Senator Gillibrand Warns: Yield-Bearing Stablecoins Pose Existential Threat to Traditional Banking

At the recent 2025 DC Blockchain Summit, Senator Kirsten Gillibrand raised a critical alarm about the potential for yield-bearing stablecoins to dismantle the traditional banking system. Her concern centers on the competitive advantage offered by these coins, which could draw significant deposits away from traditional banks.

Senator Gillibrand, hailing from New York – a state known for its stringent financial regulations – advocated for the adoption of similar robust controls across all financial sectors. She specifically highlighted the need for these regulations to be applied to stablecoin issuers, regardless of whether they operate at the state or federal level. This, she argues, is essential for both compliance and consumer protection.

The Senator’s core argument focuses on the threat posed by interest-bearing stablecoins to the traditional banking model: \”If stablecoin issuers offer interest, there’s no reason for people to keep their money in local banks. And if that happens, who will provide mortgages or small business loans?\” she questioned. She emphasized that this could trigger a devastating collapse of the financial system upon which many businesses and individuals rely.

This concern underscores Senator Gillibrand’s co-sponsorship of the GENIUS stablecoin legislation, a bill aimed at creating a comprehensive regulatory framework for digital fiat tokens. Recent updates to this bill, including strengthened AML provisions and enhanced KYC requirements, reflect a commitment to addressing concerns about financial transparency and consumer protection.

While the GENIUS Act is making its way through Congress, critics argue it might be a backdoor approach to establishing a central bank digital currency (CBDC). Concerns have been raised regarding the potential for financial censorship and state surveillance inherent in centralized stablecoins. The debate highlights a fundamental tension between fostering innovation in the digital asset space and safeguarding the stability of the traditional financial system.