4 Things to Know About Crypto Market Structure Legislation
January 6, 2026 – As the U.S. Senate prepares to deliberate on new legislation regulating the cryptocurrency market structure, the Bank Policy Institute (BPI) highlights four essential points to understand about the potential risks and regulatory approach. This legislation aims to address critical vulnerabilities posed by the current unregulated crypto environment, protect consumers, preserve banking system stability, and foster responsible innovation within the digital assets space.
1. Establishing a Clear Regulatory Framework for Crypto
Congress is working to create definitive rules governing the rapidly evolving crypto sector. This regulatory framework is designed to provide clarity and consumer protection while encouraging U.S. leadership and innovation in digital assets. A significant legislative focus is ensuring that laws such as the GENIUS Act — which prohibits stablecoins from paying interest or yield — are fully enforced. Lawmakers seek to close loopholes that some crypto firms exploit to skirt these restrictions, which could otherwise undermine legislative intent and threaten financial stability.
2. Addressing Risks of Stablecoin Growth to the Banking System
Stablecoins, a type of cryptocurrency pegged to traditional assets like the U.S. dollar, have grown significantly and risk displacing traditional bank deposits. This displacement could reduce banks’ ability to extend credit to the broader economy, contradicting claims from certain crypto industry proponents. The degree to which stablecoins might cause deposit flight depends on how Congress and regulators frame policy around sound banking and crypto integration.
Particularly alarming is the practice of stablecoin issuers indirectly paying interest through affiliates or third parties. These interest-like payments, sometimes disguised as “rewards” or revenue-sharing arrangements, violate the GENIUS Act’s prohibition on stablecoin interest payments. Such schemes could exacerbate deposit outflows from banks, especially during times of financial stress, weakening banks’ central role in credit provision to consumers and businesses.
3. Crypto Lending and Borrowing via Decentralized Finance (DeFi) Pose Consumer and Systemic Risks
DeFi platforms, which facilitate crypto lending and borrowing without traditional bank intermediaries, operate similarly to highly leveraged banks but without key safeguards. Unlike conventional banks, DeFi platforms lack deposit insurance, do not have access to a lender of last resort, and are not subject to capital, liquidity requirements, or regular supervision. This framework presents increased risks of consumer losses and the potential for shocks to ripple from the crypto ecosystem into the broader financial sector.
4. Persistent Illicit Finance Risks Despite Existing Laws
Even with the GENIUS Act and other efforts to regulate crypto, pathways remain for drug traffickers, terrorists, and other criminals to exploit the U.S. financial system via unhosted or internationally hosted wallets and DeFi platforms. These tools continue to pose challenges to effective anti-money laundering (AML) enforcement and threaten the integrity of the financial system.
About the Bank Policy Institute
The Bank Policy Institute is a leading research and advocacy organization representing the interests of banks and fostering sound policies that promote a safe, transparent, and innovative financial system. BPI supports effective legislation and regulatory measures that help secure the financial ecosystem while enabling technological advancement.
For More Information
- Stablecoin Risks: Some Warning Bells
- A Closer Look: Stablecoins’ Effects on Bank Deposits
- Closing the Payment of Interest Loophole for Stablecoins
- Paying Interest on Stablecoins: Setting the Record Straight
- Despite GENIUS Act, Crypto Pathways Remain for Criminals and Terrorists to Exploit U.S. Financial System
To access these resources and learn more about BPI’s insights into crypto regulation, visit the Bank Policy Institute’s website.
Disclaimer: The views expressed herein do not necessarily reflect those of BPI’s member banks and are not intended as legal advice.