A coalition of over 125 crypto companies and interest groups has launched a coordinated offensive against American bank lobbyists. The group includes major crypto companies like Coinbase, Gemini, and Kraken.
This escalated an important conflict over who can pay interest on stablecoin deposits.
Why banks are lobbying to change the GENIUS Act
The biggest problem is that the GENIUS Act clearly prohibits stablecoin issuers like Tether from paying dividends.
But there is currently a loophole that allows third-party platforms, such as crypto exchanges, to pass this stablecoin yield on to users.
Therefore, traditional banking groups are working hard to shut down this opportunity and argue that it is a form of regulatory arbitrage.
The bank lobby claims that if unregulated fintech platforms are allowed to offer high returns on cash-like tokens, it poses a systemic risk to the traditional financial infrastructure.
In conversations on Capitol Hill, they warned that if current regulations remain in place, it could lead to a large outflow of capital. They estimate that as much as 6.6 trillion USD could leave commercial banks and go to digital asset platforms.
Such a change, they argue, would erode the capital that banks use to finance home loans and business loans. Banks would then be forced to reduce lending and raise borrowing costs for American households.
Crypto Coalition strikes back
On December 18, the coalition wrote a letter to the U.S. Senate Banking Committee. The crypto companies want lawmakers to say no to attempts to expand the recently enacted GENIUS Act.
"Revisiting this issue before the GENIUS Act takes effect would weaken the safety provided by regulations from Congress and create unnecessary risks for the market. It shows that compromises can be renegotiated almost immediately after the law is enacted. It reduces the predictability that the market, consumers, and innovators need," the group wrote.
The crypto coalition also dismissed the banks' concerns about stability, calling it an attempt to protect their monopoly on interest-free deposits.
Those who signed the letter said that banks just want to protect their profits by preventing consumers from getting the 4% return available in the government bond market.
"Stablecoin reward programs allow platforms to share value directly with users. It helps households benefit from higher interest rates instead of losing out due to inflation," wrote the crypto companies.
Tyler Winklevoss, co-founder of Gemini, also openly criticized the bank lobby's actions and said it is an attempt to 'revisit a question of law that has already been decided.'
