U.S. Senator: Yield-Generating Stablecoins Could Devastate Traditional Banking and Mortgage Systems, Urges Stricter Regulation

03/27/2025

US Senator Kirsten Gillibrand Calls for Strict Regulation of Stablecoin Issuers

Recently, US Democratic Senator Kirsten Gillibrand stated that stablecoin issuers providing yield-generating products could pose a threat to traditional banking and called for strict regulation of such practices.

Senator Calls for Limiting Interest Offered by Stablecoin Issuers

During the 2025 DC Blockchain Summit held in Washington, D.C. on March 26, New York Democratic Senator Gillibrand pointed out that stablecoin issuers should not offer interest on their products, as this could undermine the appeal of local banks and subsequently affect their ability to provide mortgages and loans to small businesses.

Source: Rumble

If stablecoin issuers offer interest, people will lose the incentive to deposit funds in local banks. Without deposits, small banks will no longer be able to provide loans, leading to a collapse of the financial service system that people rely on for their livelihoods.

Financial Giants Rush into the Stablecoin Market: Yield Becomes a Key Differentiator

However, major financial institutions are actively positioning themselves for the stablecoin era, with the presence or absence of yield becoming one of the distinguishing features in the competition:

Bank of America: Intends to issue its own stablecoin after regulatory clarity.
Standard Chartered: Plans to launch a stablecoin pegged to the Hong Kong dollar.
Custodia and Vantage Bank: Jointly launched the bank stablecoin Avit, providing tokenized US dollar savings services.
PayPal: Expanding the application of its stablecoin PYUSD to integrate into more business payment scenarios.
Stripe: Acquired the stablecoin platform Bridge for $1.1 billion, demonstrating confidence in the future of digital payments.
Figure Markets: The issuance of the yield-bearing stablecoin YLDS has now been approved.
Revolut: Exploring the issuance of its own stablecoin.
Visa: Expected to partner with European banking giant BBVA to launch a euro stablecoin next year, also offering stablecoin issuance services to banks.

Promoting Strict Financial Regulation in New York State

In response, Gillibrand also expressed pride that New York State has the strictest financial regulatory framework in the world and suggested applying these regulations across all financial services sectors: regardless of state or federal level, these regulations should apply to stablecoin issuers to ensure compliance with existing laws and protect consumer safety.

Progress and Controversies Surrounding Stablecoin Legislation

As a co-sponsor of the “American Stablecoin Innovation and Establishment Act (GENIUS Act),” Gillibrand, along with Senator Bill Hagerty, introduced the bill in February to establish a comprehensive regulatory framework for digital currency tokens.

Earlier this month, Hagerty updated the bill to include stricter anti-money laundering provisions, Know Your Customer (KYC) verification requirements, financial transparency regulations, and consumer protection measures.

However, the bill has also faced criticism. Jean Rausis, co-founder of the decentralized exchange Smardex, pointed out that this could be an attempt to establish a central bank digital currency (CBDC) in the U.S. through privatization: centralized stablecoins could provide avenues for financial scrutiny and state surveillance, which may ultimately enable the government to freeze funds or exclude individuals from the financial system.

Rethinking Financial Regulation Amidst the Rise of Stablecoins and Digital Assets

With the increasing popularity of stablecoins and digital assets, the boundaries and roles of financial regulation are also facing challenges of redefinition. Gillibrand’s warning reflects lawmakers’ deep concerns about the balance between traditional banking and emerging financial technologies. How to reach a consensus between innovation and stability will be a key issue in American financial policy moving forward.

Risk Warning

Investing in cryptocurrencies carries a high level of risk, with prices potentially experiencing significant volatility, and you may lose your entire principal. Please assess risks carefully.