KEY FACTS: The GENIUS Act, signed into law in July 2025, is poised to disrupt traditional banking by regulating stablecoins while inadvertently allowing issuers to offer significantly higher yields than the 0.40% average on U.S. savings accounts through affiliated entities, prompting warnings of up to $6.6 trillion in deposit outflows from banks, as projected by the U.S. Treasury. Tushar Jain of Multicoin Capital heralds the act as the "beginning of the end" for banks' low-interest practices, with stablecoins like Tether (USDT) and USD Coin (USDC) already delivering 3.69%-4.02% yields on DeFi platforms, attracting depositors with instant settlements and 24/7 access. Big Tech firms like Apple and Google are exploring stablecoin integrations.

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Source: US Genius Act

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GENIUS Act Ushers in Era of Disruption: Stablecoins to End Banks' Grip on Customer Deposits

The newly enacted GENIUS Act legislation is poised to upend the traditional banking model, forcing institutions to bid farewell to their long-standing practice of offering rock-bottom interest rates on customer deposits. The GENIUS Act, signed into law in July 2025, is designed to regulate the stablecoin market but could inadvertently, or perhaps intentionally, spark a mass exodus of funds from conventional bank accounts to higher-yield digital alternatives. Industry insiders warn that this could trigger trillions in deposit outflows, compelling banks to rethink their profit strategies or risk obsolescence in an increasingly digital economy.

Tushar Jain, co-founder and managing partner of crypto investment firm Multicoin Capital, has emerged as a vocal proponent of the act's disruptive potential. In a recent post on X (formerly Twitter), Jain declared that the GENIUS Act signals "the beginning of the end" for banks' ability to "rip off" retail customers with negligible returns on their savings. According to him, banks have gotten away with paying next to nothing on deposits for decades, emphasizing how the legislation opens the door for tech giants and crypto platforms to lure depositors with superior yields, seamless user experiences, and round-the-clock transaction capabilities.

The GENIUS Act, formally known as the Generating Economic Nexus for Innovation in U.S. Stablecoins Act, aims to provide a clearer regulatory framework for stablecoins. Proponents argue it fosters innovation by clarifying compliance requirements for issuers, while critics, including traditional banking lobbies, decry it as a Trojan horse that could erode the foundational deposit base of the U.S. banking system.

Under the act's provisions, stablecoin issuers are explicitly barred from paying interest or yields directly to token holders. This restriction is intended to prevent stablecoins from functioning as unregulated money market funds, which could destabilize monetary policy. However, the prohibition does not extend to affiliated entities, such as cryptocurrency exchanges or partner businesses. This gray area allows issuers to indirectly offer attractive returns through these affiliates, effectively sidestepping the intent of the law.

Banking groups wasted no time in pushing back. In mid-August 2025, a coalition of U.S. financial institutions, including heavyweights like the American Bankers Association, urged federal regulators to seal this loophole. In a letter to the Federal Reserve and the Office of the Comptroller of the Currency, they argued that yield-bearing stablecoins pose an existential threat to banks' deposit-funded lending model.

The concerns are not hyperbolic. Banks traditionally rely on low-cost deposits, often paying savers as little as 0.40% annually in the U.S., to fund loans at much higher rates, pocketing the spread as profit. If depositors flock to stablecoins offering multiples of that return, the outflow could cascade into reduced lending capacity, higher borrowing costs for consumers, and broader economic ripple effects.

The potential scale of this disruption is staggering. In an April 2025 report from the U.S. Department of the Treasury's Borrowing Advisory Committee, officials projected that widespread adoption of stablecoins could siphon off as much as $6.6 trillion in deposits from the traditional banking system over the coming years. This figure, derived from modeling scenarios of mass migration to digital dollar equivalents, underscores the Treasury's growing unease with the unchecked growth of private stablecoins.

The Bank Policy Institute, a prominent banking advocacy group, amplified these fears in an August 2025 analysis. "Deposit flight risks would intensify during periods of market volatility, leading to a contraction in credit supply," the institute warned. It painted a grim picture that elevated interest rates for borrowers, fewer loans available to small businesses and families, and an overall drag on economic growth.

For banks, the math is unforgiving. To stem the tide, they would need to dramatically increase deposit rates to remain competitive, a move that would erode their net interest margins, the lifeblood of their earnings. Analysts at Multicoin Capital estimate that even a modest uptick in competition could shave billions off annual bank profits, forcing a painful recalibration of business models.

The allure of stablecoins lies not just in regulation but in raw economics. Traditional savings accounts in the U.S. currently yield an anemic 0.40% on average, according to data cited by Patrick Collison, CEO of payments giant Stripe. Across the Atlantic, the figure dips even lower to 0.25% in Europe, where savers have long grumbled about being shortchanged amid persistent inflation.

Enter stablecoins like Tether (USDT) and Circle's USD Coin (USDC), which are already delivering yields that dwarf their banking counterparts. On decentralized finance (DeFi) platforms such as Aave, USDT holders can earn 4.02% APY through lending protocols, while USDC offers 3.69%, rates that are up to 10 times higher than what's available at the corner branch. These returns are powered by automated smart contracts that facilitate peer-to-peer lending in the crypto ecosystem, all without the overhead of physical branches or legacy infrastructure.

According to Jain, this is about empowerment as stablecoins enable instant settlements, 24/7 access, and borderless transfers, features banks have promised for years but failed to deliver. He pointed to real-world examples, like users on platforms such as Aave or Compound, where confidential lending mechanisms allow participants to earn yields without exposing sensitive financial data, blending privacy with profitability.

As of October 2025, the stablecoin market capitalization stands at a robust $308.3 billion, per data from CoinGecko. Tether dominates with $177 billion in circulation, followed by USDC at $75.2 billion. This growth trajectory suggests stablecoins are no longer a niche experiment but a viable alternative poised for mainstream integration.

Jain's vision extends beyond crypto natives; he foresees a full-frontal assault from Silicon Valley. Major tech firms, long frustrated with high fees from legacy payment rails, are circling stablecoins as a strategic weapon. A June 2025 Fortune investigation revealed that companies including Apple, Google, Airbnb, and Elon Musk's X (formerly Twitter) are actively exploring their own stablecoin issuances. The goal is to slash cross-border transaction costs, streamline remittances, and capture a slice of the $6.6 trillion deposit pie.

As the GENIUS Act takes effect, its ripple effects will test the resilience of the U.S. financial system. For consumers, it promises a long-overdue correction to the imbalance between what banks earn on deposits and what they return to savers. Yet, for the economy at large, the transition could be bumpy and could exacerbate liquidity crunches if deposit outflows accelerate unchecked.

Regulators face a delicate balancing act; nurturing innovation without igniting systemic risks. The Federal Reserve, in particular, has been criticized for its hands-off approach to bank deposit requirements, as highlighted in recent analyses.

Information Sources:

• Tushar Jain/ X
• Cointelegraph

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