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As Congress hears the latest Clarity Act markup, the main issue that has emerged as the biggest battleground between Wall Street banks and the crypto industry is Stablecoin Yield💰

What appears on the surface to be a technical regulatory dispute is actually a fight over deposits, payments, lending power, and who controls the future infrastructure of money itself.

At the center of the debate is a controversial “yield loophole” inside the GENIUS Act and banks are pushing aggressively to close it.

Here is a comprehensive breakdown of the fight

1️⃣ The FIght is About Stablecoin Yield

In July 2025, Congress passed the GENIUS Act, creating the first major federal framework for payment stablecoins in the United States.

The bill prohibited stablecoin issuers from directly paying holders interest or yield simply for holding stablecoins. On paper, that looked like a strict ban.

But the problem lies in how stablecoins are actually distributed.

Most retail users do not hold stablecoins directly with issuers like Circle. Instead, they access them through exchanges like Coinbase.

Under this “three-party model”:

🕊️ Issuers distribute stablecoins to exchanges

🕊️ Exchanges custody the assets for users

🕊️ Issuers share reserve income with exchanges

🕊️Exchanges can then pass rewards or yield to customers

Critically, the GENIUS Act never clearly defined the word “holder.”

That ambiguity created what banks now view as a MAJOR loophole: issuers cannot directly pay yield, but exchanges may still effectively offer 4–5% returns on stablecoin balances using issuer-funded revenue.

2️⃣ Banks Fear a Direct Attack on Deposits

Banks see yield-bearing stablecoins as a direct competitor to the traditional banking system.

For decades, banks have relied on deposits as their cheapest and most stable source of funding. Customers place cash in bank accounts earning minimal interest, while banks lend that money out at significantly higher rates.

Stablecoins threaten that model. If consumers can instantly convert dollars into digital stablecoins earning higher on-chain yields, the incentive to keep money sitting in traditional checking or savings accounts weakens dramatically.

The banking industry has repeatedly warned about large-scale deposit migration.

Research cited during the debate estimated:

🕊️ Up to $6.6 trillion in U.S. transactional deposits could eventually face competition from stablecoins

🕊️ Citigroup projected stablecoin markets could grow to between $500 billion and $3.7 trillion by 2030

🕊️ That could potentially displace between $182 billion and $908 billion in bank deposits

Banks argue that losing deposits would reduce lending capacity across mortgages, consumer credit, and small-business financing.

In short: stablecoins are no longer viewed as speculative crypto products. Banks increasingly see them as shadow bank accounts running on blockchain rails.

3️⃣ Crypto Firms View The Opposition as Anticompetitive

Crypto companies argue banks are simply trying to protect an entrenched monopoly.

Executives across the industry believe consumers should be allowed to earn competitive returns on digital dollars, especially when banks themselves already profit from customer deposits.

Brian Armstrong and Coinbase have strongly opposed attempts to close the loophole, arguing that stablecoin yield is one of crypto’s most important financial innovations.

Support for the crypto lobby intensified after Donald Trump publicly backed stablecoin yield access, stating:

“Americans should earn money on their money.

Crypto firms argue the current system artificially protects bank profits while limiting competition in payments and savings infrastructure.