Stablecoin loopholes put local businesses at risk

Loopholes around a new law signed by President Trump a few months ago could cost banks trillions in losses and limit their ability to provide loans in the community. These losses would result in fewer loans going to small businesses and less to families who depend on affordable credit. 

Signed into law in July, the GENIUS Act provides clarity and stability to digital market assets such as cryptocurrency. However, after the law was passed, some financial services companies, such as Coinbase and PayPal, found loopholes. Instead of offering “interest”, they began offering “rewards programs” that act like interest. If remained unchecked, banks could lose up to $6.6 trillion in deposits.

Unfortunately, community banks in underserved communities will be the most affected, as they rely on deposits to maintain affordable credit. “If we don’t act quickly to close those gaps, families and small businesses are the ones who pay the price while we risk America’s global financial market dominance,” said Former Rep. Tom Reed. When deposits decline, the banks must raise interest rates, making it even more difficult to get loans. 

It is imperative that Congress works to close this loophole and prohibit the payment of interest on stablecoins. As companies continue to label interest as rewards, small businesses in America continue to be under siege. Closing the loophole would still legitimize stablecoins while preventing deposit flight to local community banks.