A Senate draft deal on stablecoin yield is taking shape at the exact moment the White House Council of Economic Advisers is telling lawmakers, in effect, “Relax, the numbers are small.”
The CEA’s headline finding is that banning yield on payment stablecoins would raise bank lending by about $2.1 billion, with a claimed net welfare cost from the prohibition. That statistic is being pitched as reassurance. It shouldn’t be.
Some stablecoins can be a real improvement in payments. Faster settlement and lower friction are genuine benefits, and letting consumers earn a return on idle balances sounds like the kind of competition that forces everyone to do better. The mistake is pretending yield is just a consumer perk. Yield changes what the product is.
The policy question is not whether stablecoins are useful. It’s whether allowing “interest-like” rewards turns payment stablecoins into deposit substitutes, and what that does to the community-bank deposits that fund small businesses, farms, and local economies. That is why the ABA Banking Journal’s critique says the CEA “studied the wrong question.”
The CEA frames the debate backward. It models the effect of a prohibition on yield as if the prohibition is the correct baseline. But the contested scenario is the other direction: what happens when yield-bearing stablecoins scale up under a mature regulatory framework?
Today’s stablecoin market is roughly $300 billion in size under the CEA baseline. Yet the legislative goal of bills like GENIUS and CLARITY is to normalize stablecoins and expand adoption. Anchoring the analysis to today’s pre-expansion market is like estimating the impact of a new highway by counting traffic on a dirt road.
And credible projections don’t stop at $300 billion. Citi’s “Stablecoins 2030” base case points to around $1.9 trillion in issuance by 2030. Standard Chartered has projected the market could reach about $2 trillion by 2028. Even more cautious voices like J.P. Morgan research still see hundreds of billions ahead. The point isn’t which forecast “wins.” It’s that a model tuned to the smallest baseline will naturally produce the smallest impact.
The assumptions doing the heavy lifting deserve sunlight.
First, the CEA treats deposit flows into large banks and community banks as roughly equivalent even while acknowledging that this is unrealistic. Community banks are not scaled-down versions of the biggest lenders. They specialize in relationship lending where big banks often don’t compete aggressively. When a farmer or local manufacturer loses access to community-bank credit, “reserve recycling” into the financial system doesn’t necessarily make them whole.
Second, even when stablecoin reserves return to the banking system, they tend to reappear as wholesale balances and custody flows, not as sticky core deposits that actually power local lending. Treating wholesale balances as a clean substitute for relationship deposits understates the real credit impact on Main Street.
Third, the scale question matters far more than the CEA suggests. In its own stress-testing, moving stablecoins from around 1.7% to 10% of deposits materially increases the modeled effect on community banks, a reminder that the “negligible” conclusion is largely a function of baseline choice.
Meanwhile, community banks are not guessing about the risk. The ICBA’s analysis estimates that allowing yield on payment stablecoin holdings could reduce community bank deposits by roughly $1.3 trillion and cut community bank lending capacity by about $850 billion. That estimate rests on the reality that community banks hold about $4.8 trillion in deposits supporting roughly $4 trillion in lending.
So why are studies all over the map? Because the disagreement is mostly about assumptions: adoption speed, substitution between deposits and stablecoins, and where reserves sit. Forbes lays out how “bank” and “crypto” research often starts from different worlds and ends with different answers. That’s exactly why Congress should be cautious about treating one tidy number as a green light.
The principled concern here isn’t anti-innovation. It’s anti-two-tier regulation.
If stablecoins want to compete for deposits by paying yield, the honest answer is either to apply equivalent obligations for equivalent functions, or to deregulate banks so they can compete on equal footing. My preference is the second: we have too many banking regulations already, and freer competition would deliver better rates and better payments without Washington choosing winners.
But what Congress should not do in a Senate “deal” is bless a yield workaround that lets crypto platforms mimic deposit accounts when profitable while sidestepping bank obligations when inconvenient. That’s not a free market. That’s the government picking winners—by fiat.
