FXTRADING Financial Focus (Asia-Pacific 02/12)US stablecoin regulation hits another impasse

Recently, discussions around stablecoin regulation in the United States have once again fallen into a stalemate, leaving a digital asset bill that had once carried high expectations stalled midway. Hearings at the Senate Banking Committee have already been postponed twice, with the latest delay occurring after divisions emerged within the crypto industry over key provisions of the draft. The pace of policy advancement has clearly slowed, reminding markets that no real consensus has yet been formed on the regulatory path for stablecoins.

The core dispute centers on whether stablecoin accounts should be allowed to offer yield to users. In their communication with regulators, the banking industry has taken a firm position, calling for a comprehensive ban on any form of interest on balances, including non-cash incentives. The industry argues that if stablecoins carry yield features similar to bank deposits, funds could steadily flow out of the traditional banking system, directly undermining the deposit base.

These concerns from banks are not unfounded. The lending capacity of the US banking system relies heavily on stable, low-cost deposits. If small and community banks begin to experience sustained outflows, credit supply to households and small businesses would likely be the first to feel the impact. Although large banks have stronger resilience, the overall funding structure of the financial system could still shift, which is why the banking sector views this issue as a matter of systemic risk.

At a closed-door meeting hosted by the White House, policy teams from several major financial institutions participated directly in the discussion, including heavyweight players such as JPMorgan, Bank of America, Citigroup, and Wells Fargo. Crypto exchanges and industry associations were also present. While both sides described the meeting as constructive, the actual progress suggests that differences remain concentrated on a fundamental question—whether stablecoins should carry financial, deposit-like characteristics.

The crypto industry holds a very different view. For stablecoin issuers, offering yield is a key tool for expanding user adoption and attracting capital. If interest is fully prohibited, stablecoins would function more like payment instruments rather than asset management tools, significantly reducing their appeal. Many within the industry argue that the core value of stablecoins lies in their deep integration with the dollar system, rather than being confined to a narrow settlement function.

The policy contest is also evolving on other fronts. Regulators are discussing whether to lower the threshold for crypto institutions to access the Federal Reserves payment system and to apply for banking licenses. If implemented, this move would reshape the competitive dynamics between traditional banks and crypto firms. Meanwhile, the Treasury has signaled that if digital assets are to develop sustainably, a clear legal framework must be established as soon as possible, adding further pressure on Congress to advance legislation.

The potential implications are that legislative uncertainty may continue to weigh on the expansion of stablecoin-related businesses, slowing the pace of market adoption. If the final framework reflects the banking sector‘s recommendations, stablecoins are more likely to evolve into payment tools rather than deposit-like products, limiting their ability to attract and retain funds. At its core, this debate is a contest between traditional finance and on-chain finance for control over the entry point of low-cost capital. From FXTRADING’s perspective, the significance of this regulatory divide extends beyond the crypto industry itself, as it relates to the structural evolution of dollar liquidity. If stablecoin functions are restricted, funding stability within the banking system will be preserved and dollar liquidity will remain largely within traditional channels. But if regulation ultimately loosens, the migration of funds from banks to the blockchain could accelerate, and the global markets understanding of dollar liquidity will need to incorporate stablecoins as a new structural variable.