Banks vs. Fintechs: The Battle for Stablecoin Dominance Under the GENIUS Act

The U.S. stablecoin market has entered a new era of regulatory clarity and strategic competition, driven by the July 2025 enactment of the Guiding and Establishing National Innovation for U.S. Stablecoins Act (GENIUS Act). This landmark legislation has redefined the rules of engagement for banks and fintechs, creating a high-stakes contest for dominance in blockchain-based payment infrastructure. As the market evolves, investors must navigate the interplay between regulatory arbitrage, institutional innovation, and the shifting power dynamics between traditional financial institutions and agile fintechs.

The GENIUS Act: A Regulatory Framework for Stability and Competition

The GENIUS Act established a federal framework, requiring USD-backed stablecoins to be fully reserved at a 1:1 ratio with high-quality liquid assets like U.S. Treasuries or bank deposits, enforced through monthly public disclosures and annual independent audits. By mandating these safeguards, the act aimed to eliminate the systemic risks that plagued earlier stablecoin models, such as the collapse of TerraUSD. However, the legislation also introduced a critical distinction: while payment stablecoins are prohibited from paying interest, affiliated exchanges or platforms can still offer yield-bearing programs. This loophole has become a focal point for regulatory arbitrage, as fintechs exploit the separation between stablecoin issuance and affiliated services to maintain competitive advantages.

Banks, meanwhile, face a dual challenge. On one hand, the act legitimizes stablecoins as a payment rail, opening new revenue streams for institutions willing to tokenize deposits or issue their own stablecoins. JPMorgan Chase launched a deposit token on the Coinbase Base blockchain in 2025, offering a tokenized representation of insured bank deposits while adhering to the act's reserve requirements. On the other hand, banks fear deposit flight to nonbank stablecoin alternatives, particularly as fintechs and crypto exchanges offer faster, programmable payment solutions. According to a report by the Federal Reserve, stablecoins could displace up to $6.6 trillion in bank deposits, depending on their adoption and functionality.

Regulatory Arbitrage: Fintechs' Strategic Edge

The GENIUS Act's preemption of state laws has created a regulatory arbitrage opportunity for nonbank entities. Prior to the act, fintechs faced a fragmented landscape of state money transmitter licenses, which were costly and time-consuming to obtain. Now, the act allows federally supervised nonbank issuers-such as those approved by the Office of the Comptroller of the Currency (OCC)-to operate under a unified framework, bypassing state-level hurdles. This has enabled companies like Circle, PayPal, and Ethena to expand their stablecoin offerings rapidly, often through partnerships with crypto exchanges that provide yield-bearing products.

For example, Ethena's USDe stablecoin, backed by U.S. Treasuries, leveraged the act's framework to scale its user base while maintaining compliance. Similarly, fintechs focused on cross-border remittances have streamlined operations by leveraging stablecoin-based platforms, reducing reliance on traditional banking partnerships. These strategies highlight how fintechs are capitalizing on the act's regulatory clarity to innovate faster than banks, which must navigate legacy systems and stricter prudential standards.

Investment Trends: Blockchain Infrastructure and Market Consolidation

The GENIUS Act has catalyzed a surge in investment in blockchain-based payment infrastructure. In 2025, fintech-crypto M&A reached $8 billion, with stablecoin-related deals accounting for 45% of activity. This growth is driven by the act's removal of regulatory bottlenecks and the increasing demand for real-time, cross-border payment solutions. For instance, major technology firms like Apple, Google, and Meta are exploring stablecoin integration into their platforms, signaling a shift toward decentralized payment rails.

Banks, however, are not passive observers. Institutions like JPMorgan and Goldman Sachs have invested in blockchain settlement platforms and custody solutions to remain competitive. The act's emphasis on transparency and consumer protection has also spurred demand for institutional-grade stablecoin custody, services, with traditional banks positioning themselves as trusted intermediaries. This bifurcation-where fintechs lead in innovation and banks dominate in trust-reflects the broader tension between agility and stability in the post-GENIUS Act landscape.

Case Studies: Winners and Losers in the New Stablecoin Era

The act's implementation has already reshaped market dynamics. For example, the combined market share of dominant stablecoins like Tether (USDT) and Circle's USDC declined in 2025 as new entrants, such as Ethena and PayPal's PYUSD, gained traction. This shift underscores the act's role in fostering competition, as nonbank issuers leverage regulatory flexibility to capture market share.

Conversely, banks that have proactively integrated stablecoins into their operations are reaping rewards. JPMorgan's deposit token, for instance, has facilitated 24/7 settlements and reduced transaction costs for institutional clients. Meanwhile, fintechs like Ripple and Stellar have expanded their cross-border payment networks, leveraging stablecoins to undercut traditional correspondent banking models. These case studies illustrate how the act's framework is enabling both banks and fintechs to redefine their roles in the financial ecosystem.

Conclusion: Strategic Implications for Investors

The battle for stablecoin dominance under the GENIUS Act is far from over. For investors, the key lies in identifying entities that can navigate the act's regulatory nuances while capitalizing on emerging opportunities. Fintechs with first-mover advantages in yield-bearing programs and cross-border solutions are well-positioned to disrupt traditional banking models. Conversely, banks that successfully tokenize deposits or integrate stablecoins into their infrastructure may retain their market relevance.

However, risks remain. The act's prohibition on interest payments for stablecoins has not fully closed the door to regulatory arbitrage, and ongoing debates about affiliated exchanges' compliance could lead to future legislative adjustments. Investors must also monitor the Federal Reserve's role in overseeing stablecoin redemptions and liquidity management, as systemic risks persist during periods of market stress.

In this rapidly evolving landscape, the GENIUS Act has not eliminated competition but rather redefined it. The winners will be those who balance innovation with compliance, leveraging blockchain's potential while adhering to the act's guardrails. For now, the battle between banks and fintechs is a testament to the transformative power of regulatory clarity-and the enduring allure of digital finance.