If you’ve heard the term stablecoin and assumed it was just another Silicon Valley buzzword — or maybe the name of a new cryptocurrency ranch out west — you’re not alone. But behind the hype is a very real shift in how money moves, and community bank leaders must focus on this issue now.
Washington is moving fast to bring stablecoins into the fold of federally recognized financial instruments. With bipartisan legislation gaining traction in Congress and strong support from President Trump and his advisors, a regulated U.S. stablecoin framework could soon become a reality. But before anyone declares it a victory for innovation, community banks need to ask: Innovation for whom?
Let’s start with the basics.
A stablecoin is a type of cryptocurrency designed to do the one thing most cryptocurrencies don’t — reduce volatility. Unlike Bitcoin or Ethereum, whose values can swing wildly with the news cycle or a celebrity mention on X, stablecoins are pegged to real-world assets like the U.S. dollar or gold. In theory, they offer the speed and efficiency of blockchain with the trust of traditional money.
That sounds harmless enough — maybe even helpful.
So, what’s the problem?
The problem happens when consumers and businesses start parking their money in stablecoins instead of deposit accounts. Suddenly, community banks are competing not just with the largest banks, but with global tech firms and unregulated crypto issuers who don’t want to play by the same rules. That’s not just a fintech story — it’s a Main Street story. It’s a story about liquidity, lending and whether your bank has the capital to keep funding local businesses and mortgages.
Take Tether, for example, the dominant stablecoin in circulation with more than $60 billion in reserves. According to Deutsche Bank, stablecoin transactions surpassed $28 trillion last year — that’s more than Visa and MasterCard combined. But here’s the kicker: most of those reserves are sitting in U.S. Treasuries, not banks. That’s money that could be used to help fuel lending across the country, now removed from the traditional financial ecosystem.
Congressional action
Congress is trying to get ahead of this with two major bills: the GENIUS Act in the Senate and the STABLE Act in the House. Both would require stablecoin issuers to back their tokens 100% with cash or cash-equivalent assets. Both would mandate audits and transparency. That’s good. But these bills differ in how they treat the balance of power between federal and state oversight and how they allow banks — or non-banks — to issue and hold reserves.
The stakes are high
If legislation doesn’t require stablecoin reserves to be held in banks, we risk a silent siphoning of deposits from institutions that actually serve communities. If it allows non-bank issuers to offer services without bank-level regulations, it opens the door to regulatory arbitrage — and in some cases, outright fraud.
Advocates say stablecoins will enhance U.S. financial power, especially in global trade. Critics warn they could undermine it, facilitating scams and even sanction evasion. Both are probably right. The technology is neutral. It’s how we regulate it that matters.
And let’s not forget the bigger players. The biggest banks are already developing their own stablecoin models to speed up transactions. If community banks don’t engage in the infrastructure and policy conversations, we risk building a digital economy that excludes the very institutions most rooted in the communities they serve.
Getting involved
It’s up to us, as community bank advocates and professionals in the banking industry, to speak up. We must remind policymakers that real financial innovation doesn’t just happen in Senate hearing rooms, investor fundraisers or Silicon Valley boardrooms. It happens at the local bank that knows your name, understands your business and still picks up the phone.
Among a list of priorities, TBA is advocating for a level playing field so that community banks that choose to engage in the digital asset space are not at a competitive disadvantage to crypto companies and non-bank actors. If non-banks want to act like banks, they should apply for a bank charter and be regulated like banks!
TBA is fighting to prohibit non-bank fintech and crypto companies from paying interest or offering “reward” programs intended to countervail traditional banking.
And it must be clear that FDIC insurance — paid for by banks — is not allowed to become a non-bank crypto bailout should things go wrong.
Stablecoins aren’t going away. But if we’re smart, we won’t let them push community banks out of the picture. TBA is working to make sure they’re regulated fairly, integrated wisely and used to strengthen — not sideline — the institutions that keep Main Street running.
TBA resources
TBA’s Community Bank Innovation Magnet has information and resources to help your community bank learn about digital assets and to support decision-making. Email TBA VP for Innovation Rich Perez at [email protected] to learn more.