Why is the Banking Sector Trying to Block Stablecoin Interest Payments?

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The banking sector has begun to move to block stablecoin yields. As demands to limit stablecoin interest payments were raised during discussions on the U.S. cryptocurrency market structure bill, the Clarity Act, market tension is increasing.

According to Watcher.Guru, a cryptocurrency specialized media outlet, on May 11 (local time), U.S. banking lobby groups are recently arguing that provisions to limit or prohibit stablecoin yield offerings should be added to the Clarity Act. The media outlet analyzed that traditional financial institutions feel a strong sense of crisis regarding the expansion of the stablecoin market.

Stablecoins are generally pegged to fiat currencies like the U.S. dollar, so they have little price volatility, but can earn an Annual Percentage Yield (APY) when deposited into DeFi lending protocols, liquidity pools, or interest-bearing accounts. For example, depositing $1 million in USD Coin (USDC) into a product offering 5% APY can generate over $50,000 in annual returns.

The problem is that these yields are much higher than traditional bank deposit interest rates. The media outlet reported that the banking sector is most concerned about customer funds moving from low-interest deposit accounts to the stablecoin market. Indeed, the stablecoin market has grown rapidly in recent years, forming a competitive landscape with the existing financial system.

However, not all stablecoins are safe. The media outlet warned that while stablecoins backed by actual dollar reserves are relatively stable, algorithm-based stablecoins carry significant structural risks. A prime example cited was TerraUSD (UST), which collapsed in 2022. At the time, Anchor Protocol attracted massive funds by offering a 20% APY to UST depositors, but criticisms of its unsustainable structure followed. Subsequently, with a massive outflow of funds and UST losing its dollar peg, the entire project effectively collapsed.

The media outlet advised investors to always verify the reserve structure and transparency before investing in stablecoins. In particular, if the U.S. Congress reflects stablecoin yield restriction clauses in actual legislation in the future, there is a possibility of significant changes occurring throughout the DeFi market and the stablecoin ecosystem.

*Disclaimer: This article is for investment reference purposes, and we are not responsible for investment losses based on it. The content should be interpreted for informational purposes only.*