Coinbase Opposes Banking Groups’ Bid to Restrict Stablecoin Merchant Rewards

• Coinbase opposes banks’ request to regulators under the GENIUS Act, arguing it lacks legal merit for prohibiting third-party stablecoin rewards.

• Banking groups fear stablecoin adoption could lead to significant deposit outflows from traditional systems.

• Stablecoins could reduce the $180 billion in annual card fees for US merchants, per 2024 data, but banks resist these changes.

Discover how Coinbase challenges banking lobbies on GENIUS Act stablecoin rewards. Learn the implications for crypto payments and why this battle matters for innovation—read now for expert insights.

What is the GENIUS Act’s stance on stablecoin rewards?

The GENIUS Act explicitly prohibits stablecoin issuers from paying interest or yield directly to token holders, aiming to maintain financial stability. However, it does not extend this restriction to third parties like crypto exchanges or merchants offering rewards such as cashbacks or discounts. Coinbase’s chief policy officer, Faryar Shirzad, emphasizes that regulators should adhere strictly to this statutory text, rejecting broader interpretations that could limit consumer benefits.

How do banking groups interpret indirect interest in stablecoin rewards?

The banking groups argue that any financial benefit provided by a connected third party constitutes an “indirect interest,” potentially undermining the Act’s intent. According to their submission to regulators, this connection could allow stablecoin issuers to circumvent restrictions indirectly. Faryar Shirzad counters this by stating, “There is something unamerican about bank lobbyists pressing regulators to tell stablecoin customers what they can and cannot do with their own money after it is issued.” This debate highlights tensions between traditional finance and emerging crypto ecosystems. Data from the US Treasury Department in April estimates that widespread stablecoin adoption might trigger over $6.6 trillion in deposit outflows from banks, as users shift to more efficient digital alternatives. Experts note that such rewards encourage merchant adoption, potentially slashing the $180 billion in card fees US merchants incurred in 2024, according to Federal Reserve reports. Shirzad’s post on X underscores optimism that regulators will prioritize the law’s clear language over expansive lobbying efforts.

Coinbase Institute has criticized banking groups for asking regulators to prevent merchant rewards for stablecoin customers, arguing the request has no merit under the GENIUS Act.

Crypto exchange Coinbase has slammed US banking groups for asking regulators to ban merchant rewards, cashbacks and discounts offered to customers who pay with stablecoins, calling the request “unamerican.”

The clash relates to the statutory language of the GENIUS Act, which prohibits stablecoin issuers from offering interest or yield to holders of the token, but it does not explicitly extend the ban to crypto exchanges or affiliated businesses.

The banking groups claim an “indirect interest” arises when a third-party financially benefits and has a connection to the stablecoin issuer. Coinbase chief policy officer Faryar Shirzad, however, strongly opposed that view in a post to X on Thursday and called on regulators to “stick to the statutory text.”

“There is something unamerican about bank lobbyists pressing regulators to tell stablecoin customers what they can and cannot do with their own money after it is issued.”

The banking groups are seemingly concerned that widespread adoption of yield-bearing stablecoins could undermine the banking system, which relies on banks attracting deposits with high-interest savings products to back the loans they make.

Source: Faryar Shirzad

Stablecoins expected to draw blood from banking

Widespread stablecoin adoption could result in more than $6.6 trillion in deposit outflows from the traditional banking system, according to an estimate by the US Treasury Department in April.

Coinbase argued stablecoins could slash the more than $180 billion in card fees that US merchants paid in 2024; however, “big banks” continue to stand in the way and prevent stablecoin innovations from challenging the traditional payments system.

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“If third parties are prevented from providing these benefits, consumers are less likely to see stablecoins as a viable payment alternative, and merchants will continue paying hefty fees.”

Centralized exchanges benefit when stablecoin trading soars

Companies like Coinbase benefit from stablecoin adoption, as they earn fees from increased trading volume on their exchange.

Many crypto exchanges issue credit cards to incentivize merchant spending with cashback and crypto rewards — an offering Shirzad fears is under threat but remains optimistic that “common sense will prevail.”

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Frequently Asked Questions

What does the GENIUS Act specifically prohibit regarding stablecoins?

The GENIUS Act bars stablecoin issuers from providing interest or yield payments to holders, designed to prevent risks associated with high-yield crypto products. This measure supports regulatory oversight without halting broader stablecoin utility in payments and trading, as confirmed by legislative analyses from the US Congress in 2024.

Why are banks opposing stablecoin merchant rewards?

Banks worry that rewards like cashbacks on stablecoin payments could accelerate a shift away from traditional deposits, potentially disrupting their lending models. With stablecoins offering faster, lower-cost transactions, this could reduce reliance on bank-issued cards and savings accounts, according to insights from financial policy experts at the Brookings Institution.

Key Takeaways

• Regulatory Clarity is Key: The GENIUS Act limits issuer yields but leaves room for third-party incentives, promoting innovation in crypto payments.
• Economic Impact on Banks: Potential $6.6 trillion deposit shift highlights stablecoins’ threat to traditional finance, per US Treasury estimates.
• Consumer Benefits at Stake: Allowing merchant rewards could cut $180 billion in fees for businesses—advocate for policies that empower users today.

Conclusion

The ongoing debate over GENIUS Act stablecoin rewards underscores a pivotal moment for digital finance, where Coinbase’s defense against banking lobbies emphasizes consumer choice and statutory fidelity. As secondary interpretations of indirect interest gain traction, regulators must balance innovation with stability to foster a competitive landscape. Looking ahead, clearer guidelines could unlock stablecoins’ potential to transform payments, benefiting merchants and users—stay informed on these developments to navigate the evolving crypto regulatory environment.