Washington’s stablecoin impasse is escalating into a battle that banks are quickly seeing as a deposit problem.
The debate is no longer about whether there should be tokens linked to the dollar. It specifically focuses on whether consumers can earn rewards like interest just by holding them and whether they should be treated as deposits.
A recent White House meeting aimed at breaking the impasse between banks and crypto industry groups ended without an agreement, with stablecoin interest and rewards remaining a central sticking point.
The timing is no coincidence. Stablecoins have grown beyond niche piping for crypto trading and cross-venue payments.
According to data from DeFiLlama, the total supply of stablecoins hit a new high in mid-January, reaching a peak of $311.332 billion.
At this scale, the policy question ceases to be theoretical and becomes a question of where the safest and most sticky “cash” balances are located in the financial system and who benefits from them.
Why banks see stablecoins as competition for deposits
Banks are interested in stablecoins because the dominant model takes “deposit-like” funds off bank balance sheets and into short-term U.S. Treasury bills.
Deposits are cheap funds for banks. They support the loan book and help soften margins. In contrast, stablecoin reserves are typically held in cash and short-term government bonds, shifting the remaining funds in the system from deposit funds to sovereign funds.
Essentially, these new assets change who earns, who mediates, and who controls distribution.
The issue becomes politically explosive as products begin to compete on yield. If stablecoins were strictly interest-free, they would look like payment tools, or payment technologies, that compete on speed, uptime, and availability.
But when stablecoins can provide yield, either directly or through platform rewards that feel like interest, they start to resemble savings products.
That’s where banks see a direct threat to their deposit franchises, especially community financial institutions that rely heavily on retail funds.
Standard Chartered recently quantified the perceived risks, warning that stablecoins could pull around $500 billion in deposits from US banks by the end of 2028, with regional lenders most at risk.
This estimate is important less as a prediction and more as a signal of how banks and their regulators are modeling their next steps.
In this framework, the cryptocurrency platform becomes the front-end “cash account” and banks are relegated to the background or lose their balances altogether.
GENIUS and CLARITY are embroiled in a compensation dispute
Notably, the United States already has stablecoin laws in place, which are at the heart of the current dispute.
President Donald Trump signed the GENIUS Act in July 2025, framing it as a means to bring stablecoins within regulated boundaries while supporting demand for U.S. government debt through reserve requirements.
However, implementation of the law remains delayed, with Treasury Secretary Scott Bessent admitting it could take effect by July of this year.
This runway is one of the reasons why the yield debate has shifted to promoting market structures that are now grouped under CLARITY.
Banks argue that even if stablecoin issuers are constrained, third parties (exchanges, brokerages, fintechs) can still offer incentives that appear to be interest, potentially driving customers away from insured deposits.
To this end, they outline broad prohibitions regarding stablecoin yields, stating that no person shall provide any form of financial or non-financial consideration to a payment stablecoin holder in connection with the holder’s purchase, use, ownership, possession, custody, holding, or retention of a payment stablecoin.
They added that any exemptions should be extremely limited to avoid undermining the ban or causing deposit flight that would inhibit Main Street lending.
But crypto companies counter that the rewards are a competitive necessity and that banning them would lock in banks’ power by limiting how new entrants can compete for balances.
The pressure has become evident enough to slow legislative momentum.
Last month, Coinbase CEO Brian Armstrong said the company could not support the bill in its current form, citing constraints on stablecoin fees, among other things, which helped delay action by the Senate Banking Committee.
Nevertheless, not everyone in cryptocurrencies agrees that the two arguments should be conflated.
Mike Belshe, CEO of BitGo, said both sides should stop trying to remake GENIUS. Because, in his view, the battle is settled and those seeking change should pursue amendments.
He said market structure efforts should not be hampered by another dispute over stablecoin yields, adding: “Achieve clarity.”
This split is now shaping the industry’s plans for 2026. It is also shaping how banks and crypto platforms position themselves regarding the rules that determine who holds a consumer’s default dollar balance.
3 paths and 3 different winning sets for this sector
Considering the above, the stablecoin impasse could be resolved in a way that restructures the business model of cryptocurrencies and finance as a whole.
The first scenario is a no-yield crackdown (bank-friendly). If Congress and regulators effectively limit passive “earning” rewards, stablecoins will become more about payments and settlements than about savings.
This is likely to accelerate adoption among existing companies seeking a stablecoin rail without competition for deposits.
Notably, Visa’s push is an early sign. It reported that as of November 30, 2025, the annual stablecoin payment amount exceeded $3.5 billion, and in December it expanded USDC payments to US institutions.
In this world, stablecoins will grow not because they pay consumers to hold them, but because they reduce friction and improve payments.
In the second scenario, banks and crypto companies could reach a compromise.
Here, US lawmakers could allow rewards tied to activities (spending, transfers, card-like exchanges) while limiting pure term-based interest.
That would maintain consumer incentives, but would create hurdles for compliance and disclosure, favoring larger platforms with scale.
A likely secondary effect will be a shift in yield to wrappers where returns are provided around stablecoins through structures such as tokenized money market access, sweeps, and other products that can be distinguished from paying stablecoin balances.
Finally, ongoing delays between banks and crypto companies are likely to continue the status quo.
Even if the impasse lingers until 2026, the rewards will last long enough to normalize the stablecoin “cash account.” This makes deposit substitution theory more likely to be directionally correct, especially when interest rate differentials are meaningful to consumers.
It also increases the risk of a sharp policy rebound later on, a whiplash moment after distribution has already changed and political views have hardened around deposit flight.
