Columbia Business School Debunks 5 Stablecoin Myths Stalling US Crypto Reform

The debate over stablecoin yields is stalling progress on key cryptocurrency legislation in the United States. Community banks and banking associations argue that current rules allow indirect yield payments through affiliated exchanges, potentially diverting deposits away from traditional banks. The American Bankers Association's Community Bankers Council has called for legislative action to close this perceived loophole according to their analysis.

Omid Malekan, a professor at Columbia Business School, argues that much of the concern is based on myths rather than evidence. He highlights misconceptions, such as the idea that stablecoins shrink bank deposits or threaten credit supply. In reality, he argues, stablecoin demand often increases domestic banking activity by requiring stablecoin issuers to hold reserves in bank deposits and Treasury bills as research shows.

Legislative activity is accelerating as the Senate Banking Committee prepares to vote on key crypto market structure legislation, including the CLARITY Act. The bill aims to clarify oversight responsibilities between the Securities and Exchange Commission and the Commodity Futures Trading Commission. However, stablecoin yield rules remain a sticking point in the final drafting process according to reports.

Why the Move Happened

Community banks argue that stablecoin yield practices are circumventing the intent of the GENIUS Act. The law explicitly bans stablecoin issuers from offering direct interest to users, but third-party platforms can still provide rewards. Banking groups warn that these indirect payments could shift billions in deposits away from community banks, limiting lending to small businesses and local economies as the American Bankers Association warns.

A 2024 U.S. Treasury report estimated that up to $6.6 trillion in deposits could be at risk if stablecoin yield practices continue unchecked. The American Bankers Association has framed the issue as a threat to economic stability, arguing that stablecoin-related savings do not come with the same insurance and regulatory safeguards as traditional bank accounts according to their analysis.

How Markets Responded

Crypto-native firms, including Coinbase and Kraken, have resisted calls to restrict stablecoin yields. These platforms argue that yield-bearing stablecoins offer a competitive alternative to traditional banking services, especially in markets with low interest rates. Coinbase, in particular, has applied for a national trust charter that would allow it to offer rewards under specific regulatory conditions as reported.

The debate has taken on geopolitical dimensions as well. Faryar Shirzad, Coinbase's chief policy officer, has warned that banning stablecoin rewards could give China a competitive edge in the digital currency race. China has recently announced plans to pay interest on its digital yuan, a move that could undermine the U.S. dollar's global dominance according to Bernstein's analysis.

What Analysts Are Watching

Analysts warn that failure to resolve the stablecoin yield issue could delay broader U.S. crypto reform. The Senate Banking Committee must act quickly before the legislative window narrows due to upcoming midterm elections. If the issue is not resolved by the second quarter of 2026, momentum could stall, and the bill may face more resistance from lawmakers who prioritize other agenda items according to market analysis.

Omid Malekan argues that the U.S. needs to move past these myths and focus on evidence-based policymaking. He highlights that stablecoin adoption could actually benefit the economy by increasing savings and boosting bank deposits through global demand. Rather than protecting large banks, he argues, policymakers should prioritize innovation and consumer choice as research shows.

The outcome of this debate could shape the future of stablecoins and their role in the U.S. financial system. If the Senate decides to restrict stablecoin yields, it may limit the competitive pressure on traditional banks but could also hinder innovation in the crypto space. Conversely, if stablecoins are allowed to offer rewards under certain conditions, it could create a new financial product with broader economic implications according to crypto analysis.