Part of the GENIUS Act that was signed into law contained a provision that made it illegal for stablecoin issuers to offer yield. This was a move designed to protect the banks. The goal was to allow the banks to be hyper-aggressive towards the depositors, by offering an extremely low yield.
Stablecoins could change all of this. It is something the banks fear and are moving to gain regulatory protection.
The law regarding yield only applies to the issuers. Third parties such as Coinbase are offering yield, something that is legal. Banks are, naturally, trying to close the loophole.
Then we have DeFi. That is something that is going to take on an added dimension. Because of the nature of decentralization, there will be opportunities for investors regardless of what the law says. The Internet is global and shutting down everything is impossible.
So let us take a look.
Have you notice what the interest rates the banks are paying?
Most are aware that keeping money in a savings account is a losing proposition. Yield bearing stablecoins could change the landscape while forcing banks to become more competitive with their rates.
The model for banking is simple:
Take in deposits, which the bank pays interest. Use the funds received to either lend or invest in yield bearing securities. Of course, the rate on the loans and securities purchased is higher than what the banks pay.
If we look at the numbers, we can see how this is working in the banks favor.
The average interest rate for US savings accounts is 0.40%, and in the EU, the average rate on savings accounts is 0.25%,
Compare that to US Treasuries. The 1-Mo is presently 4.129 as of the last close. This means the bank is making more than 3.5% on the depositors money, or 7x what they pay out.
No wonder they are fearful of stablecoins and what they could do to their model.
There is no way the banks will end up protected. Regulatory capture will only work for a short period of time.
The major problem for them is the fact that stablecoins will become the medium of exchange. Ultimately, most currencies will end up operating as stablecoins. The commercial bank money supply will be replaced.
Banks will naturally be a part of the transition. We are likely to see all major banks roll out their own coin. This will put them in the middle of the action.
To be competitive, however, offer payouts that rival others will be necessary. The GENIUS Act did forbid yield by the issuers. This is where striking deals with 3rd parties comes in.
With payment applications, social media platforms, and a host of other digital options, a bank could simply team up with the application, use another token, and provide yield via the 3rd party.
The fear is that, if there are other options, deposits will leave the banking system. It is a well founded fear. Since stablecoins make payments easy, the gatekeeper called a bank is no longer required. This changes everything.
Of course, politicians are essentially given bribes to keep the status quo. Banks are basically obsolete yet they are protected. Inefficiencies will remain in the system until they are destroyed. Better options are emerging, forcing politicians to try and ban them.
History shows this could slow things but will not work in the long run.
