Legacy banks have slammed the brakes on the CLARITY Act, crypto market infrastructure legislation, which is poised to enable the United States to lead the world in digital asset innovation. The big roadblock remains the ability for stablecoin holders to earn yield.
As payment stablecoins, as legislated by the GENIUS Act, must hold low-risk, safe assets like US Treasuries, issuers will earn interest on these holdings. This means they could have the option to pass on some of this income to businesses and consumers that hold stablecoins. This makes a lot of sense.
On the legacy bank side, they have fostered an unfounded fear of “deposit flight” and a future in which they will be unable to originate loans for consumers and businesses, as money moves from banks to stablecoins.
This fear, uncertainty, and doubt (FUD) promoted by the old banks is unfounded and frankly dumb. Policymakers who are being swayed by the argument are also revealing a lack of sophistication and a perspective that is not connected to reality. Banks, their legion of slick lobbyists, and weak-minded politicians need to halt their recalcitrance and focus on what is best for consumers, businesses, and the country. This means embracing stablecoin yield.
There are many reasons why old banks are wrong. Below are a few of them.
- Banks will be able to compete on a level playing field, abiding by the exact same rules as stablecoin issuers. Meanwhile, many stablecoin issuers will be or will become banks anyway.
- There are already many different options for consumers and businesses to hold cash in vehicles that generate far more income than many legacy banks offer. And many people already take advantage of this reality.
- Consumers are notoriously slow to change bank relationships. The inertia is formidable. If stablecoin yield arrived today, there would be no stampede to flee a bank with a longstanding relationship.
- Stablecoins can transfer value immediately. Innovators will create a path to generate yield even if old banks block direct yield in the law. In fact, there is already one stablecoin-like digital asset, YLDS, that generates yield for holders.
- And what about jurisdictions outside the US? Will they offer stablecoin yield?
- One of the reasons the administration is supporting stablecoins is that they will strengthen the dollar as the world’s reserve currency. Stablecoin yield could add rocket fuel to this for holders outside the US.
- Legacy banks blocking yield today is a short-term, myopic strategy. Old banks would be more formidable if they chose competition over creating a regulatory moat, as, in the long run, this will make them more viable.
- And does anyone have proof that there will be a “deposit flight”? Nope.
- Today, banks could raise deposit yields to become more competitive. Many banks already do it is just the systemically important banks like JP Morgan, Wells Fargo, and Bank of America that fleece their deposit holders. It is not about lending, it is about profit, so banks need to stop the whining.
There has been a lot of chatter this week about banks gaining the upper hand on the debate and Coinbase slamming the current proposal as a non-starter. At the same time, President Trump’s Executive Director, President’s Council of Advisors for Digital Assets, Patrick Witt, declared yesterday, alluding to the gossip that there is “Plenty of uninformed FUD circulating on social media this week. It’s all going to work out. Bullish.” Let’s hope he is right.
Meanwhile, legacy banks have proven they are out of touch with technology and reality. They need to join the side that is good for consumers and America. As do the politicians who can be so easily duped by the sky will fall argument.
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