Rich by Coin

Congress is establishing a regulatory framework for crypto through legislation to provide clear rules for the road for consumers and investors and promote regulatory clarity that supports U.S. innovation and leadership on digital assets. This legislation is an opportunity for lawmakers to address any attempt to evade the GENIUS Act, which, among other things, prohibits stablecoins from paying interest or yield. Other concerns warranting legislative solutions are the illicit finance risks presented by crypto. Addressing attempts to evade the GENIUS Act’s interest prohibition is necessary to accomplish key goals of comprehensive crypto legislation: to safeguard our financial system and provide clarity for consumers.

Stablecoin growth would likely displace bank deposits and reduce bank credit to the real economy, contrary to false claims by the crypto industry. The precise extent to which stablecoin growth would displace deposits depends on how several policy questions are resolved by Congress and U.S. regulators. The risk of significant deposit flight will be exacerbated if stablecoin issuers can indirectly pay interest through affiliates or other third parties.

Yield or interest payment agreements between stablecoin issuers and affiliates or exchanges undermine the GENIUS Act’s prohibition regarding payment of interest and yield. The result will be greater deposit flight risk, especially in times of stress, that will undermine banks’ ability to provide credit to consumers and businesses and support economic growth. Some crypto companies style these interest payments as “rewards,” but rewards are just interest by another name.

Crypto lending and borrowing via DeFi platforms present a risk of loss to consumers and could transmit crypto shocks to the broader financial system. DeFi lending platforms operate like highly levered banks. However, unlike traditional banks, DeFi platforms do not have deposit insurance or access to a lender of last resort, nor are they held to capital or liquidity requirements or regular examination. Despite the GENIUS Act, crypto pathways remain available for drug traffickers, terrorists and other criminals to exploit the U.S. financial system.