Crypto groups warn banks’ proposals could hurt innovation

The Crypto Council for Innovation (CCI) and the Blockchain Association urged lawmakers to oppose proposals backed by the American Bankers Association (ABA) and state banking groups. In a Tuesday letter to the Senate Banking Committee, the crypto organizations argued that the bankers’ proposals prioritize shielding banks from competition over protecting consumers, potentially stifling innovation in the crypto industry.

Crypto advocates say the banking lobby recommendations will only undo compromises reached after extensive negotiations. They argued that if Congress approves their requests, it would skew the market toward banks and suppress innovation.

They further commented, “Payment stablecoins are not bank deposits, money market funds, or investment products, and thus they are not regulated similarly. […]Unlike bank deposits, payment stablecoins are not used to fund loans.”

In their letter, the groups also drew attention to Section 16(d), a clause that banking groups want to eliminate. It lets state-chartered bank subsidiaries operate stablecoin businesses across state borders without further licensing requirements. They stated that scraping would only reintroduce the fragmented regulatory environment that undermines interstate commerce.

They also countered suggestions that stablecoin yields might pull deposits away from community banks, noting that a July 2025 analysis by Charles River Associates found no substantial link between the two.

Banks warn GENIUS Act loophole could divert $6.6 trillion from traditional lending

As previously reported by Cryptopolitan, several banking institutions, including the Bank Policy Institute (BPI), have petitioned Congress to amend the GENIUS Act, warning that an existing loophole risks constraining credit for U.S. consumers and businesses.

The banking groups have explained that although the GENIUS Act blocks issuers from offering yields, it fails to impose the same restriction on exchanges or affiliates. Thus, they believe some issuers can exploit this loophole and channel yields through exchanges. They even cautioned that the rule gap may result in deposit outflows of up to $6.6 trillion from the conventional banking system.

The banks also cited their worries that the yield-bearing stablecoins could displace deposits, threatening the core mechanism by which banks fund loans through interest-driven savings accounts.

They also explained that stablecoins are “fundamentally different” from bank deposits since they do not fund lending activities or invest in securities to produce yields; therefore, a systemic shift toward them could create vulnerabilities in the U.S. credit system.

Ethena’s sUSDe has the most payouts with $30.71 million in the last 30 days

Market data illustrates the scale of yield-bearing stablecoins. Analysts like Will Beeson, a former Standard Chartered executive and now founder and CEO of Uniform Labs, believe the GENIUS Act’s restrictions on yield-bearing stablecoins will expedite the flow of capital into tokenized real-world assets (RWAs).

To date, yield-bearing stablecoins have paid out more than $800 million in returns to holders, according to a StableWatch report. Additionally, over the past 30 days, Ethena’s sUSDe dominated payouts with $30.71 million, while Securitize’s BUIDL delivered $8.39 million and Sky Ecosystem’s sUSDe $6.78 million. The stablecoin market’s $288 billion valuation remains just a sliver of the Fed-reported $22 trillion U.S. money supply.

Meanwhile, major financial industry groups are urging global banking regulators to abandon proposed new rules for cryptocurrencies and, in a letter, warn that the measures could end up blocking banks from the $2.8 trillion digital asset market.

On Tuesday, eight influential trade associations, including the Global Financial Markets Association and the Institute of International Finance, wrote to the Basel Committee on Banking Supervision to request a “temporary pause” on the rollout of standards related to crypto that were supposed to take effect in January 2026.

The coalition warned that the “punitive capital treatments” in the rules would make crypto operations “uneconomical” for banks, which could force the sector to the fringes of the regulated financial system.

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