As traditional banking interests and the crypto industry tussle for control of an emerging digital-asset economy, major U.S. banks are pressuring the Department of the Treasury to ban any yield or reward tied to stablecoins – while platforms like Coinbase vigorously resist efforts at curbing this lucrative industry.
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Congress recently passed the GENIUS Act, creating a federal framework for “payment stablecoins” — or digital coins that are 1:1 backed by cash or short-term Treasuries and don’t pay interest or yield to holders – called payment stablecoins.
Banks contend there remains an important loophole: crypto exchanges and associated platforms may still offer incentives or yield-like programs on stablecoins issued by third parties. news.bgov.com
Banking-industry associations such as the American Bankers Association and Bank Policy Institute warn this could prompt widespread deposit migration away from banks towards crypto platforms, with Treasury estimates showing stablecoins could siphon off up to US $6.6 trillion of deposits under certain yield-offering scenarios (FT, 20 Feb 17).
Banks have written letters and made public statements urging regulators to broaden the definition of “interest or yield”, treating any reward-program tied to holding stablecoins as equivalent to bank deposits paying interest — thus closing an unwelcome loophole in regulation. However, cryptocurrency platforms push back.
On the other side of this discussion are exchanges and other crypto participants who strongly dispute banks’ framing of cryptocurrency as risk to the system. According to Coinbase executives, banking lobby is simply trying to set regulatory barriers under the pretext of protecting legacy institutions at the expense of innovation and consumer choice. [TronWeekly].
Coinbase’s Chief Legal Officer recently tweeted:
“There was no loophole and you know it… now is the time for change.
Financial Times
Crypto-industry groups maintain that yield or reward programs foster competition and reward innovation by giving consumers alternatives to low interest rates offered by banks, thus creating competition in an otherwise stagnant sector. If such rewards were banned they believe regulation would favour entrenched banks over consumers; accordingly they argue against any efforts by regulators who favour bank-funded initiatives over consumer rights. blocmates.com What’s at Stake?
This policy battle matters for multiple reasons:
Deposit Flight and Credit Availablity: Banks have expressed concern that stablecoin rewards could result in deposit flight, making their financial institution less able to lend to households and businesses, potentially increasing credit costs in the process.
Bank Policy Institute
Establish a regulatory precedent: How the Treasury interprets the GENIUS Act will establish a playing field for competition between crypto and traditional finance, and will define what constitutes “innovation” versus regulatory arbitrage.
Consumer Choice and Innovation: If rewards are banned completely, crypto platforms could claim that regulators favor incumbents while banks may worry about systemic risk if rewards remain permissible.
Implementation ambiguity: The Treasury is currently issuing rules and consultation notices; banks want a “sanction-style” enforcement regime while crypto firms want clarity and room to grow. (Source: Yahoo Finance +1).
Regulators will soon issue formal guidelines outlining how “yield,” “rewards,” and “interest-like payments tied to stablecoins will be treated. Banking lobby groups are pushing for amendment of the GENIUS Act or additional legislation while crypto firms (led by Coinbase) have mobilized users by raising alarm about losses of rewards and consumer choice.
Bitget
For the Treasury, the challenge lies in finding an equilibrium: protecting banks and credit markets while giving stablecoins and crypto platforms some operational freedom. Their decision could set the course for future digital asset policy decisions within the United States.
U.S. banks have pushed hard for a blanket ban on stablecoin-based yields to protect their deposit base and lending capacity; Coinbase and other crypto platforms, however, strongly disagree, contending that restricting rewards would curtail competition and innovation. As a result, the regulatory battleground now involves not just stablecoins themselves but rather how yield programs are defined and regulated.
