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The U.S. Is Embracing Stablecoins. But Don’t Expect Interest.

By: forbes - crypto & blockchain|2025/05/07 23:00:02
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A Wall Street sign near the New York Stock Exchange (NYSE) in New York, US, on Monday, April 21, ... More 2025. Banks are lobbying hard on US stablecoin legislation. The U.S. Congress is moving forward with Stablecoin legislation, including the STABLE and GENIUS Acts. Most insiders think the laws will pass before Trump’s term ends. But a key question remains: can stablecoin issuers share yield with holders? Stablecoins are digital tokens that can be transferred freely on blockchains and redeemed 1:1 for U.S. Dollars from their issuer. Today, over $230 billion in stablecoins are in circulation. Issuers invest their reserves in safe assets, mainly U.S. Treasuries. Tether, the largest issuer, has $150 billion in stablecoins, holding as many Treasuries as the seventh largest country. With treasury rates at 4%, issuers earn about $10 billion in interest income. This has become a big business. Stablecoin transaction volume has also grown, now exceeding $2 trillion a month. That’s more than Visa and Mastercard combined. This led Congress to introduce legislation to create a regulatory framework for stablecoins, providing clarity and safeguards for their use in the financial system. But who keeps the yield from reserves? One would expect issuers to compete for users by sharing yield, like banks do with deposit interest. However, regulations prevent that. If a stablecoin pays yield, it triggers securities laws, which impose transfer restrictions. This would hurt stablecoins’ usefulness for commerce. If not everyone can accept it, then no one will use it. Many crypto enthusiasts hoped stablecoin legislation would allow issuers to distribute interest without triggering securities laws. However, the STABLE Act didn’t address this. The GENIUS Act explicitly ruled it out. The big question is why yield was excluded and what will happen next. ‘The Four Seasons’ Dethroned In Netflix’s Top 10 List By A New Show Pakistan Says 26 Killed After India Launches Airstrikes (Live Updates) Today’s NYT Mini Crossword Clues And Answers For Wednesday, May 7th Simply put, the GENIUS Act blocked yield due to heavy lobbying from banks. Banks care about stablecoin legislation because stablecoins compete with their core business—attracting deposits. Banks have two options: compete with stablecoins or become stablecoin issuers themselves. If banks want to compete, they don’t want issuers held to lower regulatory standards. So, banks have pushed for stablecoin issuers to follow banking regulations. If they become stablecoin issuers, they want to avoid pressure to give up interest revenue. Either way, banks benefit. Their interests influenced the exclusion of yield in the GENIUS Act. Will banking interests win? It seems likely, not just due to their lobbying power. Banks have a strong macroeconomic argument that the Federal Reserve cares about. They worry that allowing yield on stablecoins could lead to mass withdrawals from fractionally reserved banks into fully-reserved stablecoins. The economy relies on fractional reserve banking to create credit for growth. If retail deposits leave the system, it could reduce credit and lead to bank runs and failures. The Fed will oppose anything that risks the U.S. banking system’s stability. Congress is likely to defer to the Fed's judgement. However, there’s no proof that mass deposit flight would happen. Early evidence suggests the opposite. About 20% of Americans own crypto, but few hold the assets themselves. This shouldn’t be surprising - most people don’t keep their life savings in cash at home either. Most people prefer to deposit their assets with regulated financial institutions like banks. Banks can lend against these deposits, whether in USD or stablecoins. Still, the Fed won't take chances with anything that could threaten banking stability in the U.S. economy. Rather, expect the Fed to monitor smaller markets that do allow yield on stablecoins. As consumer behavior in those economies becomes clear, the Fed may ease its concerns. Only then might the banking lobby lose its political cover - and U.S. consumers gain the yield they deserve.

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Founded in 2018, WEEX has developed into a global crypto exchange with over 6.2 million users across more than 150 countries. The platform emphasizes security, liquidity, and usability, providing over 1,200 spot trading pairs and offering up to 400x leverage in crypto futures trading. In addition to the traditional spot and derivatives markets, WEEX is expanding rapidly in the AI era — delivering real-time AI news, empowering users with AI trading tools, and exploring innovative trade-to-earn models that make intelligent trading more accessible to everyone. Its 1,000 BTC Protection Fund further strengthens asset safety and transparency, while features such as copy trading and advanced trading tools allow users to follow professional traders and experience a more efficient, intelligent trading journey.

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