As someone who represented New York in Congress and worked closely with both Main Street and Wall Street, I know firsthand how important it is to balance innovation with responsibility. New York is home to the world’s financial capital, and decisions about how we regulate digital assets have ripple effects that go far beyond Wall Street trading floors. These reach small businesses in Elmira, farmers in the Finger Lakes, and families in Buffalo trying to get by across our state.
That’s why I believe President Donald Trump is right to focus on making America the global leader in cryptocurrency innovation. This pro-crypto vision is exactly what our economy needs to stay competitive. But as I learned during my years on Capitol Hill, every major piece of legislation comes with unintended consequences and inevitable loopholes. If we don’t act quickly to close those gaps, families and small businesses are the ones who pay the price while we risk America’s global financial market dominance.
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The GENIUS Act, signed into law under Trump, struck a strong balance. It recognized the tremendous promise of digital assets while putting in place smart guardrails. Most importantly, the bill prohibited stablecoin issuers from paying interest directly to holders. Stablecoins were designed to be a modern payment tool, not a replacement for deposits in community banks or money market funds. Banks use deposits to make loans that fuel small businesses and help families pursue the American dream. Money market funds operate under strict securities regulations. Stablecoins, by design, are neither.
Unfortunately, almost immediately after the law passed, companies such as Coinbase and PayPal found ways around it. While stablecoin issuers themselves are prohibited from paying interest, affiliates and exchanges began offering “rewards” and yield programs to holders — functionally delivering the very benefits Congress intended to prohibit. Coinbase’s CEO has even said these rewards are central to its business model. In other words, what Congress prohibited directly is now being accomplished indirectly.
If left unchecked, this loophole could have devastating consequences for New York and the country. The Treasury Department has warned that up to $6.6 trillion in bank deposits could shift to stablecoins. That’s a massive outflow of capital from the American financial system that will no longer flow to communities. According to an analysis by Stefan Jacewitz, assistant vice president and economist at the Federal Reserve Bank of Kansas City, every dollar that moves from banks to stablecoins could reduce bank lending by approximately 50 cents. The result would be a catastrophic decrease in loans to small businesses and families who depend on affordable credit.
The impact will hit hardest in underserved communities across the country. Community banks, which serve as the backbone of small towns and rural economies, rely on deposits to maintain affordable credit. If deposits decline, these banks will be forced to raise interest rates, making it more difficult for working families and small businesses to obtain loans. Unlike banks, stablecoin issuers are not subject to Community Reinvestment Act obligations, so the funds leaving these communities are unlikely to return.
The Trump administration is already paving the way for American leadership in digital assets, making it clear the United States will not fall behind in the global race for crypto innovation. Supporting crypto is a good thing and wise in many ways from an economic standpoint. However, supporting crypto also means creating a fair and transparent system in which innovation can thrive, while also safeguarding the credit markets and our nation’s financial security as a whole. By closing this loophole, the Trump administration will lead yet again by being the driving force behind principled, pro-innovation crypto regulation. This leadership also prevents critics who will pounce on any type of negative impact this loophole remaining creates.
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In Congress, I saw this time after time when pioneering legislation needed to be refined and updated as new realities emerged. That’s not weakness — it’s responsible visionary governance. By acting now to close this loophole, we can protect the integrity of the financial system, safeguard credit for families and small businesses, and secure America’s position as the global leader in crypto innovation.
The solution is straightforward: extend the GENIUS Act’s prohibition on interest payments to include affiliates and exchanges that serve as distribution channels for stablecoin issuers. This targeted fix would preserve the legitimate use of stablecoins as payment tools while preventing them from becoming unregulated, interest-bearing products in disguise. Effective crypto regulation means protecting both innovation and traditional banking, and that begins with closing the stablecoin interest loophole today.
Tom Reed represented New York’s 23rd Congressional District in the United States House of Representatives from 2010 to 2022.