Stablecoin Yield vs. Bank Interest: The $6 Trillion War for Deposits

Overview: The $6.6 Trillion Standoff

Stablecoins currently hold around $310 billion in total market capitalization — less than 2% of total U.S. bank deposits. Yet Bank of America CEO Brian Moynihan warned investors in January 2026 that up to $6 trillion in deposits could shift to stablecoins if platforms are allowed to pay interest on them. This article breaks down how that situation came to be, what legislation has been proposed in response, and what the potential outcomes could mean for the U.S. financial system.

The $6 Trillion Warning

The concern centers on a straightforward yield gap. Chase's standard savings account pays an annual percentage yield (APY) of 0.01%. By contrast, crypto exchanges like Coinbase and Kraken were offering approximately 3.5 – 5% rewards on USDC, a USD-pegged stablecoin issued by Circle, by the end of 2025.

Yield Comparison Table

Platform	Type	APY / Rewards Rate	Conditions / Eligibility
Chase / BofA	Traditional Bank	0.01%	Standard Savings
nbkc bank	Community Bank	1.75%	Hybrid Everything Account
Gemini (GUSD)	NY Trust / Exchange	0.00%	Full Compliance Model
Coinbase One	Crypto Exchange	~3.5%	Paid subscription ($4.99+/mo)
Kraken (Bonded)	Crypto Exchange	5.0%	30-Day Lock-up

Rates as of March 2026. Stablecoin rewards are not FDIC-insured.

This table highlights a widening gap between traditional banking and digital assets. While "Big Banks" offer near-zero growth, community institutions like nbkc have moved to 1.75% to keep capital from migrating.

Despite these efforts, they are still being outpaced by crypto platforms. The American Bankers Association (ABA) argued to the Senate that this represents a fundamental shift in how local credit is funded:

• The $6.6 Trillion Displacement: The ABA estimates that up to $6.6 trillion in deposits could be displaced if stablecoin yield programs continue to operate outside of traditional banking rules.

• Credit Availability: Banks rely on these low-cost deposits to provide affordable loans. Fed modeling suggests that a major shift toward stablecoins could reduce total U.S. lending capacity by up to $1.26 trillion.

• Local Lending Impact: This movement of capital changes the pool of available credit for "Main Street" borrowers. Every dollar that moves from a local account at a bank like nbkc to a global platform like Kraken is a dollar no longer available for local mortgages, student loans, or small business expansion.

• The Regulatory "Paywall": This context explains why Coinbase’s shift to a $4.99/month subscription for 3.5% rewards is so significant. It is a tactical attempt to reclassify "interest" (banned for issuers under the GENIUS Act) as a "service benefit" for members.

The GENIUS Act and Its Yield Prohibition

In July 2025, President Trump signed the GENIUS Act — the first federal regulatory framework specifically for stablecoins. The law introduced several consumer protections, including a requirement that stablecoin issuers maintain 100% reserve backing with liquid assets (such as U.S. dollars or short-term Treasuries), undergo monthly audits, and give holders priority in the event of insolvency.

Critically for banks, Section 4(a)(11) of the law explicitly prohibits permitted payment stablecoin issuers from paying any form of interest, yield, tokens, or other consideration to holders solely in connection with holding, using, or retaining a stablecoin.

Banks interpreted this provision as containing the competitive threat from stablecoins. However, the law was written to restrict issuers — entities like Circle that create and issue the stablecoin itself — not the exchanges or platforms that distribute it.

The "Loophole": Exchanges vs. Issuers

Coinbase, which operates as a crypto exchange rather than a stablecoin issuer, argued that the GENIUS Act's yield prohibition did not apply to its rewards program. Its position, shared in communications with regulators, was that treating third-party rewards or loyalty programs as prohibited "interest" would extend the law beyond its stated scope.

By late 2025, Coinbase was offering approximately 4% and Kraken approximately 5% annual rewards on USDC. Banking industry groups characterized this arrangement as a loophole, while the crypto industry characterized it as a deliberate feature of the law.

Federal Reserve Governor Stephen Miran gave a speech in November 2025 — months after the GENIUS Act passed — arguing that stablecoins posed little threat to bank deposits because they did not offer yield and lacked FDIC insurance. 

In December 2025, the Blockchain Association — representing 125 companies including Coinbase, Kraken, and venture firm a16z — sent a letter to the Senate Banking Committee asserting that Congress had intentionally preserved the ability of platforms and intermediaries to offer rewards to consumers, and that the distinction from issuer-paid interest was not accidental.

Market participants have adopted diverging responses to the Section 4(a)(11) prohibitions. Gemini, which operates as a New York Trust Company, has maintained a 0% yield on GUSD to align with the GENIUS Act’s restrictions on stablecoin issuers. This contrasts with the model utilized by Coinbase and Kraken, where yield is distributed via exchange-level rewards programs. By positioning the exchange (rather than the asset issuer) as the source of the funds, these platforms argue the payments are legally distinct from the prohibited 'issuer interest' defined in the Act.

Active vs. Passive "Spending" Workarounds

Beyond the issuer-exchange distinction, the industry has split into two tactical camps to facilitate these payments. Gemini utilizes a traditional Credit Card model, where GUSD rewards are triggered by external merchant transactions — an 'active' spending requirement that makes them legally distinct from passive interest. Conversely, Coinbase has pioneered a subscription model via 'Coinbase One.' By charging a monthly fee for a bundle of services that includes 'boosted rewards,' Coinbase frames the yield as a membership benefit. However, the OCC’s March 2026 proposal specifically targets these subscription models, labeling them as potential circumventions of federal interest bans, while leaving transaction-based credit card rewards largely untouched

The Banking Lobby's Counter-Attack: The CLARITY Act

In response, the American Bankers Association made closing the perceived loophole its top legislative priority for early 2026. Over 3,200 bankers signed a letter to the Senate demanding that the yield prohibition be extended to all digital asset service providers, not just stablecoin issuers.

Congress proposed the CLARITY Act to address this. The bill seeks to extend the yield prohibition to "any digital asset service provider," specifically targeting what it defines as passive yield — rewards earned simply by holding a stablecoin balance.

The core of the dispute has shifted to a technical battle over definitions. Bankers are pushing for a regulatory 'fence' that separates traditional interest from crypto-native rewards.

• The Banking Demand: Bankers are pushing for strict definitions, arguing that any yield-bearing activity must be "active," "bona fide," and "time-locked" to ensure it is tied to genuine investment returns rather than a hidden savings account.

• The "Backdoor" Accusation: Banking sources have warned that without these specifics, crypto firms are trying to "backdoor" APY onto balances by re-labeling interest as "membership programs," "rewards," or "staking".

• The Crypto Pushback: Coinbase and other platforms argue that activity-based rewards — like those tied to transactions, wallet use, or loyalty programs — are essential for innovation and should remain permitted.

Coinbase withdrew its support for the CLARITY Act in mid-January 2026, stating the bill would effectively "kill" stablecoin rewards. The Senate was scheduled to vote the next day but postponed the session as the standoff intensified.

On February 25, 2026, the Office of the Comptroller of the Currency (OCC) — the federal agency responsible for enforcing the GENIUS Act — released a 376-page regulatory proposal that would restrict third-party yield arrangements. The OCC's document indicated that existing reward programs may violate the law. This created a new question: whether White House-mediated negotiations between banks and crypto firms remained necessary if the regulator had already taken a position through rulemaking.

A White House deadline of March 1, 2026 was set to reach a legislative compromise. That deadline passed without an agreement. As of late March 2026, both sides are reported to still be negotiating draft language.

The Credit Squeeze: What Stablecoin Growth Means for Local Lending

The Federal Reserve published a study in December 2025 modeling the potential impact of stablecoin adoption on bank deposits and credit availability. The study outlined several scenarios:

Moderate adoption scenario — Stablecoins grow by $500 billion:

• Net deposit drain: approximately -$300 billion

• Estimated reduction in lending capacity: -$190 billion to -$408 billion

High adoption scenario — Stablecoins grow by $1 trillion with limited recycling back to banks:

• Net deposit drain: approximately -$1 trillion

• Estimated reduction in lending capacity: up to -$1.26 trillion

The ABA's letter to the Senate cited community banks as particularly vulnerable, as they depend more heavily on deposit funding and have fewer alternatives for accessing capital. The letter argued that smaller businesses, farmers, students, and homebuyers in communities served by community banks would be most affected by a reduction in available credit.

Larger institutions such as JPMorgan and Goldman Sachs have been developing their own digital asset infrastructure — JPMorgan through its Kinexys payments platform and Goldman Sachs through its tokenized money market fund partnership with BNY Mellon — positioning themselves to participate in the stablecoin ecosystem regardless of how the regulatory debate resolves.

Why the U.S. Can’t Simply "Ban" Stablecoin Yield

Several competing interests complicate any attempt to fully restrict these programs. The standoff isn't just between banks and crypto—it’s an internal battle within the U.S. government itself.

1. The "National Debt" Defense

While banks see stablecoins as a threat to deposits, the U.S. Treasury sees them as a massive buyer of government debt.

• Surpassing Sovereign Nations: Tether (USDT) alone holds over $130 billion in U.S. Treasuries—surpassing the holdings of countries like Germany.

• The $2 Trillion Target: Treasury Secretary Scott Bessent testified that the stablecoin market could surge past $2 trillion in capitalization.

• A "Very Reasonable" Number: Bessent explicitly called the $2 trillion figure "very reasonable," arguing that dollar-pegged coins are a critical tool to expand U.S. dollar dominance globally.

2. International Competition (The "Digital Yuan")

The U.S. is no longer the only player in the digital currency race.

• China's Move: In 2026, China broke global consensus by allowing its digital yuan (e-CNY) to pay interest on verified wallets.

• The Risk of Capital Flight: If the U.S. bans yield while rival nations build interest-bearing digital assets, dollar-denominated capital could flow offshore to more competitive foreign digital currencies.

3. Massive Political Influence

The crypto industry has built a "war chest" that makes aggressive legislation politically risky.

• The 2024 Election: The industry spent $131 million in the 2024 cycle, helping elect 274 pro-crypto candidates to the House.

• The 2026 Midterm Fund: Fairshake, the industry’s primary PAC, has already raised $193 million for the 2026 midterms.

4. Internal Government Misalignment

The U.S. government does not have a unified front on this issue.

• The Regulators: The Federal Reserve and the OCC are focused on preventing bank deposit flight and restricting yield arrangements.

• The Treasury: The Treasury Department wants the market to grow to help finance the national deficit.

• The Result: This policy paradox makes a coordinated "ban" nearly impossible, as different agencies are working toward opposite goals.

Current Status

As of late March 2026, the stablecoin market remains in a regulatory standoff. While a mass migration of the abovementioned $6 trillion U.S. deposit base has not yet materialized, the industry has fractured into two distinct tactical camps to address the GENIUS Act’s yield prohibition:

• The Compliance Model (Gemini): This approach prioritizes regulatory standing by offering 0% yield on GUSD holdings. Instead, it competes for deposits through "active" spending rewards via the Gemini Credit Card. By triggering rewards through merchant transactions rather than passive balances, this model currently operates outside the legal definition of "interest."

• The Subscription Model (Coinbase/Kraken): This approach utilizes exchange-level "rewards" programs — often bundled behind paid memberships like Coinbase One — to offer 3.5%–5% returns. Proponents argue these are service benefits; however, the American Bankers Association characterizes them as a direct circumvention of federal law.

The standoff now rests with the Office of the Comptroller of the Currency (OCC). Their 376-page proposal, currently open for public comment, specifically questions whether "spending-based" and "subscription-based" rewards are economically equivalent to the interest banned under Section 4(a)(11).

With the CLARITY Act stalled in the Senate and White House-mediated negotiations between banks and crypto firms ongoing, the outcome remains unresolved. The final ruling will determine if the "War for Deposits" ends in a regulatory stalemate or a fundamental restructuring of how Americans save and spend their dollars.

For a video breakdown of how the GENIUS Act loophole works, check out the video below:

This article is for informational purposes only and does not constitute financial or legal advice. Always conduct your own research before making any financial decisions.