The Fight for a Fully Competitive Crypto Market: How Lobbyists Block Legislation

As Congress advances in creating new regulations for the cryptocurrency industry, a deep confrontation is occurring between the banking sector and the crypto community. The heart of this agreement is not just technical details but the broader question of full market competition — how new crypto platforms should compete against established financial institutions.

The controversy began last year when Congress passed the Guiding and Establishing National Innovation for US Stablecoins (GENIUS) Act. This law addressed compromises regarding stablecoins and the incentives they can offer to consumers. But this year, as the Senate drafts a more comprehensive market structure bill, the confrontation reignites.

Stablecoin Rewards as the Heart of Industry Battle

The most contentious point centers on “rewards” — incentives offered by crypto platforms to stablecoin users. Last year, the GENIUS Act allowed stablecoin issuers to provide yields but restricted third-party platforms from doing the same. This meant that Coinbase and other exchanges could share interest from reserves, such as USDC issued by Circle, but they could not directly offer their own returns.

Bankers have expressed concern that this poses a direct threat to their traditional business. “These transactions draw from our deposit system,” they argue. The American Bankers Association and other groups have worked to show that stablecoins with yields could lead to a “parallel banking system” harmful to the banking community.

Crypto industry insiders counter: they are not true deposits. Kara Calvert, Vice President of US Policy at Coinbase, clarified: “They are not deposits because bank deposits are used by banks for their own operations and generate income. Stablecoins are simply held, not reinvested.”

GENIUS Act: From Compromise to New Challenge

The GENIUS Act represented a considered solution. It would allow issuers to offer yields but set a limit: stablecoins could only provide rewards if held statically, like a savings account, or as a natural transaction result.

However, last week, the Senate Banking Committee released a new draft of the Digital Asset Market Clarity Act — an attempt to make regulations more comprehensive. Here, bank lobbyists gained some ground. The draft still contains elements the crypto community wants to see, but their fight to protect stablecoin rewards appears to have been lost.

“The threat to progress is not the lack of policy participation,” said Summer Mersinger, CEO of Blockchain Association, “but the relentless campaign by big banks to rewrite the bill to protect their business rights.”

Each Party’s Position on Full Competition

The crypto industry presents a broader view of full market competition. They argue that stablecoin rewards do not compete with traditional deposits because they are inherently different. While deposits have federal insurance and are actively used by banks to generate income, stablecoin holdings are simply stored.

Brian Armstrong, CEO of Coinbase, issued a clear message: the company will not support any law that provides a basis for bankers and prevents crypto companies from offering rewards.

The combined crypto industry also sent a letter to key senators, urging them not to amend the finalized GENIUS Act. The letter states that returning to previous rules “would reopen settled issues, break carefully negotiated compromises, and create uncertainty.”

Bankers are employing various strategies. The Bank Policy Institute argued that stablecoin yields are essentially interest in disguise — interest not directly paid by issuers but by intermediary platforms. In this view, it’s a way to circumvent the law.

Crypto advisers respond that banning is not so simple. Corey Frayer, a former crypto adviser to SEC Chair Gary Gensler and now with the Consumer Federation of America, said: “The ban is ineffective. The main funding methods are staking and lending activities, which are explicitly excluded from the ban. So, it’s only a de facto ban, not a real one.”

The Future of the Market Structure Bill and Ongoing Challenges

The draft released this week is not the final word. The Senate Banking Committee expects input from members before the next markup hearing, scheduled for this week, with a potential vote.

But the path to law remains uncertain. Advocates still need to secure enough support from Democratic senators to pass the bill. Additionally, the process must be repeated in the Senate Agriculture Committee — another panel with jurisdiction over crypto matters. That committee has extended its own markup hearing until the end of the month to allow more negotiations.

The situation is complicated by Wall Street lobbyists remaining at the table. Mersinger said: “If they succeed in sabotaging the bill with unreasonable demands, they will be left with the words of the GENIUS Act — a status quo they themselves promised not to use. It’s part of their own agenda, and it will show who is truly fighting for consumers and who is fighting to maintain monopoly power.”

This confrontation reflects a larger question about the industry: can full market competition in crypto thrive while large institutions continue to seek to protect their privileges? As Congress continues to test the waters, the outcome will become clearer in the coming weeks.