For years now, stablecoins have quietly led the DeFi assault on the banking industry. Given standard trading markets dwarf the miniscule numbers thrown by stablecoins, the banking industry never openly feared them. Indeed, Big Banks chose to spin stablecoin buzz into PR by launching their own projects. For example, J.P. Morgan launched its inter-bank JPM “stablecoin” in early 2019. Much has changed since 2019. The “JPM” is now officially the “JPMD” – admittedly not a stablecoin but rather a “deposit token that’s designed to serve as a digital representation of commercial bank money”, and in so doing J.P. Morgan officially jumped off the stablecoin train.
Recognizing the dangers to their bottom line, Big Banks lobbied hard to ensure regulated stablecoins could not make interest payments. To that end, on July 18, 2025, the GENIUS Act – or “Guiding and Establishing National Innovation for U.S. Stablecoins Act of 2025” was signed into law with such a prohibition in place. Moreover, fully baked with the rigors of regulatory oversight, required identifiable reserves backing the outstanding payment stablecoins, and compliance with the Bank Secrecy Act, bankers were laughing all the way to their banks when it passed, believing they sufficiently quashed the stablecoin threat.
Despite its girth, the banking lobby misplayed the GENIUS Act’s ability to curtail the stablecoin threat. According to an August 12, 2025 letter from the Banking Policy Institute (“BPI”) – “a nonpartisan public policy, research and advocacy group, representing the nation’s leading banks”, the GENIUS Act allows stablecoins to “indirectly” provide holders with interest yield on their assets:
The GENIUS Act contained a prohibition on stablecoin issuers offering interest or yield, as well as other financial and non-financial rewards, to holders of stablecoins. However, without an explicit prohibition applying to exchanges, which act as a distribution channel for stablecoin issuers or business affiliates, the requirements in the GENIUS Act can be easily evaded and undermined by allowing payment of interest indirectly to holders of stablecoins.
These arrangements between stablecoin issuers and affiliates or exchanges, often jointly and explicitly marketed to consumers, will undermine the GENIUS Act’s prohibition regarding payment of interest and yield. The result will be greater deposit flight risk, especially in times of stress, that will undermine credit creation throughout the economy. The corresponding reduction in credit supply means higher interest rates, fewer loans, and increased costs for Main Street businesses and households.
In other words, despite their heavy lobbying, the banking industry now wants another bite at the apple that closes out this “loophole” which potentially allows stablecoin holders to receive interest on their holdings – no different than placing cash in a bank savings account. Indeed, existing stablecoin issuers are now moving full speed with smaller banks to compete with the Leviathan banks that sought their destruction.
On August 18, 2025, the U.S. Office of the Comptroller of the Currency (“OCC”) released a social media post stating: “Community banks can partner with companies developing stablecoins to foster innovation and offer new products. The OCC will review and update as necessary its regulatory and supervisory approach to ensure it supports innovations in banking and the vitality of community banks.”
This fundamental shift emanating from the OCC signifies a policy which better aligns crypto payment systems and the banking sector – just not with the Big Bank banking sector. Recognizing the writing on the wall, even the venerated McKinsey – often relied upon by those very same Big Banks for management consultant gigs, has jumped on the stablecoin bandwagon.
In a piece released on July 21, 2025, McKinsey recognizes that stablecoin transaction volume has risen sharply over the past two years – exceeding $27 trillion per year. More to the point, the mega-consulting firm offers the following observation:
If that rate of growth were to continue, stablecoin transactions could surpass legacy payment volumes in less than a decade—and potentially sooner, based on expanding applications. The ability for tokenized cash to operate continuously, satisfy demand for instant settlement, and offer improved operational risk controls solves real-world pain points and offers a compelling value proposition to end users that could accelerate adoption.
Back to the Big Bank problem. The GENIUS Act prohibits stablecoin issuers from paying “any form of interest or yield (whether in cash, tokens, or other consideration) solely in connection with the holding, use, or retention of such payment stablecoin.” See 12 U.S.C. § 5903(a)(11) (emphasis added).
This section expressly bans interest-yielding stablecoins, but leaves a gaping hole that allows exchanges and issuers to sidestep such prohibition by creating earned yields on the stablecoin based on factors other than the “holding, use, or retention” of the stablecoin. Big Banks obviously have some ideas regarding what that will look like – which is why they want a redo on the law and why the Crypto Council for Innovation (“CCI”) and the Blockchain Association (“BA”) jointly urged the Senate Banking Committee to resist efforts by the BPI to revise the GENIUS Act. Turns out the Big Bank lobby can learn a thing or two from the Crypto lobby, namely when it comes to whether Big Business or Consumers should benefit from new technology, the current Congressional mood swings towards the Consumer.
The CCI/BA Letter sent to the Senate Banking Committee explains why there should be no redo:
Allowing responsible, robustly regulated platforms to share benefits with customers is not a loophole—it is a feature that promotes financial inclusion, fosters innovation, and ensures American leadership in the next generation of payments. This balance, between consumer protection and innovation, has been thoughtfully struck by a shrewd and thoughtful bipartisan coalition of legislators in both the House and Senate. Altering the provisions already enshrined in the GENIUS Act would be unwise and would fundamentally weaken a legislative framework designed to encourage competition and democratize the benefits of technological advancement in digital finance.
Pushing aside whether or not Big Banks eventually lose this major battle, the more-interesting question remains whether the GENIUS Act’s allowance for non-financial institutions to offer “regulated” stablecoins manifests into yet another Congressionally-enacted quiver in Big Tech’s quest to conquer the world. After the implementing regulations arrive on July 18, 2026, we will all learn whether the law’s stringent safeguards – including capital and liquidity requirements, merely switches us from Big Bank mode to Big Tech mode or the law genuinely benefits consumers.