By John Astle
The GENIUS Act, passed with bipartisan support earlier this year, was a step in the right direction. It sought to curb speculative activity in the stablecoin market by banning rewards for merely holding stablecoins, which are digital tokens tied to the dollar. But crypto companies are already outpacing regulators, exploiting a glaring loophole: instead of offering rewards directly, which they are prohibited from doing, they’re partnering with third-party trading platforms to do it for them.
Let me be clear—this workaround violates one of the law’s purposes and the consequences for Marylanders could be devastating.
These affiliate crypto platforms now offer high-yield rewards to customers simply for parking their money in stablecoins, potentially luring them away from traditional community banks. This digital alternative seems appealing at first, particularly to younger or tech-savvy people. But here’s the problem: these platforms are not regulated like banks and not FDIC insured. They’re not embedded in our local economies. And when people chase returns and exit small banks en masse, it’s not just the banks that suffer—it’s Main Street.
Research shows that stablecoin adoption, even under conservative scenarios, could reduce small bank lending by tens of billions of dollars. When we apply academic findings on deposit substitution to today’s market, the results are alarming: banks could lose up to 25.9% of their deposits, wiping out hundreds of billions in loan funding. And the impact doesn’t end there.
If yield-bearing stablecoins continue to grow unchecked, total lending across the country could fall by $1.01 to $1.5 trillion. Small businesses, the lifeblood of our economy, would lose access to $110 billion in credit. Family farms, often already operating on tight margins, could see $62 billion in loans evaporate.
Consider Maryland’s own small business landscape. More than 600,000 small businesses operate in Maryland, accounting for 99.5?percent of the state’s total businesses, and they employ about 1.2?million Marylanders. In 2024, new business applications dropped by 6%, meaning that our small business ecosystem is already under stress; the potential of loans disappearing from community banks because deposits start flowing to stablecoin only adds to the problem.
And what happens when a farmer in Maryland can’t get their next loan? When a local diner in Baltimore can’t renovate its kitchen? When a mechanic in Hagerstown can’t finance a new lift? Local businesses stall. Hiring slows. Economies shrink. All because of an oversight in a law that allows a crypto rewards scheme to siphon critical deposits from the community banking system.
Congress has a responsibility to act, not just to protect consumers, but to preserve the infrastructure that keeps credit flowing to our neighborhoods. Closing the GENIUS Act loophole is not about stifling innovation. It’s about making sure innovation doesn’t come at the expense of local economic resilience.
I urge Senator Angela Alsobrooks and her colleagues on the Senate Finance Banking Committee to stand up to the crypto industry’s clever end-runs around the law. We need to prohibit these third-party reward schemes, ensure transparent oversight, and protect the community banks that make Maryland’s small businesses possible.
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