Crypto loophole threatens Arkansas farmers

Farms are more than land. They’re places where livelihoods are built and what rural Arkansas economies depend on. For those in Howard, Sevier, and Little River County, access to credit from a community bank means the difference between being able to buy enough seed or feed, maintain equipment, and employ a workforce.

Community banks are owned and operated on the town square and invested in our communities. Their strength relies on dependable deposits from neighbors, families and farmers who trust their banks. That stability, however, is now being tested by new laws and technologies that weren’t designed with rural banking in mind.

Right now, I’m concerned about a loophole in the recently passed GENIUS Act that threatens the stability of our community banks and rural agri-businesses in Arkansas. The GENIUS Act was designed to regulate stablecoin, a form of cryptocurrency, which are digital dollars tied to assets like U.S. dollars or Treasury securities.

Congress prohibited stablecoin issuers from offering interest or yield to prevent risky digital assets from being confused with insured bank accounts. However, the law does not clearly stop third-party platforms or affiliates from offering rewards tied to stablecoin holdings, creating a loophole that needs to be closed.

In effect, that means a crypto platform could advertise “high interest” or “high APY” on stablecoin investments at rates that traditional community banks cannot compete with, due to different regulations and higher levels of risk versus cost. So, it should come as no surprise that the U.S Treasury estimated that this loophole could expose up to $6.6 trillion in potential deposit outflows from regulated banks.

What happens when deposits leave community banks? The answer is simple but serious: less money to lend locally. Deposits fuel loans. In fact, one study showed that for every dollar that leaves banks, 50 cents less is available for lending. When a rural bank loses deposits, it means less support for local farmers for things like equipment purchases or land improvements or providing operating credit during tight seasons. That directly impacts families in Arkansas, the people I serve, not abstract financial institutions on Wall Street.

From my vantage point as a farmer and legislator, I can already see the risk. If someone chooses to shift their funds simply toward the highest “reward,” which is increasingly common in today’s landscape, the community bank suffers. Over time, if enough depositors do the same, the bank’s loan-and-credit operations are curtailed.

Farmers in my district should not be forced to go to a non-local lender and sign a higher interest loan simply because the local bank’s deposit base has eroded. Relationships matter in local banking, and this loophole could take them away.

Furthermore, rural community banks often stand ready to finance agribusiness ventures like expanding barns, buying irrigation pivots, investing in value-added agriculture, when larger banks might not see it as a worthy investment. They know our land, soil, climate, and people. Undermining them is undermining our rural economy.

In Arkansas, where farming is the bedrock of our state’s economy, we must guard against such unintended consequences. My constituents deserve predictable access to credit, competitive banking, and institutions that prioritize our communities, not offshore or unregulated platforms that may offer flashy “rewards” today but leave us vulnerable tomorrow.

That’s why I’m urging our federal delegation, particularly Senators Tom Cotton and John Boozman to encourage their colleagues to prioritize closing this loophole in the GENIUS Act. Any upcoming crypto market structure legislation should include clarifying language so that any “reward,” “interest,” or “yield-like” payment tied to stablecoins is prohibited.

Protect community banks. Protect rural credit. Protect Arkansas agriculture.

Editor’s note: State Rep. DeAnn Vaught, R-Horatio, is serving her sixth term in the Arkansas House of Representatives. The opinions expresses are those of the author.