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,” Malekan, an adjunct professor at Columbia Business School, posted to X 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, Malekan outlined several counterarguments to the banking industry’s concerns.
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 would 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’
Malekan argued that banks are no longer the dominant source of credit, providing roughly 20% of US lending by some estimates. 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
Malekan also challenged claims 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.
Malekan said savers deserve consideration in addition to borrowers. According to Malekan, restricting stablecoin issuers from sharing yields would protect bank profits at the expense of savers, even though both savers and borrowers play an important role in 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.
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 DeatonMagazine: One metric shows crypto is now in a bear market: Carl ‘The Moon’
Source: https://cointelegraph.com/news/debunking-unsubstantiated-banking-industry-concerns-about-stablecoins?utm_source=rss_feed&utm_medium=feed&utm_campaign=rss_partner_inbound
