00:00A third of all U.S. bank deposits, $6 trillion, could leave for stablecoins.
00:07That is what Bank of America's CEOs warned investors earlier this year.
00:12And the reason is simple.
00:13Crypto exchanges figured out how to legally pay 4% interest on digital dollars,
00:20while traditional banks are paying you close to nothing.
00:24The Federal Reserve and banks assumed stablecoins could never compete
00:29because the Genius Act passed last July banned stablecoin issuers from paying interest.
00:36But some platforms like Coinbase were already running rewards programs,
00:40and they argued the new law only banned issuers like Circle and not exchanges.
00:48Now, whether you call it a loophole or clever compliance,
00:52it became a big enough problem that the White House intervened,
00:55setting a March 1st deadline to get banks and crypto firms to compromise.
01:00Now, that deadline has passed with no deal, and right now the standoff continues.
01:06So, how did we get here?
01:10In July 2025, Trump signed the Genius Act, the first real federal framework for stablecoins.
01:16It required issuers like Circle to back every coin one-to-one with reserves,
01:22get monthly audits, and give holders bankruptcy priority if something goes wrong.
01:27Pretty standard stuff.
01:28But banks mainly cared about Section 4A11,
01:34which explicitly banned stablecoin issuers from paying yield to holders.
01:40No interest, no tokens, nothing.
01:43Banks looked at that and thought the competitive threat was contained.
01:48But the law only banned issuers from paying yield.
01:52It didn't say anything about exchanges or platforms.
01:55And so, by late 2025, Coinbase was offering 4% and Kraken 5% rewards on USDC,
02:03compared to Chase at 0.01%.
02:06Banking associations started flooding Congress with letters,
02:10demanding they closed what they now called a loophole.
02:13But the crypto industry argues that it was intentional.
02:18In December, the Blockchain Association, representing 125 companies,
02:23including Coinbase, Kraken, and A16Z,
02:26sent a letter to the Senate claiming Congress intentionally preserved
02:31the ability of platforms to offer rewards.
02:35They argue it was a negotiated compromise.
02:38Not a mistake.
02:38Even the Fed didn't catch it.
02:41In November, months after Genius passed,
02:44Fed Governor Stephen Moran gave a speech explaining why stablecoins
02:48wouldn't pull deposits from banks.
02:50Because Genius Act payment stablecoins do not offer yield
02:53and are not backed by federal deposit insurance,
02:55I see little prospect of funds broadly seeing the domestic banking system.
02:59So why would Americans move their money?
03:02Now, that argument made sense on paper,
03:04but in reality, the yield programs were already live.
03:08Earlier this year, the American Bankers Association made closing this loophole their top priority.
03:16More than 3,200 bankers even signed a letter to the Senate asking for the yield ban to apply to
03:22all exchanges and affiliates.
03:25The reason is simple.
03:26Deposits are banks' cheapest source of funding.
03:30If deposits start moving into stablecoins instead, banks either have to cut back on lending or find more expensive ways
03:36to fund it.
03:37Now, the Fed actually modeled this in a study.
03:41In the moderate scenario, where stablecoins grow by $600 billion, lending shrinks by $190 to $408 billion.
03:51In a high adoption scenario, the reduction could reach $1.26 trillion.
03:58So, in other words, that's hundreds of billions of dollars in loans that never get made.
04:05So, Congress responded with the Clarity Act.
04:09The Digital Asset Market Clarity Act of 2025.
04:13Which would extend the yield ban to any digital asset service provider.
04:20And it specifically targets passive yield, the kind you earn just from holding a balance.
04:26Activity-based rewards tied to payments or staking would still be allowed.
04:30So, there is potential for exchanges to restructure and stay compliant.
04:34But, in mid-January, Coinbase withdrew support for the bill entirely, saying it would effectively kill stablecoin rewards.
04:44Now, the Senate was supposed to vote the next day, but postponed.
04:48A few weeks later, the White House stepped in.
04:50Patrick Witt, the Executive Director of the President's Council of Advisors on Digital Assets,
04:56started brokering talks between banks and crypto firms, with March 1st being the deadline.
05:01The idea is to stop massive deposit flight from banks, while still allowing rewards for people actually using the network.
05:09But, getting both sides to agree on the exact language has been difficult.
05:14And then, on February 25th, the Office of the Controller of the Currency released their proposal.
05:18Now, the OCC is the federal agency that supervises banks and writes the actual rules for how the Genius Act
05:25gets enforced.
05:26March 1st, their 376-page document restricts third-party yield arrangements and essentially says what Coinbase is doing probably violates
05:38the law.
05:39But that raised questions.
05:41Are the White House negotiations even necessary anymore if the regulator already decided?
05:48March 1st came and went.
05:51No deal.
05:52According to reports, negotiations are still happening.
05:55Both sides are revising draft language, but there is no agreement yet.
06:00So, while Congress figures this out, it's actually worth thinking through what the financial system would look like under different
06:07scenarios.
06:07So, let's start with where we are right now.
06:11So, right now, stablecoins hold about $310 billion.
06:15That is less than 2% of total US deposits.
06:19The exodus hasn't happened, even with stablecoins paying up to 40 times what traditional banks offer.
06:24And honestly, it's probably down to three things.
06:28First, most Americans, honestly, they don't know how to buy USEC and they don't think of Coinbase as a place
06:35to store money.
06:36And a lot of people just don't trust putting savings into anything that is labeled crypto.
06:42None of that crypto stuff.
06:43And so, that psychological barrier is doing more to protect bank deposits right now than any regulation.
06:51But if stablecoin yields become permanent, that barrier will erode over time.
06:56The Fed said that smaller banks could see their deposit bases collapse,
07:02while giants like JP Morgan and Goldman are actually already launching their own digital asset infrastructure to survive the shift.
07:13Now, if Congress closes the loophole, there is global competition that deserves attention.
07:19China is piloting interest payments on its digital yuan.
07:24Users outside China can't access it, but they're modeling what yield-bearing sovereign digital currency looks like.
07:32If the US bans stablecoin yields while rival nations build theirs around them, that capital might flow offshore.
07:41And then there is the political math.
07:43Even if banks win the policy argument, they still have to win the vote.
07:47The crypto industry spent $131 million in the 2024 election cycle, helped elect 274 pro-crypto candidates to the House.
07:58Fairshake, their main pack, has $193 million ready for the 2026 midterms.
08:04And that is serious leverage when you're trying to pass a bill that the industry opposes.
08:10And finally, the US government itself is not in agreement.
08:14While banks want to restrict stablecoins, Treasury actually wants them to grow.
08:20They buy US government debt.
08:23Tether holds over $130 billion in treasuries, more than countries like Germany.
08:29Secretary Besant expects stablecoins to create $2 trillion in demand for bonds.
08:35So, Treasury needs stablecoins to help finance the national deficit,
08:40while regulators are trying to kill what makes stablecoins attractive.
08:44So, even if everyone agreed that the loophole should close,
08:47right now it's not clear that the government is aligned enough to actually do it.
08:51So, where does this leave us?
08:54Banks have had a century without real competition for the simple service of holding your money.
09:00The fact that a 4% yield on a stablecoin has them mobilizing thousands of lobbyists
09:08and flooding Congress with letters tells you just how influential stablecoins have become.
09:15So, will banks and crypto find a way to coexist?
09:21Or is this the beginning of a great deposit migration?
09:25Well, make sure to give us your thoughts in the comments below.
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