GENIUS Act could mark the end of the banking rip-off: Multicoin exec
News Summary
Tushar Jain, co-founder of Multicoin Capital, states that the stablecoin-focused GENIUS Act, enacted in July, will trigger a significant exodus of deposits from traditional bank accounts into higher-yield stablecoins. Jain predicts that post-GENIUS Act, Big Tech giants like Meta, Google, and Apple, with their massive distribution, will compete with banks for retail deposits, offering superior stablecoin yields and a better user experience for instant, 24/7 payments. U.S. banking groups are concerned that widespread adoption of yield-bearing stablecoins could undermine the traditional banking system, which relies on deposits to fund lending. The U.S. Department of the Treasury estimates that mass stablecoin adoption could lead to approximately $6.6 trillion in deposit outflows. Currently, stablecoins like USDT and USDC offer yields around 4%, significantly higher than the average U.S. savings account rate of 0.40%. Big Tech companies, including Apple and Google, are reportedly exploring issuing stablecoins to lower fees and improve cross-border payments. The Treasury projects the stablecoin market cap will boom to $2 trillion by 2028 from its current $308.3 billion.
Background
The GENIUS Act (Generalized Stablecoin Inclusion and Oversight Act), enacted in July 2025 in the United States, aims to regulate the stablecoin market. While the Act prohibits stablecoin issuers from directly offering interest or yield to holders, it doesn't explicitly extend this ban to affiliated businesses or crypto exchanges, potentially creating a "loophole." Traditional banking relies on attracting deposits to fund lending, generating profits from the spread between deposit and loan rates. Banks have historically paid retail depositors relatively low interest, which some critics describe as a "rip-off." Stablecoins, cryptocurrencies pegged to fiat currencies like the U.S. dollar, aim to provide price stability and often offer relatively high yields in the decentralized finance (DeFi) sector.
In-Depth AI Insights
Is the 'loophole' in the GENIUS Act a regulatory oversight or a deliberate policy choice? What are its long-term implications for the financial system? The GENIUS Act's prohibition on direct interest payments by stablecoin issuers, yet its allowance for affiliates to offer yields, may not be a simple oversight but rather a result of complex political lobbying in Washington. It could reflect a compromise among regulators or lawmakers attempting to balance financial innovation with traditional financial stability. This ambiguity enables stablecoins to continue offering attractive yields, thereby accelerating deposit outflows from traditional banks. In the long term, if this "loophole" persists, it will compel traditional banks to significantly raise deposit rates to retain customers, eroding their profit margins. This could lead to a structural reconfiguration of the banking system, potentially even prompting some banks to explore their own digital currencies or collaborate with tech firms to compete effectively. Beyond lobbying for regulation, what strategic options do traditional banks have in the face of stablecoin and Big Tech competition? Aside from lobbying regulators, traditional banks face intense pressure for profound strategic transformation. Relying solely on regulatory protection will be insufficient to counter market trends. They must: - Enhance Digital Experience and Efficiency: Invest in more user-friendly digital banking platforms and offer faster payment settlement services to match or exceed the user experience provided by tech giants. - Innovate Yield Products: Develop new deposit or investment products that are competitive with stablecoin yields, potentially through partnerships with FinTech firms or by leveraging their existing asset management capabilities. - Embrace Blockchain Technology: Explore issuing their own regulated bank-backed stablecoins or utilizing blockchain technology to optimize cross-border payments and asset tokenization, aiming to reduce costs and increase efficiency. - Streamline Operations and Reduce Costs: Faced with margin pressure, banks need to manage costs more effectively and enhance operational efficiency. If Big Tech companies fully enter the stablecoin market, how will the Trump administration balance innovation with systemic risk? Big Tech's entry into the stablecoin market presents both immense opportunities and significant challenges. The Trump administration will face a difficult trade-off between fostering innovation and maintaining financial stability. It is likely to pursue the following strategies: - Prudent Regulatory Frameworks: Future legislation may be enacted to clearly define the regulatory boundaries for Big Tech's stablecoin operations, especially concerning consumer protection, Anti-Money Laundering (AML), and Combating the Financing of Terrorism (CFT). This could include requiring higher capital reserves and stricter auditing for these companies. - Antitrust Scrutiny: Given Big Tech's existing market dominance, any expansion into stablecoins is likely to face rigorous antitrust review to prevent them from using stablecoins to further consolidate their control over payments and financial services. - Advance U.S. CBDC Research and Development: To maintain a leading position in digital currency competition and exert greater influence over the stablecoin market, the Trump administration may accelerate the Federal Reserve's research and potential issuance of a Central Bank Digital Currency (CBDC) as a state-backed alternative.