If you follow financial markets, you have probably heard plenty about stablecoins and perhaps assumed they have little relevance to Colorado communities. Yet, how stablecoins are utilized and regulated could have significant consequences for consumers, small businesses and local economies across our state. First, a quick explanation: A stablecoin is a digital token designed to maintain a stable value (typically one U.S. dollar). In practical terms, it functions as a digital payment instrument that can make moving money online faster and easier.
That potential is worth embracing. Traditional payment systems can be slow and cumbersome, and stablecoins could offer consumers and businesses another efficient way to transact. But innovation must come with appropriate safeguards, particularly when new financial products begin to resemble traditional banking products. Congress recognized that challenge when it passed the GENIUS Act, establishing a federal framework intended to bring payment stablecoins into the financial mainstream under clear rules.
One provision is especially important: Stablecoin issuers cannot pay consumers interest simply for holding their tokens. That distinction was intentional. Stablecoins were designed and regulated as payment tools — not deposit accounts.
Why does that matter? Money deposited in a bank does more than sit in an account. Deposits provide the foundation for lending. Banks use those funds to extend credit to families buying homes, entrepreneurs starting businesses, farmers purchasing equipment and companies expanding and creating jobs. Deposits fuel a cycle in which local dollars are put back to work in local communities.
Stablecoins serve a different purpose. Their value lies primarily in facilitating payments, not generating the lending activity that supports broader economic growth. Yet some stablecoin companies and affiliated platforms have explored offering consumers “rewards” or similar payments for holding stablecoins. Whatever those payments are called, they can look very much like interest to consumers. They may encourage people to move money out of insured bank deposits and into token-based products that do not operate under the same regulatory framework or provide the same protections as bank accounts. That creates consequences far beyond the digital-asset market.
If significant amounts of money move from bank deposits into stablecoins, banks have fewer deposits available to support lending. National estimates suggest such a shift could move trillions of dollars away from traditional bank deposits. Here in Colorado, estimates indicate that using stablecoins as a substitute for deposits rather than primarily as a payment tool could reduce lending capacity by approximately $2.3 billion to $4.6 billion.
Those are not simply numbers on a balance sheet. Reduced lending capacity can mean higher borrowing costs and less access to credit for Colorado families, farmers and small businesses.
Our concern is not about resisting innovation. Banks have embraced financial technology for decades, from online and mobile banking to instant payments. Innovation that gives consumers better, faster and safer ways to manage their money is good for our industry and our customers.
But innovation works best when the rules are clear and the playing field is fair. That is why bankers across the country have asked Congress for a straightforward clarification: The prohibition on paying interest for holding stablecoins should apply regardless of who makes the payment. An issuer should not be able to accomplish indirectly through an affiliate or partner what it is prohibited from doing directly. During debate over the CLARITY Act, Congress’ sister bill to the GENIUS Act, proponents offered the banking industry an amendment intended to address these concerns. Under that proposal, regulators could act after five years if evidence showed that stablecoin rewards had harmed community banks.
That approach gets the sequence backward. Waiting five years to determine whether harm has occurred means communities could spend five years experiencing that harm. By then, deposits could already have migrated away from local institutions, lending capacity could already have declined, and small businesses and consumers could already have faced reduced access to credit. Ultimately, the amendment was not included in the bill.
The CLARITY Act subsequently failed to advance in a September procedural vote. Although many lawmakers understand the banking industry’s concerns, the legislation also raised broader issues that complicated its path forward.
So where do we go from here? The GENIUS Act is already law, including its prohibition on stablecoin issuers paying interest. Meanwhile, federal regulators are moving forward with rules to implement the new framework. Treasury Secretary Scott Bessent has indicated that Treasury is proceeding with GENIUS Act rulemaking, and federal banking regulators are also working on stablecoin-related regulations.
That regulatory process now represents an important opportunity. Rules governing rewards and similar incentives can help ensure that stablecoins remain what Congress intended them to be: innovative payment tools. At the same time, those rules can prevent stablecoins from becoming de facto deposit products that draw funding away from the lending system without assuming the responsibilities that come with traditional banking.
There is room for both innovation and a strong banking system. We should not have to choose between faster payments and accessible community credit. As regulators release proposed rules, it will be critically important for bankers to participate in the public comment process. Policymakers need to understand what changes in deposit flows mean on the ground — not only for financial institutions, but for the customers, businesses and communities those institutions serve.
The Colorado Bankers Association will continue advocating for a regulatory framework that encourages responsible payment innovation while preserving banks’ ability to meet the credit needs of their communities.
Stablecoins can have an important place in the future of payments. The goal should be to make sure they strengthen our financial system rather than unintentionally weaken the community lending that helps Colorado grow.
