The GENIUS Act stablecoin loophole refers to language in the new U.S. stablecoin law that may allow exchanges or affiliates to offer yield on payment stablecoins indirectly. Lawmakers face choices to close the gap or preserve interoperability and innovation for non‑bank stablecoin services.
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Banking groups seek repeal of Section 16(d), citing deposit outflow risks
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Crypto advocacy groups argue yield-bearing stablecoins are distinct from bank deposits and pose limited systemic risk
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StableWatch reports yield-bearing stablecoins have paid over $800 million in total returns; market cap of stablecoins is ~$288B
GENIUS Act stablecoin loophole explained: Learn how proposed changes could affect yields and bank deposits. Read analysis and next steps for policymakers.
What is the GENIUS Act stablecoin loophole?
GENIUS Act stablecoin loophole describes a gap in the law where exchanges or affiliates could offer yield on payment stablecoins even though issuers are banned from doing so. The provision raises questions about competitive parity with bank savings and interstate regulatory authority.
Why are crypto groups pushing back against bankers?
Crypto advocacy bodies — the Crypto Council for Innovation and the Blockchain Association — warned the Senate Banking Committee that proposed revisions from bank lobbying groups would reintroduce fragmented state-by-state rules and favor traditional banks. They contend the changes would narrow consumer choice and slow innovation.
Crypto advocacy groups accuse Wall Street bankers of trying to tilt stablecoin rules in their favor, warning Congress against changes to the GENIUS Act.
Two leading crypto advocacy bodies pushed back this week against banking groups seeking tighter language in the GENIUS Act. The Crypto Council for Innovation and the Blockchain Association wrote to the Senate Banking Committee urging rejection of proposed revisions from the American Bankers Association and state banking groups.
Banking lobbyists, led in public commentary by the Bank Policy Institute, argue the law allows affiliates or exchanges to offer yield on payment stablecoins indirectly, which they say could draw deposits away from traditional banks and threaten credit flows to households and businesses.
Banking lobby on stablecoins yield loophole. Source: Bank Policy Institute
How serious is the deposit outflow risk?
Banking groups estimate the gap could, in extreme scenarios, divert trillions from bank deposits. Crypto advocates disagree. They cite a July 2025 analysis by Charles River Associates finding no clear causal link between stablecoin growth and community bank outflows.
Regulators face a data challenge: on‑chain metrics track stablecoin circulation, but comparisons to deposit behaviors require deeper, bank‑level data and robust counterfactuals.
What do industry payout figures show about yield-bearing stablecoins?
Yield-bearing stablecoins have collectively distributed more than $800 million in returns to holders, according to StableWatch. Recent 30‑day payouts highlight Ethena Staked USDe (sUSDe) with $30.71 million, Securitize’s BUIDL at $8.39 million, and Sky Ecosystem’s staked USDe at $6.78 million.
Stablecoins yield payout. Source: Stablewatch
The total stablecoin market cap sits around $288 billion versus a U.S. dollar money supply on the order of $22 trillion, per Federal Reserve data at the end of June. That scale suggests stablecoins remain a fraction of overall dollar liquidity.
Frequently Asked Questions
Can exchanges legally offer yield if issuers are banned from doing so?
It depends on statutory interpretation and regulator guidance. The GENIUS Act explicitly bans issuer‑provided yield, but does not fully define the role of affiliates or exchanges — the core of the current policy debate.
How would repealing Section 16(d) affect interstate stablecoin operations?
Removing Section 16(d) could require subsidiaries of state‑chartered institutions to obtain additional licenses to operate across states, increasing compliance costs and potentially fragmenting the market.
Key Takeaways
- Policy gap: The GENIUS Act may allow affiliates or exchanges to offer yield indirectly, prompting legislative scrutiny.
- Data shows limited systemic scale: Stablecoins total ~$288B versus multi‑trillion dollar money supply; independent analysis finds no clear deposit drain.
- Regulatory tradeoff: Closing the loophole may protect banks but could also hinder interstate stablecoin services and innovation.
Conclusion
Congress must balance the GENIUS Act stablecoin loophole concerns against the need for coherent, interstate stablecoin regulation. Policymakers should rely on empirical analysis from sources such as Charles River Associates, StableWatch, and Federal Reserve data while considering the industry views of the Crypto Council for Innovation and the Blockchain Association. COINOTAG will monitor developments and provide updates as lawmakers act.
