The loophole in the GENIUS Act raises concerns among U.S. banks due to potential implications for the country's financial system. The law, which prevents stablecoin issuers from paying interest directly, allows partners to do so.
What is the loophole in the GENIUS Act?
The GENIUS Act loophole is a gap in legislation. While the law prohibits stablecoin issuers from directly paying interest, it does not prevent their affiliated companies or partner platforms from doing so. This enables stablecoins to offer returns to users, which was the intent behind the prohibition.
Concerns Raised by U.S. Banks
U.S. banks are worried that this loophole could lead to significant outflows of funds from banks. The Treasury Department previously estimated that stablecoins offering yields could move up to $6.6 trillion out of banks, reducing their lending capacity. Analysts warn that this could slow down credit growth and increase borrowing costs for households and businesses.
Next Steps in Stablecoin Regulation
Although the law was signed in July, full implementation may take time as regulators still need to set detailed rules. The Office of the Comptroller of the Currency and the Treasury Department are expected to provide clearer guidance on the GENIUS Act loophole.
According to recent research, the GENIUS Act stablecoin yield loophole remains a major concern for U.S. banks. Closing this gap could help protect the traditional lending system and ensure that stablecoins adhere to the same safety regulations as other financial products.
