The bank lobby is furious about stablecoin yield under the GENIUS Act. They're calling it a "loophole" that needs closing.
But here's what they're missing: We've seen this movie before. And it built an entire generation of fintech companies.
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The GENIUS Act prohibits stablecoin issuers from paying interest directly to holders. Banks claim issuers are skirting this by paying third parties (like exchanges), who then offer rewards or yield to users.
Treasury estimates this could drain $6.6 trillion from bank deposits.
But let's reframe what's actually happening here.
Stablecoin issuers earn yield on reserves (mostly T-bills at 4%+). They keep some, pass most to distributors. Distributors use some for operations, spend some on customer acquisition through rewards.
Sound familiar?
This is the exact same business model that the Durbin Amendment accidentally created in 2011.
Durbin capped debit card interchange fees at $0.21 + 0.05% for banks over $10B in assets.
But banks under $10B? Still charging ~$0.44 per swipe.
hat carve-out for community banks created a partnership arbitrage.
Fintechs like Chime, Cash App, and Square partnered with sub-$10B banks. They issued cards, collected higher interchange, and used that revenue to fund growth, rewards programs, and better customer experiences.
Chime generated most of its $1.6bn from interchange in 2024.
They used it to offer early paychecks, no overdraft fees, and aggressive customer acquisition.
The result? Durbin inadvertently became the most effective government funding mechanisms for fintech innovation ever.
Traditional banks couldn't compete. They were Durbin-regulated, earning half the interchange per transaction.
Meanwhile, neobanks partnered with community banks and built billion-dollar businesses on the spread.
The playbook: distributor captures value, shares it with customers.
Now we're watching the same pattern emerge with stablecoins.
Circle earns yield on USDC reserves. Coinbase offers 4.1% APY to users holding USDC on their platform. That 4.1% isn't coming from Circle directly—it's Coinbase using yield economics as a growth engine.
Here's the part banks don't want to admit: stablecoins actually mirror how money always used to work.
People got paid in cash, lived out of that cash, managed bills and payments from it. Banks becoming the central payments hub is relatively recent.
Stablecoins? Back to basics.
The difference is stablecoins combine the portability of cash with the infrastructure of digital payments.
You can hold value outside the banking system, earn yield on it, move it 24/7, settle instantly.
It's cash for the internet age, without needing a bank as the middleman for every transaction
Banks call stablecoin rewards a loophole because they see stablecoins as deposit substitutes.
But
1. They're actually cash substitutes
2. We're bootstrapping a new business model: embedded finance 2.0.
Like Durbin created distribution-based banking, GENIUS is creating distribution-based stablecoins.
The distributor model works because:
Issuer focuses on compliance, reserves, stability
Distributor focuses on UX, customer acquisition, product innovation
Customer gets better economics than traditional banking offers
It's specialization creating value.
The banks want to close the "loophole" because they can't compete on this playing field.
- They're Durbin-regulated on debit cards.
- They're deposit-regulated on savings accounts.
- And now stablecoins are offering better returns with better UX.
But there's a better path.
Smart banks should see the opportunity here, not the threat.
Stablecoins create multiple new revenue streams:
- Off-ramp payment processing fees
- FX corridors with instant settlement
- Sponsor bank models (sub-$10B banks can collect yield AND stay Durbin-exempt)
Community banks especially should be paying attention.
You can be the infrastructure layer for stablecoin issuers, earn yield on reserves backing the stablecoins, and maintain your Durbin exemption advantage.
It's the same playbook that worked with neobanks but bigger.
Think about what stablecoins enable that traditional banking can't match:
- 24/7/365 operations.
- Instant settlement.
- Programmable money.
- Transparent on-chain rails.
- Cross-border payments without correspondent banking.
There's a land grab moment. Now is the time to move.
This isn't about exploiting regulatory gaps. This is about new infrastructure enabling new business models.
- Durbin created neobanks.
- GENIUS is creating stablecoin-powered embedded finance.
History doesn't repeat, but it sure does rhyme.
FWIW,
The real prize for banks will be onchain lending.
Just as Coinbase has partnered with Morpho to offer collateralized loans and 10.6% APY
Banks could deploy lending into those markets.
And guess what. One already has!
If you want to understand where stablecoins are headed, study what happened after Durbin.
- Partnership models.
- Distribution economics.
- Smart banks who adapted vs. banks who lobbied to shut it down.
Strategy question: will banks build with this technology or against it?
/end
To my mind
- CBDCs
- Deposit Tokens
- Stablecoins
Are complimentary parts of the future of finance.
And that future is onchain.
If you enjoyed this you'll love the @TokenizedPod
Find it wherever you get your podcasts or on Youtube by searching for Tokenized Podcast.
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