Stablecoin Loophole Threatens to Drain Main Street
by Jim Roche, president, Maine Bankers Association
When Congress passed the GENIUS Act last year, it laid out a critical, common-sense rule: payment stablecoin issuers were barred from paying interest or yield directly to stablecoin holders. The intent was clear. Stablecoins were designed to be digital payment instruments, not high-yield investment products. By restricting passive interest, Congress sought to prevent a massive, destabilizing drain of capital away from traditional bank deposits and into unregulated or lightly regulated digital asset networks.
Yet, a gaping loophole in the current legislation is actively undermining this core intent. While stablecoin issuers themselves are prohibited from paying yield, third-party exchanges and distribution platforms have stepped in to offer lucrative rewards and interest on those exact same stablecoins. By funneling the yield earned on underlying Treasury reserves through affiliated exchanges, the prohibition is effectively rendered useless.
This loophole does not just hurt the banking sector’s bottom line; it strikes at the heart of the broader US economy and Main Street, Maine. Banks do not simply hold money; banks lend it. Deposits are the lifeblood of our communities, fueling local lending for small businesses, home mortgages, college loans, and more. Think Jimmy Stewart as George Bailey in It’s a Wonderful Life, passionately pleading to neighbors not to withdraw their money during Great Depression-era run on banks because their money was already being used throughout the town’s local economy, helping others buy homes, pay for college, and other necessities of life.
The US Treasury has estimated that up to $6.6 trillion in bank deposits could be at risk of migrating into these stablecoin yield programs. If this capital leaves the regulated banking system, the local lending capacity that supports families and towns in Maine and across the country will severely contract.
Furthermore, the stablecoin loophole creates a dangerous landscape of regulatory arbitrage. Traditional banks in Maine and across the country are held to strict safety and soundness standards, including capital liquidity requirements and Federal Deposit Insurance (FDIC) protection, designed to survive economic stress. Stablecoins lack these fundamental federal backstops. Allowing third parties to market yield-bearing “digital cash” lures everyday consumers into risky financial structures without a federal safety net, setting the stage for potential redemption-driven runs or liquidity shocks.
Fortunately, there is a path forward. The Digital Asset Market Clarity Act (CLARITY Act), currently under consideration in the Senate, offers a vital legislative fix. By explicitly clarifying that the prohibition on stablecoin yield and economically functionally equivalent rewards extends to partners, affiliates, and third-party digital asset service providers, the CLARITY Act will close the evasion loophole. Stablecoin legislation must not reward those who circumvent the law through technicalities.
Congress must step in to restore regulatory parity, protect everyday consumers, and ensure that Maine deposits remain safely working in our communities. It is time for everyone in Maine’s congressional delegation to forcefully advocate for this fix.
Note: this opinion-editorial was submitted to media outlets statewide this week. MBA hopes it receives the attention this issue deserves.
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