Banking institutions in the U.S. also pushed back on yield-bearing stablecoins, cautioning that they would disrupt the lending and borrowing system.
Top Wall Street giants met with the U.S. SEC crypto task force on Tuesday to debate the commission’s aggressive pro-crypto push. The Wall Street heavyweights argue that the commission’s imminent plans to support tokenized securities could destabilize the U.S. economy.
Representatives of JPMorgan, Citadel, and SIFMA met with members of the U.S. SEC yesterday. The Wall Street giants raised concerns that the U.S. SEC’s push towards a pro-crypto U.S. economy could destabilize the U.S. economy and topple financial markets.
SIFMA warns that exemptive relief could trigger economic collapse
Meeting records indicate that the representatives argue that the commission’s plans to develop a framework meant to codify an innovation exemption for crypto and tokenized securities could hurt the broader U.S. economy. These concerns also stemmed from the U.S SEC’s stated plans to exclude some DeFi projects from compliance obligations with U.S. securities laws.
The large financial players also claimed in materials distributed at the meeting that regulatory treatment should not be based on the technology used or “categorical labels.” Still, they should be entirely centered on economic characteristics. In the documents, SIFMA added that “the same core regulatory principles must apply equally to all securities – whether in tokenized, book-entry or paper form and to all entities engaged in securities businesses or that execute securities transactions”.
The materials also read that “broad exemptions for tokenized trading activities could undermine investor protection and lead to market disruptions.” SIFMA cited October’s crypto flash crash, which wiped out $19 billion in liquidations and went down in history as the largest single-day wipeout. SIFMA cautioned that tokenized securities will also be affected if they are allowed to trade beyond existing securities regulations.
SIFMA also emphasized that DeFi protocols operate and use business models regulated by securities markets and should be regulated as such when acting as brokerage platforms, dealers, or exchanges under the Exchange Act. Although no formal communication among the involved parties has been confirmed regarding the meeting, an insider claimed that crypto advocates were unaware of it.
U.S. SEC Chairman Paul Atkins said in an interview on December 2 that the commission will begin to issue sweeping innovation exemptions for the crypto sector this month. He said that the exemptions will assure crypto organizations that they will not be flagged for securities law violations for experimenting in certain areas. Progress on the crypto market structure bill has also slowed down significantly as traditional finance players push back against crypto entities on specific frameworks.
U.S. banks threatened by stablecoin developments in the U.S.
Banking institutions have also raised concerns over crypto adoption in the United States. Cryptopolitan recently reported that Standard Chartered Bank cautioned that U.S. dollar-backed stablecoins will drain more than $500 billion from the banking sector by 2028 if crypto platforms are allowed to offer interest on stablecoin deposits.
Brian Moynihan, the CEO of Bank of America, said in January that if Congress approves yield-bearing stablecoins, bank deposits of up to $6 trillion would shift to stablecoins, causing a banking crisis.
Although the GENIUS Act, which passed in July last year, prohibits U.S. stablecoin issuers from offering interest to stablecoin holders, the regulatory framework, according to U.S. banks, creates a loophole for third parties, such as crypto exchanges, to offer interest incentives to stablecoin users.
As regulations continue to take shape in the U.S., regulators gave Tether, the world’s largest stablecoin issuer, the green light to operate in the U.S. jurisdiction through a new Tether-issued stablecoin, USA₮. Tether announced that the stablecoin is regulated at the federal level under the Genesis Act and will serve both retail and institutional demand.
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