- U.S. Congress is advancing new laws to regulate stablecoins, digital tokens tied 1:1 to the U.S. dollar.
- Recent legislation blocks stablecoin issuers from sharing interest earned on reserves with holders, following heavy bank lobbying.
- The Federal Reserve remains cautious about allowing yield on stablecoins, citing risks to traditional banking stability.
Congress is moving forward with new legislation to regulate stablecoins, aiming to finalize major laws before the end of President Trump’s term in 2025, according to Bloomberg Finance LP. These digital assets, known as stablecoins, are tokens that can be freely traded on blockchains and exchanged for U.S. dollars from their issuers.
Today, the total value of stablecoins in circulation has surpassed $230 billion. The largest issuer, Tether, manages $150 billion in stablecoins and holds enough U.S. Treasury bonds to match the seventh-largest nation. With Treasury interest rates around 4%, issuers are earning about $10 billion a year in interest, the article reports. Stablecoin transaction volumes now top $2 trillion every month, exceeding those of both VISA and Mastercard combined.
Lawmakers have introduced the STABLE and GENIUS Acts in response to the rapid growth of stablecoins. These bills create a legal structure for using stablecoins in the U.S. financial system. However, a key issue remains: the new laws prohibit issuers from distributing the interest earned on reserves back to stablecoin holders. As explained in the source, regulations treat yield-paid stablecoins as securities, which would subject them to strict rules and limit their movement. This would make stablecoins less useful for payments and daily commerce.
“Many hoped the new laws would let stablecoin holders earn interest without triggering securities rules,” the source says. However, the GENIUS Act specifically blocks this. According to the article, this outcome follows lobbying by banks, which face direct competition from stablecoins for customer deposits. If stablecoin issuers could pass along interest, banks might lose depositors, affecting their core business.
Banks argued that stablecoin issuers should be held to the same standards as banks or prevented from paying out interest altogether. This position served their interests whether they fought stablecoins as competitors or chose to become issuers themselves. The Federal Reserve is also cited as a key voice, with officials concerned that allowing yield on stablecoins could cause massive withdrawals from traditional banks—potentially triggering instability or even bank failures.
Despite these concerns, evidence suggests few Americans would move all their money into stablecoins. According to the article, about 20% of Americans own crypto assets, but rarely keep the majority of their savings in such forms. Most people prefer to use regulated financial institutions, and banks can lend against both dollars and stablecoins.
Still, the article notes, U.S. regulators are likely to stick with a cautious approach. The Federal Reserve plans to watch smaller foreign markets where stablecoins pay yields and may reconsider its stance if no problems emerge. For now, the banking lobby’s arguments continue to carry weight, and American stablecoin holders will not receive interest on their tokens.
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