JPMorgan Execs Call for Yield Stablecoin Ban, Cite Shadow Banking

JPMorgan’s digital-asset and payments chiefs told Congress that yield-bearing stablecoins should be outlawed. Umar Farooq and Peter Muriungi, who lead the bank’s blockchain and crypto initiatives, published an official note arguing that tokenized deposit accounts offering interest create risks that mirror the shadow banking system. They urged lawmakers to write a regulatory framework that explicitly excludes those reward options.

The note frames yield-bearing stablecoins as a structure where holders earn returns on tokenized balances held by a custodian or issuer. The executives argued that consumers may not distinguish between a stablecoin paying 5% and a bank deposit earning interest, blurring the line between a payment instrument and a savings product. That confusion, they said, could lead to runs during stress – the same vulnerability that regulators have cited in past money-market fund reforms.

JPMorgan itself operates JPM Coin, a permissioned stablecoin used for wholesale settlement that does not pay yield. The bank has consistently argued that reward tokens cross the line into deposit-taking without the capital and liquidity rules that apply to banks. The note calls on Congress to treat any stablecoin that offers returns as a security or a deposit, forcing it under the SEC or banking regulation.

The push lands as the CLARITY Act – the main stablecoin bill in the House – is stalled. Galaxy Digital recently put its odds of passing this year at 50% because the Senate clock is running out. JPMorgan’s intervention adds weight to the argument that the bill, in its current form, does not go far enough. The note specifically warns against legislative language that would allow interest-bearing tokens under a separate regulatory track.

Yield-bearing stablecoins have grown quickly in the last year. Protocols like MakerDAO’s Dai Savings Rate and centralized issuers like Ondo Finance offer tokenized Treasuries or savings accounts that pay holders directly. The total market for yield-bearing stablecoins is still small relative to plain-vanilla stablecoins – roughly $40 billion versus $170 billion for USDT and USDC combined – but the growth rate is accelerating.

If Congress follows JPMorgan’s recommendation, the biggest exposure sits with issuers that built their product around yield. A ban would also pressure DeFi lenders that use these tokens as collateral, since the rate paid on the stablecoin is part of the mechanism that keeps the peg stable. The impact would be asymmetric: non-yield stablecoins would likely see inflows as capital rotates away from regulated products.

The executives did not propose a transition period. The note calls for a ban now, before the market grows large enough to create a systemic risk that regulators would struggle to contain. JPMorgan’s position is notable given its own involvement in blockchain settlement – Farooq has said the bank plans to expand JPM Coin beyond interbank payments by the end of the year.

The note was sent to the House Financial Services Committee and the Senate Banking Committee this week. Neither committee has scheduled markups on stablecoin legislation since the CLARITY Act stalled in the spring.