With the recent signing of the GENIUS Act by President Donald Trump, the United States has taken a significant step toward legitimizing stablecoins, causing concern in traditional financial institutions.
Passing of the GENIUS Act
The GENIUS Act legally recognizes stablecoins, marking an important shift in the U.S. financial system. This bill aims to create a sustainable legal framework for the use of stablecoins.
Risks to Traditional Banking System
There is concern that banks may face a dramatic outflow of deposits if stablecoins gain widespread adoption. A Treasury report estimates that this migration could exceed $6.6 trillion, especially if stablecoin platforms offer rewards that compete with bank interest rates. Critics argue that programs like Coinbase's 4.10% reward on USDC essentially replicate interest-bearing accounts under another name.
Bank Reactions and the Future of Stablecoins
Banking groups are calling for stricter limits on stablecoin incentives and regulatory parity. There are concerns about whether stablecoin issuers might gain access to Federal Reserve tools without proper oversight. However, some major banks are exploring launching their own stablecoins to avoid falling behind tech firms in this space. Mastercard, in contrast, views stablecoins as a tool for streamlining global payments, rather than a threat.
The passage of the GENIUS Act and the growing attention towards stablecoins presents new challenges for the traditional banking system. The future of stablecoins remains uncertain, and its development will depend on further regulatory initiatives and the responses from financial institutions.
