The $6.6 Trillion Battle for Interest: Rise of Stablecoins, US Treasury Hegemony and the Paradigm Shift of the Global Banking System

As the global financial system undergoes a profound transformation, an "interest ownership war" involving a $6.6 trillion transactional deposit base has quietly erupted. The core conflict of this game lies in the fact that the low-cost deposit dividends long relied upon by the traditional banking system are facing a powerful deconstruction by digital financial infrastructure, represented by stablecoins. With the advancement of the Guiding and Establishing New Innovations for United States (GENIUS) Act and former President Trump's public alignment with the crypto industry, this battle over "the right to interest income" has escalated from a technical discussion to the height of U.S. national financial strategy and geopolitical monetary competition.

The "Windfall Profit" Foundation of Banking: Net Interest Margin Arbitrage and Fractional Reserve Banking

Understanding the premise of this conflict requires an examination of the traditional banking business model. For a long time, commercial banks have achieved steady profitability through interest rate spreads: on one hand, banks acquire retail deposits at demand interest rates near zero (approximately 0.01% to 0.05%); on the other, they deploy these funds into high-yield credit assets or U.S. Treasuries through fractional reserve banking to earn a net interest margin (NIM) of 4% to 5%.

This model has persisted primarily because the banking industry built exceptionally high barriers to entry and a "safety premium." Through the $250,000 insurance coverage provided by the FDIC (Federal Deposit Insurance Corporation), vast physical branch networks, and payment clearing licenses, banks have led depositors to accept extremely low yields in exchange for so-called "absolute safety." However, this structure essentially converts depositors' potential gains into bank operating profits. According to Federal Reserve data, U.S. banks hold approximately $18.6 trillion in total deposits, with transactional deposits accounting for a massive share, meaning hundreds of billions of dollars in interest margin income flow into bank balance sheets annually without depositors' knowledge.

Stablecoins' Dimensionality Strike: Full Reserves vs. Leveraged Credit

According to research and assessment by the Treasury Advisory Committee, approximately $6.6 trillion in U.S. transactional deposits face the risk of erosion by stablecoins. Compliant stablecoins, represented by Circle's USDC, are implementing an "efficiency dimensionality strike" against the aforementioned model. Unlike the fractional reserve system of banks, compliant stablecoin issuers typically adopt a 100% reserve system, where every digital coin is backed by an equivalent amount of U.S. dollar cash or short-term Treasuries. This transparent balance sheet structure not only theoretically avoids the "bank run" risks of traditional banks but, more importantly, operates at an extremely low cost.

Because stablecoin issuers do not need to pay high FDIC insurance premiums (rates currently vary by bank size but represent a massive expense for major banks) or maintain extensive offline branch networks, their marginal operating costs are nearly zero. This "asset-light" model enables them to return the interest generated by the underlying Treasuries to holders through various channels. As of 2025, the total global stablecoin market capitalization has surpassed $280 billion, and USDC's compliant application scenarios are particularly prominent. According to Circle's financial reports, its full-year revenue for 2025 reached $2.7 billion, a 64% year-on-year increase, with the vast majority of income derived from interest generated by its reserve assets. This efficient liquidity management capability has made stablecoins the most formidable competitor to traditional bank deposits.

Legal Maneuvering under the GENIUS Act and the "Three-Party Model" Loophole

The GENIUS Act, enacted in July 2025, was originally intended to legitimize stablecoins through federal regulation, but its internal provisions became a solid fortress for banking defense. The Act explicitly stipulates that stablecoin issuers may not directly pay yields to holders. This regulation ostensibly protects the banking deposit base and prevents massive capital outflows.

However, financial markets have demonstrated remarkable innovative resilience. Represented by the collaboration between Coinbase and Circle, a sophisticated "three-party model" has evolved. In this structure, Circle, as the issuer, complies with the law by not paying interest to end-users, instead paying revenue to its partner Coinbase in the form of "distribution fees" or "incentives." Coinbase then provides USDC holders on its platform with an annualized yield of approximately 4% under the name of "loyalty rewards."

This model has created a legal gray area: the law prohibits issuers from paying interest but does not define the actions of intermediaries or exchanges. In 2024, the distribution fees Circle paid to Coinbase alone reached $900 million. This phenomenon triggered strong protests from the American Bankers Association (ABA), which accused it of being a typical case of "regulatory arbitrage." In January 2026, the Senate attempted to close this loophole via the CLARITY Act, but the effort stalled due to aggressive lobbying from giants like Coinbase and negative market feedback, reflecting that the confrontation between emerging financial forces and traditional financial authority has reached a fever pitch.

Macro Perspective: U.S. Treasury Demand, USD Hegemony, and Geopolitical Monetary Competition

The scales of this war may ultimately be tipped by higher-order national interests. First is the issue of U.S. debt financing. According to Citigroup's assessment, stablecoins could displace as much as $908 billion in traditional bank deposits by 2030. Given that the GENIUS Act mandates that stablecoins must be backed by U.S. Treasuries as underlying assets, the expansion of stablecoin scale will translate directly into robust demand for U.S. Treasuries. With the current U.S. national debt surpassing $36 trillion and traditional foreign creditors showing diminished appetite for increased holdings, stablecoins have already become a critical tool for maintaining the liquidity of U.S. Treasuries.

Second is the increasingly intense monetary technology competition between the U.S. and China. In December 2025, the People's Bank of China announced that the digital RMB (e-CNY) would pay interest on digital wallets within commercial banks. This move marks the official expansion of the digital RMB from a "digital cash" function to a "digital deposit" function. Industry insiders, including Coinbase's Chief Policy Officer, pointed out that if the U.S. prohibits stablecoin interest payments through excessive legislation while China provides interest yields via the digital RMB, the competitiveness of the U.S. dollar in global digital trade settlement will face the risk of being undermined. This geopolitical perspective explains why Trump, after meeting with Coinbase CEO Brian Armstrong, resolutely stated that "Americans should earn more from their own money"—the logic behind this is not just political votes, but a battle to defend the status of the U.S. dollar.

Endgame Outlook: The Banking Industry's "Ride-Hailing Moment" and Systemic Convergence

Looking back at history, financial innovation is often accompanied by intense regulatory friction. The banking industry's current offensive against stablecoins is much like the taxi industry's attempt to stop the penetration of ride-hailing services years ago. While the banking industry possesses massive political lobbying power and a narrative of systemic risk, the efficiency gains and profit returns brought by technology represent an irreversible trend.

The future outcome of this game may manifest as "convergence" rather than "elimination." On one hand, regulators such as the OCC (Office of the Comptroller of the Currency) will gradually refine interest-bearing rules for stablecoins, potentially introducing differentiated management of "transactional rewards" versus "passive investment income," restricting disorderly expansion while preserving competitive vitality. On the other hand, traditional banks are undergoing a process of "if you can't beat them, join them." As the GENIUS Act clarifies the legal status for banks to issue stablecoins, giants like JPMorgan Chase and BNY Mellon are expected to launch compliant interest-bearing stablecoins for the public around 2027.

In this trillion-dollar gamble, the greatest uncertainty comes from small and medium-sized community banks that rely heavily on low-interest retail deposits. Caught between large banks with the resources to transform and stablecoin platforms with technological advantages, the survival space for small and medium banks will be further squeezed. The ultimate destination of this interest war will be a new era where individual asset sovereignty is enhanced, financial institution interest margins return to reasonable ranges, and the U.S. dollar system completes its digital upgrade powered by blockchain technology.