Why JPMorgan Is Warning About Yield-Bearing Stablecoins Right Now

TLDR

• JPMorgan CFO Jeremy Barnum warned that yield-bearing stablecoins risk creating a parallel banking system without proper regulatory safeguards during the bank’s Q4 earnings call
• The amended Digital Asset Market Clarity Act draft prohibits stablecoin providers from paying interest solely for holding stablecoins
• Banks view yield-bearing stablecoins as a major threat to their business model, with industry insiders describing the response as “panic”
• The legislation allows rewards tied to liquidity provision, governance, staking and network functions but not passive yield
• JPMorgan supports blockchain technology and the GENIUS Act framework but opposes unregulated banking alternatives

JPMorgan Chase executives addressed stablecoin concerns during their fourth-quarter earnings call on Tuesday. The discussion centered on yield-bearing stablecoins and their potential impact on the traditional banking system.

Chief Financial Officer Jeremy Barnum responded to questions about stablecoins from Evercore analyst Glenn Schorr. The inquiry came after recent lobbying by the American Bankers Association and ongoing congressional work on digital asset legislation.

Barnum stated that JPMorgan’s position aligns with the GENIUS Act, which aims to establish rules for stablecoin issuance. He expressed specific concerns about interest-bearing stablecoins that function like traditional banking products.

The CFO described the creation of a parallel banking system as dangerous. He said such a system would have banking features, including deposit-like products that pay interest, without regulatory safeguards developed over hundreds of years.

JPMorgan welcomes competition and innovation in the financial sector. However, the bank opposes a parallel banking system operating outside established regulatory protections.

Banking Industry Concerns Over Stablecoin Competition

The US banking lobby has identified yield-bearing stablecoins as a major disruption to its business model. An industry insider described the response as full-blown panic in May 2024.

Stablecoins have grown as tools for payments, onchain settlement and dollar access. They offer faster transactions and lower costs compared to traditional banking methods.

The prospect of yield-bearing stablecoins increases the competitive threat. Banks currently offer depositors relatively modest interest rates on deposits.

Congressional Action on Stablecoin Rewards

Stablecoin rewards became a key issue in US lawmakers’ work on the Digital Asset Market Clarity Act. The legislation aims to clarify regulatory jurisdiction over digital assets.

An amended draft released this week includes new restrictions. Digital asset service providers cannot pay interest or yield solely for holding a stablecoin.

The prohibition aims to prevent stablecoins from functioning like bank deposits. Lawmakers want to maintain the distinction between regulated banking products and digital assets.

The draft allows certain incentive structures tied to broader ecosystem participation. These include rewards for liquidity provision, governance activities, staking and network-related functions.

Barnum noted that JPMorgan already offers certain crypto products and services. He said crypto companies offering yield might create a parallel ecosystem with the same properties and risks as bank deposits.

The CFO questioned how stablecoin yield actually improves the consumer experience. He said JPMorgan would either need to get involved or improve its own service offerings in areas where crypto provides better experiences.

The US Senate Banking Committee published the new draft of its crypto market structure legislation late Monday. The bill focuses on the jurisdiction of the Securities and Exchange Commission and Commodity Futures Trading Commission.

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