U.S. Treasury Secretary Janet Yellen stated that TradFi and crypto services will be closely intertwined in the future, exploring community banks’ participation in digital assets. She urged the passage of the CLARITY Act, warning that regulators unwilling to accept oversight are “going to El Salvador.” Several crypto companies have made concessions, suggesting that community banks participate in stablecoin systems to avoid deposit fluctuations.
Yellen: TradFi and Crypto Will Offer Similar Products
U.S. Treasury Secretary Janet Yellen told Congress that traditional banking products and services and crypto banking products and services may become more closely integrated in the future. On Thursday, during a Senate Banking Committee hearing, Republican Senator Cynthia Lummis asked her whether TradFi and cryptocurrencies could offer the same types of products in the future.
“I believe this will happen over time,” Yellen said. “We have been working with small community banks to explore how they can participate in the digital asset revolution.” This statement marks the first time a U.S. Treasury Secretary has explicitly supported the integration of TradFi and crypto, indicating a proactive stance from the Trump administration toward the crypto industry.
Yellen’s remarks reveal an important trend: the line between TradFi and crypto is blurring. In the past, traditional banks provided deposits, loans, and payment services, while crypto companies offered digital asset trading and DeFi services—clear distinctions. But as regulatory frameworks develop and technology matures, this separation is disappearing.
Imagine a future scenario: you open an account at JPMorgan Chase, and besides traditional checking and savings accounts, you can choose a “Crypto Asset Account” holding Bitcoin, Ethereum, and stablecoins, managed through the same mobile app. This all-in-one service is the vision Yellen describes.
Community banks play a key role in this vision. Yellen specifically mentioned “working with small community banks,” which is no coincidence. Community banks are deeply rooted in local economies, maintaining close relationships with local businesses and residents, but often lag behind larger banks in technological innovation. By introducing digital asset services, community banks can offer new value to customers and differentiate themselves in competition with big banks.
From a regulatory perspective, involving community banks in stablecoin systems can bring crypto activities into the regulated banking system. Community banks are under strict supervision by OCC and FDIC, so their involvement in stablecoin issuance or custody would automatically fall under banking regulation. This “regulatory arbitrage” reduction is precisely what regulators hope to see.
No Regulation, Go to El Salvador
Yellen’s tough stance at the hearing drew attention. She stated that without clear rules, cryptocurrencies “cannot continue to develop,” and that the industry should support the crypto market structure legislation currently under review in Congress, namely the CLARITY Act.
“We must ensure the CLARITY Act ultimately passes, and any market participants unwilling to accept it should move to El Salvador.” This provocative remark references El Salvador, the first country to adopt Bitcoin as legal tender, which has a relatively lax regulatory environment. Yellen’s implication is: if you want to operate in the U.S. market, you must accept U.S. rules.
Yellen said, “We need to introduce safe, reliable, sound, and prudent practices, and accept oversight by the U.S. government, but also allow cryptocurrencies to have freedom. I believe this is a balance we are striving for.” This statement reflects the core position of the Trump administration on crypto regulation: strict oversight combined with room for innovation.
This “carrot and stick” strategy has elicited mixed reactions in the crypto community. Supporters believe clear regulatory frameworks will boost institutional confidence and benefit long-term industry growth. Critics worry that excessive regulation could stifle innovation and cause the U.S. to lose its competitive edge globally.
The CLARITY Act is a bipartisan effort to establish a clear regulatory framework for digital assets. It covers key issues such as stablecoin regulation, definitions of securities and commodities, and exchange registration requirements. If passed, it will become the cornerstone of U.S. crypto regulation.
Deposit Fluctuations Focus of Stablecoin Regulation
Due to deadlock in negotiations over the bill’s content, the crypto market structure legislation has stalled in the Senate Banking Committee. Legislators are pushing to impose limits on stablecoin yields, but some crypto firms, especially Coinbase, have resisted these restrictions.
Yellen said deposit fluctuations are “very detrimental,” because the stability of deposits is what allows banks to lend to communities. “We will continue to work to ensure that deposit fluctuations do not occur,” she said. The concern is: if stablecoin yields far exceed traditional bank deposits, large amounts of funds will flow from banks into stablecoins, destabilizing bank deposit bases.
Banks’ business models rely on the “interest margin”: attracting low-cost deposits and lending at higher rates. If deposits are rapidly lost, banks will be forced to raise deposit rates to attract funds, squeezing margins and weakening profitability. More seriously, rapid deposit outflows could lead to liquidity crises, making it impossible to meet loan demands or withdrawal requests.
This concern is widespread among TradFi circles. JPMorgan CEO Jamie Dimon has repeatedly warned about the threat stablecoins pose to the banking system. When customers can hold USDC with a 5% yield on their phones, why keep a 0.5% yield in a bank’s checking account? If this “deposit migration” happens on a large scale, it could cause systemic shocks to the banking system.
Reports indicate that several crypto companies have made concessions this week, suggesting that community banks could play a larger role in stablecoin systems to help push the bill through the Senate. The logic is: if stablecoins are issued or custodyed by banks, related risks are incorporated into the banking regulation system, greatly reducing regulators’ concerns.
Key Issues in the Integration of TradFi and Crypto
Product Convergence: Banks offering crypto services, crypto firms offering banking services
Regulatory Requirements: Crypto must be regulated by U.S. authorities to develop
Deposit Fluctuations: Stablecoin yield limits protect bank deposits
Community Banks: Small banks as bridges to digital asset revolution
CLARITY Act: Bipartisan legislation providing clear regulatory framework
From concessions by companies like Coinbase, it’s clear that crypto firms have realized that cooperation with TradFi, rather than confrontation, is the only way to survive in the U.S. market. This shift signals a strategic move from “disrupting traditional finance” to “integrating into traditional finance.”
The Key to TradFi Transformation Is a Clear Regulatory Framework
Yellen’s statements provide government backing for TradFi’s transformation, but actual implementation still faces major challenges. The primary issue is whether the CLARITY Act can pass. Currently deadlocked in the Senate, Democrats and Republicans disagree on key provisions such as stablecoin yield limits and securities definitions.
If the bill fails, the integration of TradFi and crypto will continue in regulatory gray areas, increasing risks and limiting scale. Conversely, if it passes, it will provide a clear pathway for traditional banks to enter crypto, accelerating integration.
From a global competitive perspective, progress in U.S. crypto regulation will influence its position in the global financial system. The EU has already implemented the MiCA framework, providing comprehensive regulation for crypto assets. Singapore, Hong Kong, the UAE, and others are actively establishing crypto-friendly regulatory environments. If the U.S. falls behind due to legislative deadlock, it risks losing its status as a global crypto financial hub.
Yellen’s tough stance—“if you don’t accept regulation, go to El Salvador”—is effectively applying pressure on crypto companies: the U.S. market is huge and mature, but at the cost of strict regulation. This is a game of market access versus regulatory costs, and the final outcome will shape the future decade of the relationship between TradFi and crypto.
