Banks Face Competition from Stablecoins Offering 4% Yields After GENIUS Act

TLDR

• The GENIUS Act, enacted in July 2025, is expected to shift deposits from traditional banks to higher-yield stablecoins, forcing banks to compete
• Banks currently pay around 0.40% interest on US savings accounts while stablecoins offer 3-4% yields through platforms like Aave
• The stablecoin market has grown to over $300 billion, adding $52 billion since July, led by USDT at $177 billion and USDC at $75 billion
• PayPal’s PYUSD stablecoin saw 117% growth in the past month and tripled in supply since July, driven by 4% monthly rewards
• Banking groups tried to close a loophole in August that allows stablecoin issuers to offer yields through affiliate partners

The stablecoin market reached $300 billion for the first time in history. This milestone came three months after the GENIUS Act became law in July 2025.

The legislation prohibits stablecoin issuers from directly paying interest to token holders. However, a potential loophole allows yields through affiliate partners like crypto exchanges.

Tushar Jain, co-founder of Multicoin Capital, said the GENIUS Act marks the beginning of the end for banks paying minimal interest to depositors. He expects major tech companies like Meta, Google, and Apple to compete with banks for retail deposits using stablecoins.

Traditional banks currently pay an average of 0.40% interest on US savings accounts. European banks offer even less at 0.25% on average, according to Stripe CEO Patrick Collison.

Stablecoin Yields Outpace Traditional Banking

The gap between bank interest and stablecoin yields is substantial. Tether’s USDT offers 4.02% on the Aave lending platform. Circle’s USDC provides 3.69% through the same platform.

PayPal’s PYUSD stablecoin demonstrated the strongest growth recently. The token’s supply increased 117% in the past month to reach $2.5 billion. Since July, PYUSD supply tripled from $800 million.

PYUSD offers holders approximately 4% rewards paid monthly. Other yield-bearing stablecoins like BlackRock’s BUIDL and Ethena’s USDe also posted double-digit growth.

The stablecoin market added $52 billion since the GENIUS Act passed in July. Tether’s USDT leads the market at $177 billion. Circle’s USDC holds second place at $75.2 billion, based on CoinGecko data.

Banking groups pushed back against stablecoin yields in August. They called on regulators to close the affiliate loophole. The banks argued that yield-bearing stablecoins could undermine the traditional banking system.

Treasury Predicts Deposit Outflows

The US Department of the Treasury estimated that mass stablecoin adoption could trigger $6.6 trillion in deposit outflows from traditional banks. This projection came in an April report.

Banks rely on customer deposits to fund lending operations. The Bank Policy Institute warned in August that deposit flight would reduce credit creation. They stated this would mean higher interest rates and fewer loans for businesses and households.

Jain predicted banks will need to pay more interest to depositors to stay competitive. He said bank earnings will suffer as a result. The banking lobby has targeted the ongoing CLARITY Act discussions to ban stablecoin yields.

Coinbase CEO Brian Armstrong criticized banking groups for trying to ban stablecoin interest. He described it as an attempt to maintain a monopoly. Armstrong urged traditional banks to develop better solutions instead of blocking competition.

Fortune reported in June that Apple, Google, Airbnb, and X were exploring stablecoin issuance. The companies viewed stablecoins as a way to lower fees and improve cross-border payments. No further developments have been announced since the report.

The Treasury Department predicts the stablecoin market will reach $2 trillion by 2028. This represents a 566% increase from current levels.

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