Why US community banks say the GENIUS Act has a stablecoin loophole
Banks argue that stablecoin rewards offered through exchanges exploit a GENIUS Act loophole, blurring the line between payment tokens and savings accounts.
The GENIUS Act was designed to keep stablecoins as payment tools rather than savings products. As a result, it bans issuers from paying interest or yield to stablecoin holders.
Community banks argue that a loophole exists because exchanges and affiliated partners can still offer rewards on stablecoin balances, even if the issuer itself does not pay yield.
Smaller banks are more concerned than large banks because they rely heavily on local deposits. Any outflow of deposits could directly reduce lending to small businesses and households.