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BPI warns that stablecoin rewards may destabilize the financial sector by transferring funds away from banks.
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The GENIUS Act targets only issuers. Platforms like Coinbase and PayPal are left in a legal grey area.
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BPI urges Congress close this loophole in order to prevent economic disruption.
The Bank Policy Institute, a major U.S. lobby group for banking, has raised the alarm about stablecoin reward program from companies such as Coinbase and PayPal. They warn that they could destabilize financial system by exploiting an important gap in a newly passed law.
Loophole in the New GENIUS Act
These rewards, which resemble payments of interest on stablecoins, exploit the gaps in the recently-passed GENIUS Act. BPI warns they could exacerbate the deposit flight, which is when funds are transferred from traditional banks to stabilizecoins. This would lead to reduced credit creation, and higher borrowing costs.
The GENIUS Act was passed in July 2025. It prohibits stablecoin issues from offering interest to holders of stablecoins. This is to differentiate them from bank deposit, which are federally insured.
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The law does not apply to secondary market players such as Coinbase or PayPal. It only targets issuers like Circle (USDC), Paxos (PYUSD), etc. Platforms like Coinbase and PayPal are continuing to offer yields up to 4,1% on USDC, and 3.7% on PYUSD.
These companies claim that they are not in violation of the law because they do not issue stablecoins but rather facilitate their use. BPI, on the other hand, sees this as an unintended loophole which has a negative impact on the U.S. Financial System.
What is the risk of a $6.6 Trillion bank run?
The BPI warns that these high yield programs could trigger an enormous “deposit-flight”, shifting huge amounts out of traditional banks into stablecoins. This would, in turn reduce the capital available to lend, increase interest rates and harm consumers and businesses.
The BPI cited an estimate from the U.S. Treasury Department that these programs could trigger up to $6.6 billion in deposit outflows over time if the loophole was not closed.
BPI to Congress – “Close the Loophole!”
BPI urges Congress to close this loophole by extending GENIUS Act so that secondary market players are included. BPI believes that without such changes, stablecoin platform rewards could continue, which would further encourage deposit flight and destabilize the economy.
In essence, while stablecoin rewards programs remain legal under current framework, this alleged loophole could prompt lawmakers to amend law.
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