- BPI warns stablecoin rewards could destabilize the financial system by shifting funds from banks.
- The GENIUS Act only targets issuers, leaving platforms like Coinbase and PayPal in a legal gray area.
- BPI urges Congress to close this loophole to prevent economic disruption.
The Bank Policy Institute (BPI), a major U.S. banking lobby group, is sounding the alarm over stablecoin reward programs from companies like Coinbase and PayPal, warning they could destabilize the financial system by exploiting a key gap in a recently passed law.
Loophole in the New GENIUS Act
These rewards, which resemble interest payments on stablecoin holdings, exploit gaps in the recently passed GENIUS Act. BPI warns that they could exacerbate deposit flight, where funds shift from traditional banks to stablecoins, leading to reduced credit creation and higher borrowing costs.
Notably, the GENIUS Act became law in July 2025. It prohibits stablecoin issuers from offering interest to stablecoin holders. This is to distinguish them from bank deposits, which are federally protected.
Related: Ripple CEO Praises Trump as “Most Crypto-Forward” President After GENIUS Act Signing
However, the law only targets issuers, like Circle (USDC) and Paxos (PYUSD), and does not extend to secondary market players like Coinbase or PayPal. As a result, platforms like Coinbase and PayPal continue to offer annual yields of up to 4.1% on USDC and 3.7% on PYUSD.
These companies argue that since they do not issue the stablecoins, but instead facilitate their use, they are not violating the law. Meanwhile, BPI sees this as a loophole that has a concerning effect on the U.S. financial system.
The Risk: A $6.6 Trillion Bank Run?
The BPI cautions that these high-yield programs could trigger a massive “deposit flight,” shifting huge amounts of capital out of traditional banks and into stablecoins. This, in turn, would reduce the capital available for loans, drive up interest rates, and hurt consumers and businesses.
In fact, the BPI cited a U.S. Treasury Department estimate suggesting these programs could eventually trigger up to $6.6 trillion in deposit outflows if the loophole is not closed.
BPI to Congress: “Close the Loophole”
Accordingly, the BPI calls for Congress to close the loophole by extending the GENIUS Act to include secondary market players. Without such changes, stablecoin platforms could continue offering rewards, further incentivizing deposit flight and potentially destabilizing the economy, in BPI’s view.
Essentially, while stablecoin reward programs remain legal under the current framework, the supposed loophole may prompt lawmakers to amend the law.
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