By Hyunsu Jung
For most of the past decade, the future of digital assets was framed as a technology race. New blockchains promised faster settlement. Crypto exchanges competed on liquidity. Startups raised millions selling the narrative that their protocol would ultimately power the financial infrastructure of the internet. The assumption was that innovation would determine the winners and that the center of gravity would remain in places like Silicon Valley or Wall Street. That assumption is now changing.
Today, the most consequential developments in digital finance are increasingly happening not in engineering labs or venture capital boardrooms, but in Washington, D.C. As lawmakers debate how stablecoins, digital assets and blockchain-based financial products should be regulated, the next phase of financial innovation may be shaped less by code and more by policy.
For banks, regulators and financial institutions across the country, including the community banks that serve the Great Lakes region, this shift matters. What Congress decides in the next six months will determine capital flows: while banks will remain at the center of regulated finance, the extent to which technology platforms operating with structurally lower costs and fewer regulatory constraints are allowed to compete is being decided.
The Digital Dollar Debate
The most visible example of this policy shift is the debate surrounding stablecoins. These are digital tokens designed to maintain a fixed value, typically pegged to the U.S. dollar, and they have become one of the fastest-growing segments of the crypto economy. They are widely used for payments, trading and cross-border settlement.
Stablecoins alone represent hundreds of billions of dollars in circulating value globally. In many cases, they function as digital settlement rails that move money around the clock, across borders and across platforms. Stablecoin transaction volumes surpassed dominant traditional payment providers, Visa and Mastercard, combined in 2024, and this trend should only accelerate as more financial services become digitized.
But for years, the industry operated without a clear federal framework governing how these digital dollars should function. On July 18, 2025, President Trump signed the Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act into law - the first federal legislation on digital assets - establishing a regulatory framework for payment stablecoins. The bill passed the Senate 68-30 and the House 308-122, with bipartisan support, and created oversight for dollar-linked tokens. The GENIUS Act established who can issue stablecoins and under what conditions. Insured depository institutions and their subsidiaries that issue payment stablecoins are subject to oversight by their primary financial regulator - meaning banks are explicitly permitted to participate in this market through subsidiaries. That is the opportunity side, and community banks that are chartered, compliant, and community-trusted have a structural advantage if they move to understand this landscape now.
The law becomes effective the earlier of 18 months after enactment or 120 days after federal agencies issue final regulations, placing the practical effective date around November 2026. For policymakers, the question is no longer whether this infrastructure will exist, but how it will be governed. For the banking sector, the rulemaking window is open right now and any actions must be taken with a long-term view of how financial infrastructure will evolve.
Policy Is Now the Competitive Advantage
While the GENIUS Act resolved the issuance question, a more critical question remains unanswered: yield.
The GENIUS Act prohibits stablecoin issuers from paying interest or yield to holders solely in connection with holding the stablecoin. That language applies to issuers: banks and licensed nonbank entities. It does not clearly apply to crypto exchanges and platforms that distribute stablecoins, and that distinction is the policy battleground. Congressional debates over stablecoins have included discussions around consumer protection, reserve requirements, anti-money-laundering standards and whether technology firms could eventually issue their own digital dollars.
If the technology firm’s cost structure is lighter - no branch network, no CRA obligations, no reserve requirements - they can sustain that yield almost permanently, not as a promotional rate but as a structural product. For a community bank serving a region where every basis point of deposit beta matters, this is meaningful competitive pressure already building at the edges of existing customer bases. The banking industry has warned formally that banks could see depositors withdraw funds at scale if crypto exchanges can offer interest on stablecoin holdings, which could in turn restrict lending and slow down the broader economy.
This has now become a live legislative battle. The Digital Asset Market Clarity Act - the CLARITY Act - passed the House 294-134 in July 2025 but has not passed the Senate. The Senate Banking Committee’s January 2026 markup session was postponed indefinitely after the stablecoin yield provision triggered industry conflict.
On March 5, 2026, the American Bankers Association formally rejected a White House-brokered compromise on the CLARITY Act. President Trump responded publicly that banks were holding the bill hostage, warning that failure to pass it would drive crypto activity to China and other countries.
As of March 10, senators at a banking summit confirmed they are working on a stablecoin yield compromise, with the Senate Banking Committee eyeing a mid-to-late March markup window for a second attempt. That window is now and the outcome will likely do more to shape the competitive landscape for bank deposits over the next decade than any rate cycle or economic forecast.
A Global Regulatory Race
This is the base principle that every bank board should internalize: for most of financial history, regulation was a domestic constraint, but in the digital asset era, regulation is increasingly determining who gets to compete, on what terms, and at what cost, at a global scale. The United States is not the only jurisdiction moving to define digital asset rules.
The European Union has already implemented comprehensive crypto regulations under its Markets in Crypto-Assets (MiCA) framework. Meanwhile, financial hubs across Asia, including Hong Kong and Singapore, are positioning themselves as regulated centers for digital asset activity. Each framework reflects a different philosophy about how crypto should interact with traditional finance.
Some jurisdictions emphasize strict oversight and investor protection. Others prioritize flexibility to attract new financial businesses. These policy differences will shape where companies build, where capital flows and which countries become hubs for next-generation financial infrastructure. In this context, the CLARITY Act, if passed with clear rules for digital asset markets, reduces long-term uncertainty for both crypto businesses and traditional financial institutions. It creates pathways for compliant custody, tokenized assets, and on-chain lending that would operate inside the regulated perimeter. If it does not pass - or passes with provisions that entrench regulatory asymmetry - the competitive environment becomes harder to predict and harder to manage.
For banks, this is a critical signal. Business owners nationally are adopting stablecoin based payments at scale. The next generation of depositors are on-chain native and familiar with yield-bearing platforms. The competition for dollars is increasing, and regulation itself is a tool of economic competition.
Why Banks Should Pay Attention to On-Chain Infrastructure
For community banks, the debate over digital asset regulation may seem distant from day-to-day operations. But the policy outcomes could have real implications for the banking system model today and what it becomes tomorrow.
In some models, stablecoin issuers hold reserves in traditional banking assets such as Treasury securities or bank deposits. In others, blockchain-based financial services could offer new forms of yield or liquidity that interact with traditional balance sheets. Smart contract applications are also evolving to support permissioned, institutional-grade digital credit markets. Some of these are already operational and scaling, using controlled institutional-only access models that are designed to scale alongside the adoption of compliant stablecoins while supporting asset-backed finance and real-world asset opportunities.
That raises important questions for banks. Will digital dollars complement the existing banking system by creating new demand for safe assets? Or will they compete with traditional deposit models in ways that reshape how liquidity moves through the financial system? And most importantly, how can existing systems fold into new frameworks and retain a competitive edge?
As the regulatory framework evolves, banks will likely play an important role in the ecosystem, whether as credit creators, custodians of reserves, providers of compliance infrastructure or partners in payment innovation.
The Next Phase of Financial Infrastructure
The early years of crypto were defined by experimentation. Thousands of projects attempted to build new financial systems from scratch, often operating far outside traditional regulatory structures. Many failed. Others revealed useful technological breakthroughs.
What we are entering now is a different phase, one where digital asset technology begins to integrate with the broader financial system. That integration will require regulatory clarity. Just as the development of securities markets, derivatives trading and electronic payments each required legislative frameworks, digital finance will ultimately depend on the rules that governments establish.
For the United States, the stakes are significant. Financial infrastructure is one of the country’s most important exports. American capital markets, regulatory institutions and financial firms collectively shape how money moves around the world.
Why Capitol Hill Matters More Than Ever
For years, the digital asset industry looked to Silicon Valley for innovation and to Wall Street for capital. Today the center of gravity is shifting toward Washington.
The next breakthroughs in financial technology will still be built by engineers and entrepreneurs. But whether those innovations scale, and where they scale, will increasingly depend on policy. The battleground for financial innovation is no longer just technological. It is regulatory.
As the GENIUS Act’s implementation rules take shape through November 2026, and as the CLARITY Act moves toward a Senate floor vote ahead of midterm elections, the community banks that engage this moment seriously - understanding the infrastructure, engaging their regulators, and identifying partners who can bridge compliant DeFi to traditional balance sheets - will be positioned to participate in the next phase of financial infrastructure rather than react to it.
And that makes Capitol Hill one of the most important arenas shaping the future of finance.
About the Author
Hyunsu Jung is the CEO of Hyperion DeFi leading the company’s treasury strategy, DeFi integrations and overall corporate direction. He previously served as a Portfolio Manager at DARMA Capital, a CFTC- and NFA-registered digital asset manager.