The US banking industry has been pushing “myths” about stablecoin yields to protect itself, and Congress should prioritize consumers rather than highly profitable banks, argues crypto lecturer and author Omid Malekan.
“I am disappointed that market structure legislation seems to be held up by the stablecoin yield issue. Most of the concerns bouncing around Washington are based on unsubstantiated myths,” said Adjunct Professor at Columbia Business School, Omid Malekan, on Monday.
He stated that the passage of crypto market structure legislation in Washington “now seems to partially depend on the question of whether stablecoin issuers should be able to share their economics with third parties.”
The primary conflict is a “yield bottleneck” regarding who gets to profit from the interest on stablecoin reserves.
The banking lobbies have labeled this a “loophole” that they want closed. They fear that if users can passively earn around 5% risk-free yields on stablecoins, customers will withdraw billions from low-interest bank accounts in a “deposit flight,” destabilizing community banks, explained technologist Paul Barron on Saturday.
However, there are several counterarguments to these banking industry concerns, said Malekan.
Stablecoin growth doesn’t hurt bank deposits
The idea that stablecoin growth can only lead to shrinking bank deposits is false, he argued.
Stablecoins may actually increase bank deposits since most stablecoin demand comes from abroad. As issuers must hold reserves in Treasury bills and bank deposits, this wuld create more banking activity overall.
Secondly, stablecoin competition won’t hurt lending, just bank profits, said Malekan. Banks can compete by paying higher interest rates to depositors. Currently, the national average savings account yield is a paltry 0.62%, according to BankRate.
Related: US community banks join campaign to shut a GENIUS Act ‘loophole’
Thirdly, banks are not the dominant credit source since they provide only about 20% of US credit. Most lending comes from non-bank sources like money market funds and private credit, which could benefit from stablecoin adoption through cheaper payments and lower Treasury rates, he argued.
Savers deserve consideration in addition to borrowers
It’s also a myth that community and regional banks are particularly vulnerable to stablecoin adoption.
“It’s the large ‘money center’ banks that are more vulnerable,” the author said.
“The only reason this myth persists is because it’s pushed by an unholy alliance of large banks trying to protect their profits and crypto startups trying to sell smaller banks their services.”
Malekan said savers deserve consideration in addition to borrowers. Preventing stablecoin issuers from sharing yields with users essentially protects bank profits at savers’ expense, when both savers and borrowers matter for a healthy economy.
Prioritize consumers over bank profits
The academic concluded that Congress should prioritize innovation and consumers rather than protecting highly profitable big banks.
“Most of the concerns raised by the banking industry on this topic are unproven and unsubstantiated. Congress has done a great job of putting American progress ahead of corporate interests so far; it shouldn’t stop now.”
Lawyer and Senate candidate John Deaton reminded his X followers on Monday that senators are being pressured by the Banking Lobby to not allow third-party platforms like Coinbase to pay yield on stablecoins.
“The banks are not your friends. And neither are career politicians […] who support them,” he said.
Coinbase has reportedly threatened to withdraw support for the CLARITY Act if it restricts stablecoin rewards beyond disclosure requirements.
John Deaton recommends a book by G. Edward Griffin that critiques the Federal Reserve System, suggesting it was created in secrecy by powerful individuals. Source: John E Deaton
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