A new Galaxy Research stablecoin model is challenging the banking industry’s core argument against stablecoin yield, just as bank trade groups push Senate leaders to tighten Section 404 of the CLARITY Act.
The timing is direct. The Senate Banking Committee has scheduled a May 14 executive session to consider H.R.3633, the Digital Asset Market Clarity Act, while banking groups are pressing for changes that would restrict stablecoin rewards they believe could function like deposit interest. The joint bank letter argues that payment stablecoin yield, or incentives that act like yield, could reduce U.S. deposits and weaken banks’ lending capacity.
Galaxy’s model moves the debate away from a simple deposit-flight narrative. It argues that GENIUS-compliant stablecoin growth would pull large amounts of offshore dollar demand into U.S. banking and Treasury infrastructure, offsetting domestic deposit migration rather than simply draining banks. In its executive summary, Galaxy estimates that U.S. credit creation would expand by about 31 cents for every newly minted stablecoin dollar, while its integrated model later uses roughly 32 cents per dollar as the base-case credit expansion estimate.
The central point is funding source. Banks are focused on domestic deposits leaving checking and savings accounts. Galaxy argues that stablecoin growth will also import foreign dollar demand and convert other non-bank funding sources, meaning the system gains new liabilities and Treasury demand instead of only reshuffling existing U.S. bank deposits.
The model’s base case assumes stablecoin supply reaches $1 trillion by 2028 and $1.5 trillion by 2030. Under that scenario, about $550 billion migrates from domestic bank deposits, but $500 billion comes from offshore adoption and $200 billion from physical currency conversion. That mix produces a projected $400 billion expansion in U.S. credit by 2030, with foreign demand more than offsetting U.S. retail outflows.
The bull case is larger. Galaxy models stablecoin supply rising to $2.1 trillion by 2028 and $3.3 trillion by 2030, with roughly $1.2 trillion leaving domestic deposits but $1.3 trillion in offshore capital entering U.S. markets. That scenario produces about $1.2 trillion of U.S. credit expansion.
The model does not claim banks feel no pressure. It argues the pressure lands through margin compression rather than systemic lending collapse. Banks may lose some low-cost deposits, especially from rate-sensitive customers, but stablecoin reserves still become bank liabilities or Treasury-linked demand inside the U.S. financial system.
The Treasury market is the other side of the argument. GENIUS reserve rules push permitted payment stablecoin issuers toward high-quality, short-duration assets, including Treasury bills and other eligible liquid instruments. Galaxy’s base case estimates that this demand could compress three-month bill yields by 3 to 5 basis points, saving taxpayers as much as $3 billion annually.
That matters for policymakers because stablecoins do more than compete with bank deposits. They create a reserve-management channel that can become a structural buyer of short-dated U.S. government debt. As stablecoin supply grows, issuers must keep reserves available for redemptions, settlement, and liquidity management. A larger regulated stablecoin market therefore expands the buyer base for the same Treasury instruments banks, money-market funds, and cash managers already use.
This is the core tension behind the CLARITY Act yield fight. Banks want tighter language because rewards can make stablecoins more attractive as cash-like balances. Crypto firms want room for activity-based incentives tied to payments, transfers, wallets, exchanges, and settlement. Galaxy’s model gives the crypto side a sharper macro argument: stablecoin rewards may reallocate spread away from banks, but the broader system can still gain credit, Treasury demand, and dollar reach.
The May 14 markup now becomes a test of which model lawmakers trust. If the banking argument dominates, Section 404 could narrow the room for rewards programs that resemble balance-based yield. If the current compromise holds, stablecoin platforms would still face limits on passive interest-like payments while keeping space for transaction-linked incentives.
The policy stakes are bigger than one product feature. A stricter yield ban protects bank margins and reduces deposit competition. A looser rewards framework could strengthen stablecoin distribution, deepen tokenized-dollar liquidity, and pull more offshore demand into U.S. Treasury-backed rails. Galaxy’s numbers give lawmakers a counterweight to the banks’ warning: stablecoin growth can pressure bank spreads without shrinking the credit system itself.
Banks are still right that deposits will become more competitive. Galaxy’s model argues that competition is not the same as destruction. If offshore capital, Treasury demand, and reserve-backed issuance scale the way the model projects, the yield debate becomes less about saving bank deposits and more about deciding who earns the spread on digital dollars that increasingly move through wallets, exchanges, payment apps, and tokenized cash markets.
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