The $6.6 Trillion Battle: How Stablecoin Yields Are Pitting Banks Against Crypto in Washington
The Treasury Department has dropped a bombshell estimate: $6.6 trillion in bank deposits could be at risk if stablecoin yield programs persist. That single number has transformed a technical legislative debate into an existential battle between traditional banking and the crypto industry—and the outcome will reshape how hundreds of millions of dollars flow through the financial system annually.
At the heart of this conflict sits a perceived "loophole" in the GENIUS Act, the landmark stablecoin legislation President Trump signed into law in July 2025. While the law explicitly bans stablecoin issuers from paying interest or yield directly to holders, it says nothing about third-party platforms doing the same. Banks call it a regulatory oversight that threatens Main Street deposits. Crypto companies call it intentional design that preserves consumer choice. With the Senate Banking Committee now debating amendments and Coinbase threatening to withdraw support from related legislation, the stablecoin yield wars have become 2026's most consequential financial policy fight.
The GENIUS Act: What It Did and Didn't Do
The Guiding and Establishing National Innovation for U.S. Stablecoins Act created the first comprehensive federal framework for dollar-backed stablecoins when it became law on July 18, 2025. The legislation imposed reserve requirements mandating 1:1 backing with liquid assets like U.S. dollars and Treasury bills, monthly audit standards, and clear supervisory pathways through a dual federal-state chartering system.
One provision stood out to the banking industry: Section 4(a)(3), which explicitly prohibits stablecoin issuers from paying "any form of interest or yield" to token holders. The intent was clear—stablecoins would function as payment and settlement instruments, not as deposit substitutes competing with bank accounts.
But here's what the law didn't address: whether exchanges, platforms, or other intermediaries could offer rewards to stablecoin holders using their own funds or through revenue-sharing arrangements with issuers.
This distinction matters enormously. Circle, the issuer of USDC (the second-largest stablecoin), gives 50% of the interest earned on its reserves to Coinbase through a revenue-sharing agreement. Coinbase then offers yield programs to its users—currently 4% for Coinbase One subscribers. Technically, Circle isn't paying interest to USDC holders. Coinbase is. And Coinbase isn't a stablecoin issuer.
The banking industry calls this a loophole. The crypto industry calls it intentional policy design.
The Banking Industry's $6.6 Trillion Concern
The American Bankers Association (ABA) and 52 state banking associations have mounted an aggressive campaign to close what they describe as a dangerous gap in the law. Their argument centers on deposit disintermediation—the risk that customers will move money from bank deposits into stablecoins if crypto platforms offer competitive yields.
The Treasury Department's $6.6 trillion estimate represents total U.S. bank deposits that could theoretically shift to stablecoins if yield programs become widespread. The ABA explicitly urged Congress to clarify that the GENIUS Act's prohibition should extend to "partners and affiliates" of stablecoin issuers, warning that yield-like incentives are bypassing the issuer ban.
Community banks have been particularly vocal. Their business model depends on deposit-funded lending—they take in local deposits and use those funds to make mortgages, small business loans, and other community loans. If deposits flow to stablecoin platforms offering higher yields, these banks argue, local lending capacity shrinks.
"What banks fear most isn't stablecoins themselves," explained one banking lobbyist familiar with the negotiations. "It's the precedent of unregulated entities offering deposit-like products without the capital requirements, FDIC insurance obligations, and compliance costs that banks bear."
The numbers add weight to the concern. At the current stablecoin supply of nearly $309 billion, a 1.5% to 2.5% annual rewards rate implies annual incentives of $4.6 billion to $7.7 billion. If supply reaches Bernstein's 2026 forecast of $420 billion, that pool grows to $6.3 billion to $10.5 billion annually.
The Crypto Industry's Counterarguments
The Blockchain Association, Crypto Council for Innovation, and major industry players like Coinbase have pushed back with equal force. Their core argument: Congress drew a deliberate line between issuer-paid interest (banned) and platform-offered rewards (permitted), and any attempt to extend the prohibition is regulatory overreach designed to protect bank incumbency.
Summer Mersinger, CEO of the Blockchain Association, has been particularly direct: "What is threatening progress is not a lack of policymaker engagement, but the relentless pressure campaign by the Big Banks to rewrite this bill to protect their own incumbency."
The crypto industry's specific counterarguments include:
Stablecoins are payment instruments, not deposit substitutes. The industry argues that stablecoins serve fundamentally different functions than bank deposits—they're designed for payments, remittances, and DeFi transactions, not savings. Comparing them to deposit-funded lending is a category error.
Reward programs drive adoption and innovation. Just as airlines offer frequent flyer miles and credit cards offer cashback, crypto platforms argue that rewards programs are a legitimate competitive tool that benefits consumers.
Banks already compete with money market funds. The $6.6 trillion "at risk" framing ignores that deposits have always faced competition from higher-yielding alternatives like money market mutual funds, Treasury bills, and high-yield savings accounts. Stablecoins are simply another option in a competitive marketplace.
Extending the ban would suppress competition. Forcing stablecoins to mimic bank economics—where interest can only flow through regulated depository institutions—would eliminate one of their key value propositions without protecting consumers.
Coinbase's $1.3 Billion Stake in the Fight
No company has more at stake in this debate than Coinbase. The exchange reported $355 million in stablecoin-related revenue in Q3 2025 alone. Bloomberg estimates its full-year stablecoin revenue reached approximately $1.3 billion—making it a material portion of the company's total business.
The revenue comes primarily from two sources: the revenue-sharing agreement with Circle on USDC reserves, and the yield programs Coinbase offers to users. When Coinbase One subscribers earn 4% on their USDC holdings, that money comes from Coinbase's share of the reserve interest.
In December 2025, Coinbase made a strategic shift: it ended USDC rewards for non-paying customers, limiting the 4% yield to Coinbase One subscribers (plans starting at $4.99/month). The timing aligned with falling interest rates and growing regulatory uncertainty. For premium subscribers, Coinbase also launched onchain lending through Morpho, a decentralized lending protocol, offering yields up to 10.8%.
The company has signaled it may withdraw support from the CLARITY Act—a separate piece of legislation addressing broader crypto market structure—if lawmakers extend the yield ban to platforms. Coinbase CEO Brian Armstrong has been vocal in private conversations with legislators, according to reports from those familiar with the discussions.
The implicit threat is significant: Coinbase has emerged as one of crypto's most influential political voices, with substantial lobbying resources and a track record of regulatory engagement. Losing its support could complicate passage of the broader crypto legislation that industry and many Republicans hope to advance.
The Senate Showdown: CLARITY Act and Amendment Battles
The immediate battleground is the CLARITY Act, a 278-page draft released by Senate Banking Committee Chair Tim Scott (R-S.C.) that addresses digital asset market structure more broadly. The January 2026 markup has become contentious precisely because of the yield question.
The draft legislation proposes banning "passive" stablecoin yield—interest paid simply for holding tokens—while potentially allowing "activity-based" rewards through staking, liquidity provision, or loyalty programs. Critics argue this distinction is arbitrary and would create regulatory uncertainty about which programs qualify.
Several amendments are expected:
- Banking industry allies will push to extend the issuer-paid interest ban to all affiliated parties, explicitly covering exchange-offered yields.
- Crypto industry supporters will seek to clarify that platform-offered rewards are permitted so long as they're adequately disclosed.
- Ethics provisions targeting potential conflicts of interest in the Trump administration (related to the President's involvement in crypto ventures) may further complicate the vote.
The markup outcome is uncertain. Republicans control the committee, but crypto policy doesn't split cleanly along party lines. Some Republicans favor stricter consumer protections; some Democrats have been receptive to industry arguments about innovation and competition.
The Bigger Picture: Who Controls the Future of Payments?
Strip away the technical details, and this fight is about something fundamental: whether crypto platforms can offer deposit-like products that compete with traditional banks.
Banks have operated under a regulatory bargain for nearly a century. In exchange for federal deposit insurance, access to the Federal Reserve system, and the ability to create credit, they accept extensive capital requirements, compliance obligations, and regulatory oversight. That bargain assumes deposits are the foundation of the banking system.
Stablecoins challenge that assumption. A dollar held in USDC isn't a bank deposit—it's a claim on Circle's reserves. Circle doesn't make loans with those reserves; it holds Treasury bills and cash. The risk profile is different from a bank's, and the regulatory treatment arguably should be too.
But if stablecoin platforms can offer yields that compete with savings accounts while operating under lighter regulatory burdens, banks face a structural disadvantage. Why maintain expensive compliance infrastructure if your competitors can offer the same product with fewer costs?
The banking industry frames this as a consumer protection issue: if stablecoins fail, there's no FDIC insurance to make depositors whole. The crypto industry frames it as an anti-competitive power grab: banks want to eliminate rivals rather than compete on merit.
What Happens Next
The July 18, 2026 deadline for GENIUS Act implementing regulations will force the issue. Federal banking agencies must adopt comprehensive rules for stablecoin issuers covering capital, liquidity, reserve assets, and governance. Those rules will determine which institutions can issue stablecoins on an economically viable basis—and whether the yield "loophole" persists.
Several scenarios are possible:
Scenario 1: Regulatory clarification favors banks. The implementing rules could interpret the GENIUS Act's interest ban broadly, extending it to platform-offered yields through affiliated parties. This would likely trigger legal challenges from the crypto industry but would address banking concerns.
Scenario 2: Status quo persists. If regulators interpret the law narrowly, limiting the ban to issuer-paid interest only, the current structure continues. Exchanges keep offering yields; banks keep lobbying for legislative fixes.
Scenario 3: Legislative amendment. The CLARITY Act or subsequent legislation explicitly addresses the issue, either by extending the ban or by codifying that platform yields are permitted with appropriate disclosures.
Scenario 4: Market forces resolve the question. If stablecoin yields fall significantly with declining interest rates, the controversy may become moot. At 1% yields, the competitive threat to bank deposits is minimal.
Meanwhile, the stablecoin market continues expanding. Transaction volumes reached $33 trillion in 2025, up 72% year-over-year. USDC and USDT control over 94% of the market. Major payment networks including Visa and Mastercard have launched stablecoin initiatives. Banks themselves are exploring stablecoin issuance.
The irony is that stablecoins may become integral to banking regardless of who wins the yield fight. The question is whether they'll be a product banks offer, a competitor banks face, or both.
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