US Banks Warn Yield-Bearing Stablecoins Threaten $6.6 Trillion Credit System

US banking groups have raised concerns that yield-bearing stablecoins such as USDC could pose a systemic risk to the US credit system, particularly if left unregulated [3]. These groups argue that such stablecoins, which offer returns to investors, could draw substantial deposits away from traditional banks, leading to significant liquidity challenges and undermining the credit system’s stability. The warning comes amid a growing trend where stablecoin issuers begin to resemble traditional financial instruments, blurring the lines between conventional banking and decentralized finance.

The potential risk lies in the structural differences between stablecoins and bank deposits. Unlike bank deposits, which are funded through loans and investments in securities and are backed by a regulated credit system, stablecoins are primarily backed by cash reserves or U.S. Treasury securities and do not contribute to traditional credit expansion [3]. As a result, a sudden shift of funds into stablecoins could reduce the availability of credit and destabilize the broader financial system.

The banking groups are urging Congress to address a loophole in the GENIUS Act, which currently prevents stablecoin issuers from directly offering yields to token holders but does not explicitly block affiliated entities from doing so. This ambiguity allows crypto exchanges and related businesses to offer yield-bearing products under the stablecoin umbrella, potentially circumventing regulatory constraints [3]. The groups warn that failing to close this loophole could lead to a $6.6 trillion outflow from traditional banks, a development that would significantly disrupt the US financial landscape.

Circle, the issuer of USDC, has seen its stablecoin reserves grow to $61.37 billion in the second quarter of 2025, despite reporting a net loss of $482.1 million, primarily attributed to IPO-related expenses [4]. The company has also expanded the availability of USDC to eight new blockchain networks, further embedding the stablecoin into the digital economy. Additionally, enhancements to its Cross-Chain Transfer Protocol (CCTP) version 2 indicate a broader shift in the role of stablecoins from mere transactional tools to active participants in yield generation [5].

This evolution raises broader concerns about the redefinition of financial intermediation. As Treasury money market funds and yield-bearing digital assets gain traction, the demand for traditional stablecoins is shifting. The banking sector fears that this trend could diminish the role of commercial banks in the credit cycle, as individuals and institutions turn to non-bank alternatives that offer similar liquidity and returns [1].

The current regulatory framework, which classifies stablecoins as either commodities or currencies, is inadequate in addressing the unique risks these instruments now pose. With stablecoin adoption continuing to rise—though still representing a small portion of the $22 trillion US dollar money supply at $280.2 billion—there is a growing need for a more nuanced and comprehensive regulatory approach [3]. Policymakers must act swiftly to ensure that the financial system remains resilient against the potential disruptions posed by yield-bearing stablecoins.

Source:

[1] https://www.stocktitan.net/sec-filings/CRCL/s-1-circle-internet-group-inc-files-ipo-registration-statement-6cc3ce5d45a6.html

[3] https://policyinterns.com/

[4] https://www.stocktitan.net/sec-filings/CRCL/10-q-circle-internet-group-inc-quarterly-earnings-report-3f1bb4fa2a24.html

[5] https://ca.investing.com/news/transcripts/earnings-call-transcript-circle-internet-q2-2025-stock-jumps-on-strong-revenue-93CH-4152265