The recent debate concerning stablecoin yields may be neglecting a wider macroeconomic dynamic, as per Patrick Witt, the executive director of the President’s Council of Advisors for Digital Assets.
On March 11, Witt posted on X, mentioning that the stablecoins’ complaint with the GENIUS Act framework could really influence new funds into the U.S. banking system instead of draining deposits away from it, as some banking groups have alerted.
Witt mentioned that lost in the rewards/yield debate is how GENIUS-compliant stablecoins will really lead to deposit inflows. The global demand for USD is huge. Foreigners exchange local currency for stablecoins from a US-based issuer, and that is net new capital setting its foot into the American banking system.
The comment from Witt comes amid the continuing clash of policymakers, banks and crypto firms over whether stablecoin issuers should be allowed to permit rewards or interest-like incentives to holders.
Concerns of the Market Players
Traditional banking groups have alerted that yield-bearing stablecoins could influence deposits from the US banking system. The latest survey authorised by the American Bankers Association found that consumers widely backed limitations on stablecoin rewards, voicing concerns regarding financial risk.
The CEO and ABA President Rob Nichols mentioned earlier this week that our industry welcomes competition and revolution. Although he alerted that the regulator should avoid making an uneven playing field where crypto companies offer bank-like products without following equivalent regulatory standards.
Crypto industry players have claimed that stablecoin issuers so far witness strict reserve needs under the GENIUS Act, which requires tokens to be completely supported by cash or cash-equivalent assets.
Witt also had the same concerns at the start of this month. It is not the paying of yield on a balance per se that requires bank-like regulations, but instead the lending out or rehypothecation of the dollars that make up the underlying balance.
The GENIUS Act deliberately restricts stablecoin issuers from doing the latter.
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