Core Insights - The GENIUS Act includes a provision that prohibits stablecoin issuers from paying interest directly to holders, which was intended to protect banks but has created a regulatory loophole for crypto exchanges and fintech distributors [1][2][3] Group 1: Regulatory Implications - The ban on stablecoin issuers paying interest reinforces stablecoins as a payment method rather than an investment, limiting their competition with traditional bank savings accounts [2][3] - The loophole allows third parties, such as crypto exchanges, to offer interest on stablecoins, effectively circumventing the intent of the GENIUS Act [3] Group 2: Market Dynamics - Issuers earn interest from reserve assets like US Treasury Bills and pass this income to distributors, who then offer high-interest rewards to users [4] - Coinbase exemplifies this model by providing a 4.1% annual percentage yield to users holding USDC or USDT on its platform, leveraging the yields from issuers like Circle and Tether [4] Group 3: Banking Sector Response - The Banking Policy Institute has expressed concerns over potential massive deposit outflows to crypto platforms, urging Congress to tighten stablecoin regulations to prevent evasion of the GENIUS Act [6]