Written by Yueqi Yang: Block unicorn

Congress is rapidly pushing for a new crypto legislation that could make stablecoins more important in the financial system, and had already put banks in a passive position even before President Trump joined the battle.

Trump said he hopes the stablecoin rules will become his first cryptocurrency legislation focus. The caught off guard began to increase lobbying efforts to make substantial changes to regulations, from who can issue stablecoins to the design of stablecoins to maintain their position in the financial system.

As banks and crypto companies struggle to influence regulations, Trump launched his own stablecoin, directly threatening the business of the two major industries.

Unlike more well-known crypto assets such as Bitcoin, the price of stablecoins does not fluctuate and is usually pegged to the US dollar. They act like money market funds, which can be used to store cash and transfer money easily across borders. The current stablecoin market size has soared to $230 billion, with Tether and Circle dominating USDC, worth $145 billion and $60 billion respectively.

The latest entry is the Trump family. Last week, World Liberty Financial, a crypto project founded by Trump and his sons, announced the launch of its own stablecoin USD1. This has sparked concerns that Trump may push legislation that benefits his business.

Congress is accelerating the promotion of stablecoin legislation. On Wednesday, the House Financial Services Committee plans to vote on a stablecoin bill to decide whether to submit it to the House plenary. A similar bill was passed by the Senate Banking Committee earlier this month. Trump hopes the bill will be passed by August, and the bill has received support from some Democrats.

Stablecoin legislation may threaten the status of banks in the financial system. Clients may deposit funds in stablecoins instead of bank deposits and transfer funds without going through the bank.

Stablecoins are highly correlated with the financial system because they are backed by cash and Treasury bonds. Stablecoin issuerRely heavily on traditional banks to store these assets and handle the transactions of customer funds. Regulators are wary of this, because problems with stablecoins may affect the banking system and the economy as a whole.

Regulators have long been tightening control over the crypto industry, so banks were caught off guard when stablecoin legislation suddenly became a priority. "The banking industry is facing a long-term threat and assets may flow out of the banking system," said Jackie Reses, CEO of Lead Bank, a community bank in Kansas City, Missouri, which has a partnership with fintech companies.

Mike Belshe, co-founder and CEO of crypto custody company BitGo, said banks were "surprising" at Trump's push for crypto-friendly regulations. "Every bank is working to figure out how to deal with digital asset companies and how much they are involved in digital assets." Trump's stablecoin has increased pressure on banks because it is expected to be welcome, and the Trump family has made it clear that they want to challenge the banking system.

"People will please Trump by supporting Trump's stablecoins," said Kevin Lehtiniitty, founder and CEO of Borderless.xyz, a stablecoin infrastructure company. Donald Trump Jr., president of world free finance, bluntly expressed his ambition to challenge banks. He said that as banks cut off their business with their family’s stance, he began to believe in the value of cryptocurrencies.

"I realized that the entire financial system and banking industry are actually a Ponzi scheme," he said of the Trump family's crypto plans in a live speech at the Blockchain Summit in Washington, D.C. A spokesperson for World Free Finance said the company's stablecoin is for cross-border transactions to "institutional customers, sovereign investors and retail investors" and plans to launch "in the near future."

BitGo is supported by Goldman Sachs and is one of the largest crypto-hosted organizations in the world. The company said it will provide Trump's stablecoin USD1 to its thousands of institutional clients and pass theIts bank partners hold USD1 reserve assets such as cash and Treasury bonds and provides USD settlement services.

"Obviously, the world's liberal team has a very strong influence, not only in the United States but abroad," said Belsh, who held a fundraising event for J.D. Vance during the campaign last year.

Several Democratic senators, including Elizabeth Warren, have asked bank regulators to explain how to deal with the conflict of interest brought about by Trump's stablecoin. In a letter, they questioned how the Fed and the CPA “maintain credibility and integrity and alleviate the unprecedented risks that Trump and his family’s stablecoin USD1 brings to the financial system.” Banks are lobbying

The banking industry is lobbying to protect its deposit base. For example, they want to ban stablecoins from paying interest and non-financial companies from issuing stablecoins to prevent tech giants like Elon Musk's X from competing with banks. Banks also want to ban stablecoin issuers from directly accessing the Fed's payment system, which is currently only open to banks. Circle has been seeking such access to hold assets directly at the Fed and settle transactions independently without relying on banks.

Banks also want to ban U.S. residents from using offshore stablecoins such as Tether, unless their issuer registers in the United States. Currently, Tether is not regulated by US regulations because it is established overseas. This also brings another layer of conflict of interest, as Cantor Fitzgerald, a former company founded by Commerce Secretary Howard Lutnick, manages Tether's assets.

Some banks, including Bank of America, are considering launching their own stablecoins for payments. Paxos has helped companies such as PayPal issue stablecoins and said it is in talks with banks, and expects "several banks" to launch their own stablecoins in the future. PayPal's stablecoin has been in circulation for less than two years, and Fidelity Investments is also considering launching stablecoins.

Circle is pushing banks to adopt their USDC stablecoins for payments, rather than issuing stablecoins themselves. Circle CEO Jeremy AllaireAllaire) said he hopes USDC’s network of users will attract banks to work with them.

This means that Circle may share interest income from its reserve assets with banks. Currently, Circle has shared some of its revenue with Coinbase, which promotes USDC to its users. "We build business relationships so that our partners and we can make money," Allaire said.