The financial landscape is witnessing a significant clash over the future of money, as established banks and emerging crypto firms debate the role of yield-bearing stablecoins. At the heart of the issue is whether these digital dollars will disrupt traditional banking, with both sides presenting starkly different visions of the risks and opportunities.
The Battle Over Yield-Bearing Stablecoins
Banks and crypto companies are locked in a fundamental dispute over the very nature of stablecoins. The banking industry, through groups like the American Bankers Association and the Bank Policy Institute, has launched a campaign urging Congress to clamp down on stablecoin yields. They argue that the ability of crypto exchanges to offer interest on stablecoins creates an unlevel playing field. Their core concern is that this could trigger a massive exodus of deposits from traditional banks, potentially undermining their ability to lend to businesses and families and posing a risk to the stability of financial markets.
In response, crypto advocates are pushing back with equal force. Coinbase has dismissed the banks’ concerns, arguing that the narrative that “stablecoins will destroy bank lending” ignores the reality of the market. They assert that there is no meaningful link between stablecoin adoption and deposit flight from community banks, and they see the banking industry’s stance as an attempt to protect a lucrative revenue stream from payment processing, which they value at around $180 billion annually. Coinbase’s chief policy officer, Faryar Shirzad, characterized this as a “familiar playbook”, comparing it to banks historically fighting innovations like ATMs and online banking.
Divergent Visions and Systemic Fears
This confrontation is fueled by profoundly different views on who uses stablecoins and what risks they present. The crypto industry argues that stablecoin demand is primarily global, serving users in emerging markets who seek access to the US dollar and acting as “the transactional plumbing of a new financial layer” that operates largely outside the domestic banking system. From this perspective, stablecoins strengthen the dollar’s global role rather than competing with local banks.
Conversely, banking lobbies and some economists point to significant systemic risks. They warn that stablecoins are vulnerable to “depegging” events, where their value temporarily falls below the promised $1, as witnessed during the Silicon Valley Bank collapse in 2023. A Nobel Prize-winning economist has also expressed concerns about systemic risks due to a lack of transparency in reserves and the potential for bank-like runs. The Bank Policy Institute further cautions that the integration of DeFi lending, which allows for highly leveraged crypto speculation, could, for the first time, cause crypto market shocks to spill over into the non-crypto economy.
A Political and Regulatory Flashpoint
This debate has moved from theoretical discussion to concrete political action. The recent passage of the GENIUS Act, the first major U.S. crypto law, became a focal point. While the Act blocks issuers from paying yield directly, it doesn’t prevent their affiliates or exchanges from doing so. This has been labeled a “loophole” by banking groups.
In retaliation, the crypto advocacy group Stand With Crypto, initially established by Coinbase, mobilized its members, generating over 250,000 letters to U.S. senators defending the current language of the GENIUS Act and pushing back against the banking lobby’s campaign. This massive grassroots effort highlights how the fight over stablecoin yields has become a central regulatory battle, set on defining the future of digital dollar instruments.
