An alliance of over 125 companies and lobbying groups in the cryptocurrency sector has coordinated to launch a counter-campaign targeting banking lobby groups in the U.S. This alliance includes many major cryptocurrency companies like Coinbase, Gemini, and Kraken.
This move has made the dispute over the right to earn interest on stablecoin deposits more contentious than ever.
Why banks are lobbying to change the GENIUS Act
The main point of contention is that the GENIUS Act explicitly states that issuers of stablecoins like Tether are prohibited from paying dividends to holders.
However, there is still a 'loophole' for third-party platforms, such as cryptocurrency exchanges, that can pass on profits from stablecoins to users.
Therefore, traditional banking groups are actively lobbying to close this loophole, arguing that it creates a regulatory 'loophole'.
Banking lobby groups say that if fintech platforms are allowed to pay high interest on cash-equivalent tokens without regulation, this will pose systemic risks to the traditional financial system.
In discussions with the U.S. Congress, they warned that if current regulations remain unchanged, there is a risk of a massive outflow of capital from banks. It is estimated that the amount of money depositors could withdraw from commercial banks to digital asset platforms could reach $6.6 trillion.
They argue that if this trend continues, the capital of the banking system — which is used to provide home loans and business loans — will be severely affected. This will force banks to scale back lending and increase borrowing costs for the American public.
Crypto alliance counterattack
In a letter to the U.S. Senate Banking Committee dated 18/12/2023, the cryptocurrency alliance called on lawmakers to reject any attempts to expand the scope of the recently passed GENIUS Act.
“If this issue is reopened before the GENIUS Act is implemented, it will undermine the certainty that the legal frameworks established by Congress provide and create unnecessary risks for efforts to build a stable market. This also sends a signal that even compromises just passed can be changed at any time, causing the market, consumers, and creators to feel the lack of stability they need to rely on,” the group argues.
The cryptocurrency alliance also argues that concerns about the stability of banks are merely a protectionist move aimed at maintaining a monopoly on low-interest deposits.
Participants argue that banks actually just want to protect their own profits by preventing consumers from accessing the 4% yields currently available in the U.S. Treasury bond market.
The stablecoin reward program helps platforms share benefits directly with users, allowing households to enjoy high yields in a rising interest rate environment, instead of suffering losses due to inflation,” cryptocurrency companies emphasize.
Tyler Winklevoss, co-founder of Gemini, also publicly criticized the actions of the banking lobby groups, claiming this is an effort to 'rehash a legal issue that has already been resolved.'
