Citi is now warning that stablecoin yields could trigger $6.6T in bank deposit outflows. This is happening as regulators, banks, and crypto firms continue to clash over the GENIUS Act.
Stablecoin yields are drawing more and more attention from Wall Street and Washington. According to recent insights from Citi Bank executive Ronit Ghose, paying interest on stablecoin holdings could drain massive sums from traditional banks.
He warned that if this happens, it could be a repeat of the money market fund boom of the 1980s.
Banking Industry Fears Stablecoin Competition
For context, between 1981 and 1982, U.S. banks lost $32 billion in net deposits as money market funds surged from $4 billion in 1975 to $235 billion. According to Ghose, stablecoins could repeat that pattern on a much greater scale.
Citi estimates that as much as $6.6 trillion in deposits could shift if stablecoin platforms start offering more yields.
The idea of stablecoin yields sounds like a disaster for many banking leaders. For example, Sean Viergutz, who is a banking specialist at PwC, said that the rise of high-interest stablecoins could increase banks’ funding costs.
This means that institutions might need to raise deposit rates or rely more heavily on wholesale markets.
It would also make loans more expensive for businesses and households. Since bank deposits are the main source of credit, an exodus into stablecoins could tighten liquidity across the economy. Banking groups are now warning that this imbalance could weaken the strength of regulated banks.
Several trade groups, including the Bank Policy Institute, continue to call for regulators to act now. They believe that the current rules allow crypto exchanges to ignore restrictions that traditional institutions cannot. In essence, they can indirectly offer yields on stablecoins while issuers cannot.
The claim that this loophole gives digital asset platforms an advantage over banks, which they shouldn’t have.
The GENIUS Act and Its “Loopholes”
The U.S. government recently passed the GENIUS Act to establish a framework for stablecoin regulation. It bans issuers from paying direct interest to holders. Yet banks argue that exchanges and affiliates can still offer yields through rewards programs.
This, they say, creates a competitive gap.
U.S. banks are urging Congress to close the GENIUS Act’s stablecoin “interest loophole,” a move that could restrict DeFi access to compliant coins and limit consumer yield opportunities through exchanges and protocols. pic.twitter.com/WFAWzFw65u
— Carlo⚖️ (@TheDeFiDefender) August 14, 2025
Critics say that this gap could encourage trillions in deposit outflows. They want regulators to close the door on yield programs that they believe tilt the playing field against banks.
Crypto Industry Pushes Back
Crypto leaders have come forward to reject the allegations. They say that the idea that stablecoin yields threaten stability holds no water.
For example, the Crypto Council for Innovation argued that attempts to restrict yield programs only protect legacy institutions from competition. Coinbase’s Chief Legal Officer, Paul Grewal, said that lawmakers already rejected the banking lobby’s attempt to rewrite the GENIUS Act during its passage.
This was no loophole and you know it. 376 Democrats and Republicans in the House and Senate rejected your unrestrained effort to avoid competition. So did one President. It's time to move on. https://t.co/CGCGxDqKNa
— paulgrewal.eth (@iampaulgrewal) August 13, 2025
Treasury Secretary Scott Bessent also sees stablecoins as an asset to U.S. influence.
He said that stablecoins can help maintain dollar dominance by expanding access across international markets. Stablecoins are already being used in international trade and remittances because they offer cheaper and faster payments than banks.
Citi’s Mixed Position on Stablecoins
Despite Ghose’s warning, Citi is looking into entering the stablecoin market. Its CEO, Jane Fraser, confirmed that the bank is considering issuing a Citi-branded stablecoin.
Citi already uses blockchain-based dollar transfers between New York, London and Hong Kong. The bank is now setting itself up to provide custody and tokenised deposit services as stablecoins continue to gain more of a foothold.
This shows the ongoing dilemma within the banking sector.
Institutions want to manage risks, but they also want more of a foothold in the fast-growing market, with both being hard to get at the same time.
Meanwhile, stablecoins are predicted to handle $1 trillion in payments annually by 2028, and analysts expect that they could make up 10% of the U.S. money supply by then.
