Bankers want to rewrite the stablecoin law, and encryption lobbying groups rise up in protest: suppressing innovation to weaken competition.

Traditional banks and crypto lobbying groups are engaged in heated debates over the “GENIUS” Act and the broader “Digital Asset Market Clarity Act” set to be reviewed in September, focusing on the functions of stablecoins. (Background: USDe and USDS market capitalization have surged! “Can stake arbitrage” combat the GENIUS Act’s prohibition on interest for stablecoins?) (Additional context: With the implementation of the GENIUS Act, how should we prudently treat the narrative around stablecoins?) US President Trump officially signed the “GENIUS” stablecoin Act in mid-July, marking the first time stablecoins have been included in federal regulations. However, just a month later, Washington is once again engulfed in controversy. The American Bankers Association (ABA) led over 50 banking industry alliances last week demanding Congress amend the provisions; the Blockchain Association and the Innovation Cryptocurrency Committee sent a letter to the Senate Banking Committee last night urging to maintain the original proposal. Conflicts following the implementation of the GENIUS Act The GENIUS Act requires stablecoin issuers to hold 1:1 US dollars or short-term Treasury bills as reserves, and sets regulations on redemption, transparency, anti-money laundering, and consumer protection. Earlier this month, traditional banking factions submitted opinions to the Senate Banking Committee, advocating two points: 1. Limit platforms like Coinbase from offering interest on stablecoin deposits. 2. Remove Section 16(d), which allows state-chartered stablecoin issuers without deposit insurance to operate across state lines. The banking industry believes that if platforms are allowed to offer interest, funds could leave insured accounts en masse through stablecoins, potentially amounting to $6.6 trillion, weakening lending capabilities and possibly leading to a repeat of the 2023 regional bank bank run risks. Regarding Section 16(d), the banking faction points out that a cross-state permit would allow uninsured entities to bypass local regulation, thereby increasing borrowing costs and consumer risks. Organizations like the ABA claim that while the GENIUS Act prohibits issuers from directly paying interest, it does not restrict trading platforms from providing “indirect interest” strategies for clients, criticizing that it offers indirect income functions akin to high-yield money market funds without being subject to banking capital regulations, essentially creating a policy loophole. Bankers hope to utilize the forthcoming Digital Asset Market Structure Act to prohibit cryptocurrency exchanges from offering stablecoin deposit yields to customers. The GENIUS Act permits this function, but the Digital Asset Market Structure Act prohibits stablecoin issuers from providing this function themselves. Crypto factions: Upholding innovation and user choice Crypto lobbying groups pointedly stated in their response that the banking proposal “aims to undermine competition.” The Blockchain Association noted that the $6.6 trillion outflow is a hypothetical estimate lacking data. The letter also mentioned that the majority of stablecoin reserves are used to purchase Treasury bills, which actually support overall market liquidity. A total ban on interest-bearing stablecoins would eliminate the niche for digital dollar alternatives, particularly disadvantaging low-income and rural populations. In regards to Section 16(d), crypto groups argue that removing the cross-state provision would effectively allow a single state to veto the redemption rights of residents from other states, which does not aid national network effects. The letter emphasizes that the GENIUS Act constructs a dual-track mechanism at the federal and state levels, requiring state-chartered issuers to comply with federal-level transparency and capital regulations, thus the notion of a “regulatory vacuum” is unfounded. September offensive and defensive: Observing how Congress balances interests The Senate Banking Committee is expected to review the broader “Digital Asset Market Clarity Act” in September, and there are widespread expectations that both banking and crypto factions will mobilize once again. If the banking camp succeeds, interest-bearing stablecoins may be completely halted, and on-chain dollars would resemble “cash substitutes” even more; if the crypto faction maintains Section 16(d) and preserves interest-bearing options, traditional banks will have to face simultaneous competitive pressure. Regardless of the outcome, the GENIUS Act has brought the concept of stablecoins as payment infrastructure to the forefront. Every move made by Wall Street and Silicon Valley in Washington is paving the way for a global digital asset order. Related Reports: A 10,000-word analysis of the impacts of the GENIUS stablecoin law is far deeper than you might imagine: rewriting financial rules. GENIUS compliant stablecoins = rebranded CBDCs? Experts warn: comprehensive surveillance destroys the spirit of decentralization. Trump signs the GENIUS stablecoin law, Tether: striving for USDT compliance, will issue a US-exclusive stablecoin, how will Circle respond? “Bankers seek to rewrite stablecoin law, crypto lobbying groups rise in protest: stifling innovation to weaken competition.” This article was first published in BlockTempo, the most influential blockchain news media.