Review of New Stablecoin Law that Traditional Banks Try to Push Back
In July 2025, President Trump signed the historic GENIUS Act, the first major cryptocurrency regulation in the United States. Many experts call this moment a turning point for the entire American financial system. The law finally established clear rules for the stablecoin market but simultaneously raised concerns among traditional banks. In today's article, we will explain what exactly is changing and why the banking lobby is so actively trying to change the already adopted law.
Before the GENIUS Act, American stablecoin market existed in a legal vacuum. Companies like Tether or Circle issued dollar-pegged tokens without a clear understanding of what specific requirements the government imposed on them — essentially none. This created uncertainty for both issuers and users, especially against the backdrop of scandals involving the reserves of major stablecoins. The new law aims to rectify this situation, but how it will affect the balance of power in the financial sector is a question currently being actively discussed by key stakeholders.
What Innovations Does the GENIUS Act Bring?
GENIUS Act stands for “Guiding and Establishing National Innovation for U.S. Stablecoins” — a name that clearly reflects its priorities. The Senate passed the law in June 2025 with broad support despite criticism from Democrats.
The central requirement of the new law is the obligation for all stablecoin issuers to back their tokens with U.S. dollars or other low-risk assets in a one-to-one ratio. This sounds simple, but in practice, it means a radical restructuring of the business models of many companies. It will no longer be possible to invest user funds in risky assets and profit from the difference — all funds must be held in safe instruments. Additionally, only insured depository institutions — banks, credit unions, bank subsidiaries, and non-bank financial institutions approved by the Federal Reserve System — will be able to issue stablecoins. This significantly raises the barrier to market entry and effectively excludes the possibility of new players emerging without serious capital backing.
The law also imposes strict transparency and audit requirements. Companies must maintain proper reserves and be transparent about how funds are stored, as well as comply with anti-money laundering (AML) rules. For many existing issuers, this means a need to radically revise their operational processes, particularly for Tether. Furthermore, the law requires all stablecoin issuers, including foreign ones, to have the technical capability to freeze and confiscate tokens and comply with court orders. This virtually eliminates the possibility of fully decentralized stablecoins — all will have administrative control.
Banks vs. Fintech
The reaction from the traditional banking sector to the GENIUS Act was swift and sharp, even painful. Banks are actively lobbying for amendments to the already adopted law, warning of risks associated with the possibility of paying interest on stablecoins. What is the nature of their concern?
The main problem for banks is that the new law prohibits stablecoin issuers from offering returns to token holders, which they will now become, issuing their own tokens. Meanwhile, their main competitors — crypto exchanges — will indirectly be able to offer bonuses and various interest rates on account balances since they are not issuers. The issuers here will be Tether and Circle, if we are talking about the two most popular stablecoins. Banking associations fear a “significant risk of deposit outflows, especially during stress periods,” which could ultimately limit credit availability. In simpler terms, they are afraid that customers will start massively transferring money from bank deposits to stablecoins if exchanges offer more favorable conditions for storing funds.
Senator Elizabeth Warren warned her colleagues that “creating a parallel, weakly regulated banking system will lead to deposit outflows from local communities,” meaning less funding for small businesses. These concerns are not unfounded — if stablecoins become more attractive for storing funds, traditional banks could indeed face serious competition. But self-interest also played a significant role here.
The crypto industry, naturally, is actively resisting banks' attempts to tighten legislation. Representatives of crypto exchanges, including Coinbase's chief legal officer Paul Grewal, condemn the banks' concerns, emphasizing that limiting exchanges' ability to offer rewards to stablecoin holders will unfairly protect banks while restricting consumer choice.
Will the banking lobby succeed in its attempts to change the law? For now, the prospects are unclear. Trump and his administration are clearly focused on developing the crypto industry, and the adoption of the GENIUS Act was an important victory for the president, who promised to make the country the “crypto capital of the planet.” Radical changes to the recently adopted law could undermine these plans, which is highly undesirable at this stage.
The Monoup team tracks various changes in the legislation of different countries, not just the U.S., and regularly publishes insights in our Telegram channel or on the website. To stay informed, follow our updates.
Prospects and Potential of the New Regulation
There is no denying that the GENIUS Act opens up serious opportunities for the development of the American crypto economy. Banks can now more easily expand their services in the field of tokenization as regulatory barriers are lowered. This means that new banking products integrating traditional finance with digital assets are on the horizon.
For fintech companies, the law creates clear frameworks for doing business. There is no longer a need to guess what requirements regulators will impose — all rules are clearly and unambiguously defined. This should stimulate investment in the sector and attract major institutional players who previously refrained from entering crypto due to regulatory uncertainty.
The United States is becoming one of the first major economies in the world to adopt specialized stablecoin legislation. This gives American companies a serious competitive advantage in the global market and can attract international players to register specifically in the U.S. The economic potential is enormous, as stablecoins already process trillions of dollars in transactions annually, and with clear regulation, this volume could grow exponentially. The emergence of regulated stablecoins could also stimulate the development of programmable money — tokens with built-in logic that can automatically perform certain functions.
However, we must not forget about potential risks. The concentration of stablecoin issuance in the hands of large financial institutions could lead to market capture. Small innovative companies’ risk being squeezed out by large players capable of meeting all regulatory requirements, which will require significant investments (often unavailable to startups). Additionally, strict control could undermine one of the key advantages of cryptocurrencies — decentralization and anonymity.
The GENIUS Act is just the first step in regulating the American market. We will likely see additional laws concerning other types of digital assets, as well as international agreements on regulatory standards. Ultimately, crypto is moving toward full transparency, and although not all participants in the process are happy about this, it seems there is simply no other way. Previously, governments tried to strongly oppose crypto, banning it and introducing criminal liability for its use. Now, the policy of many has turned 180 degrees, coming to a full understanding of crypto's potential. It can no longer be banned, so it will be controlled.
