Crypto lecturer Omid Malekan says the US banking industry is spreading “myths” about stablecoin yields to protect its profits, and urges Congress to prioritize consumers over banks.
“I’m disappointed that market structure legislation seems stalled over the stablecoin yield issue. Most concerns circulating in Washington are based on unsubstantiated myths,” Malekan, an adjunct professor at Columbia Business School, wrote on X Monday.
He added that the passage of crypto market structure legislation “now seems partially tied to whether stablecoin issuers should be allowed to share earnings with third parties.”
The main debate centers on a “yield bottleneck”—who profits from the interest on stablecoin reserves. Banking lobbyists have labeled this a “loophole” they want closed, fearing that if users earn roughly 5% risk-free yields on stablecoins, deposits could flood out of low-interest bank accounts, destabilizing community banks, explained technologist Paul Barron.
Malekan, however, says these concerns are misplaced:
He argues that the notion stablecoins shrink bank deposits is false. In fact, stablecoin demand largely comes from abroad, and issuers must hold reserves in Treasury bills and bank deposits, potentially boosting overall banking activity.
Competition affects profits, not lending
Stablecoins may challenge bank profits, but not lending. Banks can compete by offering higher interest rates—currently, the national average savings yield is just 0.62%, according to BankRate.
US banks account for only about 20% of credit. Non-bank lenders like money market funds and private credit dominate, and could benefit from stablecoin adoption via cheaper payments and lower Treasury rates.
It’s also a myth that community and regional banks are especially at risk. “It’s the large ‘money center’ banks that are more vulnerable,” Malekan said, emphasizing that consumer interests should be considered alongside banks’.
“The only reason this myth persists is because it’s pushed by an unholy alliance of large banks trying to protect their profits and crypto startups trying to sell smaller banks their services.”
Malekan emphasized that savers deserve attention alongside borrowers. Blocking stablecoin issuers from sharing yields with users mainly shields bank profits at the expense of savers, even though both groups are essential for a healthy economy.
Put consumers ahead of bank profits
He concluded that Congress should focus on fostering innovation and protecting consumers, rather than safeguarding the interests of highly profitable big banks.
“Most of the concerns raised by the banking industry on this topic are unproven and unsubstantiated. Congress has done a great job of putting American progress ahead of corporate interests so far; it shouldn’t stop now.”
Lawyer and Senate candidate John Deaton reminded his X followers Monday that senators are facing pressure from the banking lobby to block third-party platforms, like Coinbase, from offering yield on stablecoins.
“The banks are not your friends. And neither are career politicians […] who back them,” he said.
Reports indicate that Coinbase has threatened to pull its support for the CLARITY Act if the legislation limits stablecoin rewards beyond basic disclosure rules.
