Why Congress Must Fix the Stablecoin Yield Loophole Now—Before Louisiana Pays the Price

The Senate’s latest signal that Congress will “wait and see” before fixing the stablecoin yield loophole should concern anyone who cares about financial stability, community lending, or the economic future of states like Louisiana.

This is not a niche dispute between banks and crypto. It is a looming credit-market problem that Washington itself created—and only Washington can solve.

What Went Wrong

When Congress passed the GENIUS Act earlier this year, lawmakers made one principle clear: stablecoins should function as payment tools, not unregulated, yield-bearing deposit accounts.

But the statute prohibited issuers from paying interest while leaving a glaring gap: exchanges and affiliated platforms can still offer “rewards” that are economically indistinguishable from deposit interest.

This loophole is already being exploited. Platforms are backing stablecoins with Treasuries or money-market funds and passing that yield directly to customers—effectively turning stablecoins into unregulated deposits without insurance, oversight, or capital requirements.

And because these “rewards” are funded by investment income—not payment activity—they behave exactly like interest. The terminology does not change the economics.

Why Waiting Is the Worst Option

Sen. Mike Rounds now says Congress should wait for Treasury rulemaking before revisiting a fix. But Treasury cannot close a statutory loophole that Congress left open. Regulators can interpret, but they cannot prohibit what the law allows.

Meanwhile, the risks are already clear:

1. Deposit Flight Will Hit Community Banks First

Stablecoin yield programs could siphon trillions out of the traditional banking system and into global custodians. That is capital that once fueled mortgages, equipment loans, and main-street businesses. Once those deposits leave community banks, they do not return.

2. Rural Credit Markets Are Uniquely Exposed

Research shows these programs could reduce national bank lending by more than $1 trillion, including tens of billions in lost farm credit and small-business lending. In Louisiana—where community banks finance the majority of agricultural loans—this would be devastating.

3. We’ve Seen This Movie Before

Experts warn that this dynamic mirrors the 1970s disintermediation crisis, when money-market funds drained deposits from smaller banks and helped trigger the farm-credit collapse of the 1980s. Stablecoin “rewards” threaten to recreate those conditions—only faster.

Louisiana Has More at Stake Than Most

Louisiana’s economy depends on steady, affordable lending from community and regional banks, especially in rural parishes.

When a farmer or small business owner moves $100,000 into a yield-bearing stablecoin, that money no longer supports:

• crop loans

• equipment purchases

• expansion projects

• seasonal operating lines

Instead, it sits in Treasuries at mega-custodians—capital that once flowed through local economies and helped keep small towns alive.

Stablecoins were intended to be payment tools, but yield-like incentives are transforming them into shadow deposits without supervision or safeguards.

Without a fix, Louisiana’s credit lifelines will tighten at the exact moment when farmers and small businesses are already navigating high costs, volatile markets, and economic uncertainty.

Congress Can Fix This — Quickly

The solution is simple:

• Clarify that the GENIUS Act’s interest prohibition applies to all entities, not just issuers.

• Restore parity between regulated banks and digital platforms.

• Protect community-bank funding, which supports farms, small businesses, and local economies.

This is not about stifling crypto innovation. Stablecoins can and should modernize payments.But allowing them to operate as yield-bearing deposits without oversight is a serious policy error—and a direct threat to rural America.

The Bottom Line

Congress created this loophole. Congress must close it.

Waiting for regulators to “see how things go” is not responsible policymaking.Every month of delay increases the risk that capital will quietly drain out of the places that need it most—small towns, rural parishes, and main-street businesses from Monroe to Lake Charles.

Louisiana cannot afford another avoidable credit crisis.

Fix the stablecoin loophole now—before the damage is done.