Recent developments surrounding the introduction of the GENIUS Act, a pivotal regulation targeting stablecoins, have spotlighted a growing rift between traditional financial institutions and advocates of digital currencies.
As the legislation unfolds, national banking organizations have voiced significant concerns regarding potential risks associated with the new law. In contrast, cryptocurrency advocacy groups such as the Blockchain Association and the Crypto Council are staunchly defending the framework against proposed modifications.
Protecting Competitive Markets
In a collective open letter, the two organizations expressed grave concerns about communications issued by the Bank Policy Institute and state-level banking associations on August 12, 2025.
These communications rehash points they believe were exhaustively covered during the legislative discussions of the GENIUS Act. The advocacy groups claim that the suggested adjustments could foster a less competitive landscape for stablecoins, elevating traditional banks’ interests while undermining industry expansion and consumer freedom.
Moreover, proponents of cryptocurrency stress that payment stablecoins serve a distinct purpose and thus should not be subjected to identical regulations as bank deposits or investment vehicles.
According to stipulations within the GENIUS Act, issuers of stablecoins must maintain one-to-one reserves consisting of cash or higher-quality liquid assets while also operating under rigorous federal or qualified state oversight.
The advocacy groups emphasize that this regulatory model is structured to differentiate stablecoins from conventional bank deposits or money market funds, underscoring their specialized function in the financial landscape.
Responses from these groups also tackle assertions that certain practices—like exchanges providing shared rewards—compromise the GENIUS Act’s rules against issuer-paid interest.
Asserting the need for a level competitive field, they advocate for an environment where both banks and crypto firms can thrive, especially catering to underbanked populations increasingly utilizing digital payment options.
The Regulatory Spotlight on Stablecoins
The advocacy letter raises alarms that restricting features for stablecoin users while granting banks similar privileges could disproportionately benefit larger legacy institutions, often lacking competitive interest rates.
A particularly controversial aspect is Section 16(d) of the GENIUS Act, which permits subsidiaries of state-chartered institutions to facilitate money transmission, thus supporting stablecoin issuer activities across state lines.
Opposition towards the potential repeal of this section stems from concerns that it would adversely impact the redemption rights of stablecoin users operating across various states, potentially leading to a regulatory patchwork that could hamper interstate commerce.
Furthermore, the push to prohibit non-financial entities from issuing payment stablecoins is viewed as a draconian step that could hinder technological progress within the sector.
In their defense, the Blockchain Association and the Crypto Council highlight that stablecoins adhere to rigorous reserve and oversight mandates, ensuring their reserves predominantly remain within the conventional financial framework.
They assert that enabling responsibly regulated platforms to deliver benefits to their users is not merely a loophole; instead, it represents a critical mechanism for advancing financial inclusion and stimulating innovation.
Image sourced from DALL-E, with data visualizations from TradingView.com.
