JPMorgan CFO warns yield-bearing stablecoins threaten banks as GENIUS Act debate intensifies

The CFO of JPMorgan Chase, Jeremy Barnum, has expressed concerns over yield-bearing stablecoins as a threat to the traditional banking system. Some interpret this as him calling for regulation through the GENIUS Act, marking a new confrontation in the longstanding battle between traditional and decentralized finance.

The war between traditional and decentralized finance has reached a new precipice around yield stablecoins. Leaders of the banking industry believe they could create a form of unregulated parallel banking that destabilizes the economy by drawing liquidity away from banks. Crypto advocates argue that this is all but an attempt by financial institutions to maintain their longstanding power over the economic system. The GENIUS Act, a bill passed by Congress aimed at regulating stablecoins, falls at the center of this conundrum.

The CFO of JPMorgan Chase stated at a fourth-quarter earnings call that while the bank embraces competition, they don’t wish to compete with an unregulated parallel banking system. According to Bankless, Barnum called yield-bearing stablecoins an “obviously dangerous and undesirable thing” for this reason.

While JP Morgan Chase has previously embraced blockchain technology, even launching their own deposit coin JPMD, this is where they are drawing the line. The GENIUS Act could become the vessel utilized by the banking monolith to establish regulations for yield-bearing stablecoins.

What are yield-bearing stablecoins

Yield-bearing stablecoins are a type of stablecoin commonly pegged to the U.S. dollar that both hold steady value and generate interest over time. This poses a great use case for investors looking for a decentralized means of earning a yield on their cash without the volatility that can come with staking cryptocurrencies like Ethereum.

According to Crypto.com, yield-bearing stablecoins are categorized into rebase and non-rebase types. Rebase tokens are “those with balances that adjust automatically. In this case, rebasing distributes token rewards (accrued interest) in the form of additional tokens.”

For example, if you invest $1,000 into yield stablecoins, your balance will grow over time without needing to take any action, and the price of the individual yield-bearing stablecoin asset will remain the same. On the other hand, non-rebase tokens do not change your token balance, but instead, the value of each token grows over time as the yield accumulates. These are generally staking/derivative or DeFi-based.

Yield-bearing stablecoins generate yield through a variety of different mechanisms, like DeFi lending, liquidity mining, staking, and RWA backing. Some examples of yield stablecoins are aUSDC (Aave), USDY (Ondo), USDM (Mountain Protocol), and even Blackrock’s BUIDL.

TradFi vs. DeFi: The future of yield-bearing stablecoins & the GENIUS Act

The GENIUS Act serves as a potential legislative answer for JP Morgan Chase’s concerns over yield stablecoins. GENIUS stands for “Guiding and Establishing National Innovation for U.S. Stablecoins Act.” This title encapsulates the intended purpose of the bill, which is to allow stablecoin innovation while still ensuring consumer protection and stability of the U.S. financial system.

According to the Federal Reserve Bank of Richmond, the GENIUS Act states that “issuers of payment stablecoins cannot pay interest or yield to customers who hold them.”  This means that a stablecoin alone cannot legally function as an interest-bearing savings product like a bank can. However, a loophole in this current legislation is that it doesn’t stop third parties like crypto exchanges or DeFi services from offering rewards or staking returns to the balances of stablecoin holders.

This loophole is exactly what big banks like JPMorgan Chase are lobbying to close, which presents a real threat to yield-bearing stablecoin issuers, given the power of the banking industry. At the same time, the crypto industry has found newfound strength in its political lobbying power under the Trump administration’s pro-crypto stance. This being the case, the future of yield-bearing stablecoins is one that may have to see its day in both court and Congress.

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