What the GENIUS Act Was Meant to Stop—and the Stablecoin Loophole Banks See

The GENIUS Act of 2025 aimed to regulate payment stablecoins by prohibiting issuers from paying interest or yield to holders, ensuring they function as payment instruments rather than savings products that compete with insured bank deposits. However, community banks are concerned about a loophole where exchanges and distribution partners can still offer rewards on stablecoin balances, effectively circumventing the spirit of the law.

Community banks are particularly vulnerable because they rely heavily on local deposits to fund lending to small businesses and households; any outflow to yield-bearing stablecoins could reduce local credit availability. Banks argue these third-party rewards can be funded through platform revenues or affiliate structures, making the ban ineffective. The crypto industry counters that Congress intentionally distinguished between issuer-paid yield and lawful platform incentives, arguing that stablecoins are payment tools, not bank deposits, and that banning third-party rewards stifles innovation.

Policymakers face options including extending the yield ban to affiliates and partners, implementing stricter disclosure and consumer protection rules for rewards, or creating a narrow safe harbor for certain activity-based incentives. How Congress resolves this will determine the future role of stablecoins in the financial system.

(Source：Cointelegraph)