Big banks want to freeze innovation. History says that’s a mistake

Core Viewpoint - The ongoing debate over stablecoin yields highlights the tension between innovation and the interests of traditional banking, with current regulations limiting stablecoin issuers from offering interest rates on their products, leading to the rise of third-party offerings that allow consumers to earn yields on their stablecoins [1][2]. Group 1: Regulatory Landscape - The banking lobby is pushing for stricter regulations on stablecoins, advocating for limitations on interest-earning capabilities, which could hinder the growth of the digital asset market [2]. - The current draft of the digital asset market structure bill prohibits yield on stablecoins held by consumers, allowing yield only through usage or third-party financial instruments, which is seen as a detrimental compromise [2]. Group 2: Historical Context - Historical examples show that when banks were restricted from offering competitive deposit rates, consumers turned to higher-yield alternatives like money market funds, which led to significant changes in banking regulations to foster competition [3][4]. - The concerns raised by the banking sector regarding deposit flight and reduced lending capacity were addressed through increased competition rather than stifling innovation, ultimately benefiting consumers [5]. Group 3: Innovation in Banking - The introduction of interest-earning accounts, such as Negotiable Order of Withdrawal accounts, transformed the competitive landscape of banking, demonstrating that prohibitions on interest can lead to demand-driven innovations rather than their suppression [6].