anticipates that major tech companies like Meta, Google, and Apple will compete with banks for retail deposits by offering better stablecoin yields and user experiences with instant settlement and 24/7 payments.
The Act establishes a federal regulatory framework for payment stablecoins, including restrictions on interest payments, limits on nonfinancial company issuers, and provisions affecting state-chartered institutions. It prohibits stablecoin issuers from directly offering interest or yield to holders. However, a point of contention lies in the fact that the law doesn't explicitly extend this ban to crypto exchanges or affiliated businesses, potentially enabling issuers to circumvent the restriction by offering yields through these partners.
Banking groups are raising concerns about this "loophole," fearing that the widespread adoption of yield-bearing stablecoins could undermine the traditional banking system, which relies on attracting deposits to fund lending. Some banking trade associations are urging Congress to address the "loophole". They caution that exchanges, brokers, dealers, and affiliates could still offer these incentives. They argue that this could divert deposits from banks, impairing credit creation, and undermining the law's intent.
The US Department of the Treasury estimated in April that mass stablecoin adoption could trigger around $6.6 trillion in deposit outflows from the traditional banking system. A coalition of banking trade associations sent a joint letter to Congress warning that the recently enacted GENIUS Act contains a loophole that could allow the indirect payment of interest or yield on payment stablecoins. The associations asserted that this undermines the dual banking system and limits states’ ability to supervise institutions serving their residents and urged Congress to eliminate all approval pathways and extend the prohibition to private nonfinancial entities, citing concerns over conflicts of interest and concentration of economic power.
Ronit Ghose, Citi's Head of Future of Finance, cautioned that the rise of higher-yielding alternatives, such as stablecoins, could spark a wave of outflows from traditional banks, echoing the money market fund boom of the late 1970s and early 1980s.
The Blockchain Association has pushed back on efforts to undo provisions of the Genius Act. Blockchain Association CEO Summer Mersinger argues that there's no evidence that investment in stablecoins means that there are less people putting their money into community banks. She believes that the issue is more of a competitive one for the banks and that the Genius Act is settled law and should not be changed. The association sent a letter to Congressional leaders asserting that the Genius Act is settled law and should not be changed and that any attempt to weaken genius would undermine US leadership and drive innovation overseas.
Despite concerns from traditional banks, crypto proponents see the GENIUS Act and the rise of stablecoins as a transformative opportunity. Lark Davis, a crypto entrepreneur and Bitcoin advocate, argues that stablecoins could push banks to innovate, creating a more dynamic financial ecosystem.
