As banks and crypto companies grapple for influence over regulations, Trump has launched his own stablecoin, directly threatening the business of both industries.
Written by: Yueqi Yang
Translated by: Block unicorn
Congress is rapidly advancing new crypto legislation that could elevate the role of stablecoins in the financial system, putting banks on the defensive even before President Trump entered the fray.
Trump has stated that he wants stablecoin regulations to be a key focus of his administration's cryptocurrency legislation. Caught off guard, banks have ramped up lobbying efforts to push for significant changes to the regulations, from who can issue stablecoins to how they are designed, in order to maintain their position in the financial system.
As banks and crypto companies vie for influence over regulations, Trump has launched his own stablecoin, directly threatening the business of both industries.
Unlike more well-known crypto assets like Bitcoin, stablecoins do not fluctuate in price and are typically pegged to the U.S. dollar. They function similarly to money market funds, allowing for cash storage and easy cross-border transfers. The current market size for stablecoins has surged to $230 billion, with Tether and Circle's USDC dominating at $145 billion and $60 billion, respectively.
The latest entrant is the Trump family. Last week, the crypto project "World Liberty Financial," founded by Trump and his sons, announced the launch of its own stablecoin, USD1. This has raised concerns that Trump may push for legislation favorable to his business interests.
Congress Advances Stablecoin Legislation
Congress is accelerating the push for stablecoin legislation. On Wednesday, the House Financial Services Committee plans to vote on a stablecoin bill to determine whether to send it to the full House. A similar bill was passed earlier this month by the Senate Banking Committee. Trump hopes the bill will pass before August, and it has garnered some support from Democrats.
Stablecoin legislation could threaten banks' position in the financial system. Customers may choose to deposit funds in stablecoins rather than bank deposits and transfer money without going through banks.
Stablecoins are highly interconnected with the financial system because they are backed by cash and government bonds. Stablecoin issuers heavily rely on traditional banks to store these assets and handle the buying and selling of customer funds. Regulators are wary, as issues with stablecoins could ripple through the banking system and the broader economy.
For a long time, regulators have been tightening controls over the crypto industry, so when stablecoin legislation suddenly became a priority, banks were caught off guard. "The banking industry faces a long-term threat, as assets may flow out of the banking system," said Jackie Reses, CEO of Lead Bank, a community bank in Kansas City, Missouri, which partners with fintech companies.
The Trump Factor
Mike Belshe, co-founder and CEO of crypto custody firm BitGo, stated that banks were "surprised" by the Trump administration's push for crypto-friendly regulations. "Every bank is trying to figure out how to deal with digital asset companies and the extent of their involvement with digital assets."
Trump's stablecoin increases pressure on banks, as it is expected to be well-received, and the Trump family has made it clear that they want to challenge the banking system.
"People will curry favor with the Trump administration by supporting Trump's stablecoin," said Kevin Lehtiniitty, founder and CEO of stablecoin infrastructure company Borderless.xyz.
Donald Trump Jr., president of World Liberty Financial, openly expressed his ambition to challenge banks. He stated that he began to believe in the value of cryptocurrency because banks had cut off business ties with them due to their family's political stance.
"I realized that the entire financial system and banking industry is actually a Ponzi scheme," he said during an online speech about the Trump family's crypto plans at a blockchain summit in Washington, D.C.
A spokesperson for World Liberty Financial stated that the company's stablecoin is aimed at "institutional clients, sovereign investors, and retail investors" for cross-border transactions and plans to launch "in the near future."
Backed by Goldman Sachs, BitGo is one of the largest crypto custody firms globally. The company stated that it will offer Trump's stablecoin USD1 to its thousands of institutional clients and hold USD1's reserve assets, such as cash and government bonds, through its banking partners, providing U.S. dollar settlement services.
"Clearly, the World Liberty team has significant influence, not just in the U.S., but abroad as well," Belshe said, who hosted a fundraising event for J.D. Vance during last year's campaign.
Several Democratic senators, including Elizabeth Warren, have called on banking regulators to clarify how they will address the conflicts of interest posed by Trump's stablecoin. In a letter, they questioned how the Federal Reserve and the Office of the Comptroller of the Currency could "maintain credibility and integrity while mitigating the unprecedented risks that Trump's stablecoin USD1 poses to the financial system."
Bank Lobbying
The banking industry is lobbying to protect its deposit base. For example, they want to prohibit stablecoin interest payments and ban non-financial companies from issuing stablecoins to prevent tech giants like Elon Musk's X from competing with banks. Banks also want to prohibit stablecoin issuers from directly accessing the Federal Reserve's payment system, which is currently only open to banks. Circle has been advocating for such access to hold assets directly at the Federal Reserve and settle transactions independently without relying on banks.
Banks also want to prohibit U.S. residents from using offshore stablecoins like Tether unless their issuers are registered in the U.S. Currently, Tether is not subject to U.S. regulations because it is established overseas. This also brings another layer of conflict of interest, as the company Cantor Fitzgerald, founded by Secretary of Commerce Howard Lutnick, manages Tether's assets.
Some banks, including Bank of America, are considering launching their own stablecoins for payments. Paxos has helped companies like PayPal issue stablecoins and stated that it is in talks with banks, expecting "several banks" to launch their own stablecoins in the future. PayPal's stablecoin has circulated $800 million in less than two years, and Fidelity Investments is also considering launching a stablecoin.
Circle is pushing banks to adopt its USDC stablecoin for payments instead of issuing their own stablecoins. Circle CEO Jeremy Allaire stated that he hopes the user network of USDC will attract banks to collaborate with them.
This means Circle may share interest income from its reserve assets with banks. Currently, Circle has already shared some revenue with Coinbase, which promotes USDC to its users. "We build business relationships that allow both our partners and us to make money," Allaire said.
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