Stablecoin Loophole The Danger Warning

INTRODUCTION

For decades, Talmadge Branch was one of the steady hands in the Maryland House of Delegates — a legislator whose influence came not from theatrics but from trust, longevity, and a deep understanding of how policy choices ripple through real communities. When someone with that kind of institutional memory raises a red flag, Marylanders should take notice.

Branch is not a crypto evangelist or a partisan bomb‑thrower. He’s a neighborhood‑first Democrat who spent his career fighting for small businesses, community banks, and the financial stability of Black families across the state. So when he warns that a loophole in the federal GENIUS Act could quietly siphon billions out of Maryland’s community banking system — and disproportionately harm African American entrepreneurs — it deserves more than a passing glance.

This is not a debate about technology. It’s a debate about whether Maryland’s local financial institutions, the same ones that have historically extended credit where national banks would not, can survive an uneven playing field created by unregulated “rewards” on stablecoins. Branch argues they cannot — and that Congress must act before the damage is done.

Below is his full statement, published in full because the stakes he outlines are real, urgent, and too often overlooked.

Stablecoin Danger in the Loophole

Unregulated Crypto “Rewards” Are Undermining Community Banks—and Maryland Can’t Afford It

By: Talmadge Branch, former Maryland General Assebmly Delegate, House Majority Whip and founder of the MD Black Caucus Foundation

During my time in the Maryland House of Delegates, I worked to strengthen Maryland’s communities. That commitment is why I feel compelled to speak out today about an emerging threat to that mission: a loophole in the GENIUS Act that risks draining deposits from community banks, destabilizing local lending, and exposing everyday Marylanders to unnecessary risk. This threat is especially concerning for African American communities, which have long relied on community-based financial institutions as a pathway to economic stability and opportunity.

Last year, Congress passed the GENIUS Act, a law intended to bring long-overdue regulatory clarity to the rapidly expanding world of stablecoins.

Stablecoins are digital assets designed to maintain a one-to-one value with the U.S. dollar. Importantly, the GENIUS Act prohibits stablecoin issuers from paying interest or yield to holders. That safeguard was meant to prevent these products from being marketed as unregulated bank deposits or investment vehicles and to protect consumers while preserving the stability of our financial system.

However, there is a troubling inconsistency in the law. While issuers are barred from paying interest, the same restriction does not apply to the crypto trading platforms that market and distribute stablecoins, such as PayPal or Coinbase. These platforms can still offer “rewards” or yield-like incentives to customers who hold stablecoins on their sites. These benefits are no different from interest offered by traditional banks. And stablecoins are not banks. This loophole undermines one of the law’s core purposes, creates an uneven playing field, and places community banks at a real disadvantage.

Why does this matter for Maryland? Community banks are the backbone of our local economies. They are deeply rooted in Main Street and play an outsized role in supporting small businesses. In 2023, community banks’ small-business loans accounted for roughly 8% of their total assets, nearly four times the share at larger banks. These loans help entrepreneurs grow, create jobs, and sustain neighborhoods across our state. For many African American entrepreneurs, who are more likely to own small, locally rooted businesses and less likely to have access to large national lenders, community banks are often the primary, and sometimes only, source of affordable credit.

Allowing crypto platforms to continue paying “rewards” on stablecoins threatens to drain deposits from these institutions. Deposits are not just numbers on a balance sheet; they are what enable banks to make loans, support small businesses, and reinvest in underserved communities. When consumers are encouraged to move their money into unregulated stablecoin products—products without FDIC insurance, meaningful fraud protection, or clear recourse for unauthorized transactions—the ripple effects can extend far beyond the crypto ecosystem. If this loophole is not closed, we can expect $1.7 billion to $2.4 billion to outflow from our banks.

This loophole also undercuts the intent of the Community Reinvestment Act, which requires traditional banks to meet the credit needs of the communities they serve. Stablecoin platforms face none of these obligations, creating a form of regulatory arbitrage that threatens reinvestment in low- and moderate-income communities. That includes many African American neighborhoods where CRA-backed lending has played a critical role in expanding homeownership, supporting minority-owned businesses, and rebuilding community wealth.

We can and should build a modern regulatory framework for digital assets that supports innovation while protecting the real economy. But inconsistency and loopholes are not innovation. They are risks waiting to happen.

That is why it is crucial for lawmakers to extend the GENIUS Act’s prohibition on interest and yield to all platforms. Failing to do so would put community banks, small businesses, and the financial security of Maryland families at risk. Senator Angela Alsobrooks understands how vital community banks and local investment are to our communities, which is why I urge her and her colleagues on the Senate Banking Committee to close this loophole in forthcoming crypto market legislation.