Coinbase Criticizes Banks Attempting to Stifle Stablecoin Rewards

Coinbase has firmly defended stablecoin reward programs, accusing banking associations of unjustly trying to broaden Congress's prohibition on interest. The exchange argues that interpreting merchant rewards tied to stablecoin payments as "indirect interest" is a miscalculation of congressional intent, warning that such a move could have serious and unpredictable consequences for consumers.

Key Takeaways

Coinbase argues that banks are misinterpreting the GENIUS Act to prohibit stablecoin rewards.
Banking associations want to expand the definition of "interest" to include third-party rewards.
Coinbase warns that such restrictions could harm consumers and reduce market incentives.
The exchange has launched a competitive savings account in the UK while facing regulatory challenges.
The Treasury's upcoming decisions will shape the future of stablecoins and payment innovation.

Coinbase’s Stand Against Banking Opposition

Coinbase has taken a strong stance in defense of stablecoin reward programs, accusing banks of attempting to unlawfully widen Congress's interest prohibition beyond its intended scope.

The crypto exchange's response is directed at efforts by banking lobbyists, who aim to classify merchant discounts and rewards from third parties as “indirect interest” under the GENIUS Act.

Faryar Shirzad, Chief Policy Officer at Coinbase, contended that banking associations are misunderstanding the intent of Congress. He asserts that merchant rewards linked to stablecoin transactions do not equate to illegal interest payments.

“Congress was explicit that the GENIUS Act solely prohibits interest or yield dispensed by the issuer, nothing more,” Shirzad noted on X, cautioning that expanding the ban to include third-party benefits could lead to “unprecedented, far-reaching, and unpredictable” outcomes.

Banking Groups Seek Broader Interest Prohibition

The American Bankers Association, along with 52 state banking associations, recently submitted letters to the Treasury requesting strict enforcement of the GENIUS Act's interest prohibition.

In their November 4 filing, they proposed a broad definition of “interest or yield” to cover any economic benefit, thus preventing loopholes via affiliates and treating indirect benefits as though they were issued by the payment issuers themselves.

Brooke Ybarra, Senior Vice President of Innovation and Strategy at the ABA, expressed concerns at the organization’s annual convention, stating that “it would be detrimental to allow Coinbase or Kraken to offer interest on payment stablecoins.”

Jess Sharp, Senior Vice President at ABA, recognized the challenges ahead.

“This is a tough battle; the opposing side is well-resourced,” Sharp mentioned. “Banks take deposits and turn them into loans—that's our business. Fewer deposits mean fewer loans.”

The associations highlighted that community banks could be especially at risk of deposit losses, noting that disruptions could lead to an estimated $1.5 trillion reduction in lending capacity, impacting small business and farm credit by $110 billion and $62 billion, respectively.

Coinbase Highlights Potential Consumer Impact

The Coinbase Institute presents a case showing that U.S. merchants paid over $180 billion in card fees in 2024, which stablecoins could significantly help reduce.

In its Treasury submission dated November 4, Coinbase stressed that the GENIUS Act only prevents compliance-issued payment stablecoin issuers from paying interest “solely in connection with the holding, use, or retention” of stablecoins.

“The statute exclusively addresses payments made by issuers—nowhere does the text mention 'indirect' interest, affiliates, or benefits from third parties,” Coinbase stated, cautioning that classifying third-party rewards or loyalty programs as prohibited interest would essentially alter the clear standards set by Congress.

The exchange warned that broad restrictions on interest could harm consumers by removing market-based incentives that help reduce payment costs and enhance merchant adoption.

Coinbase provided examples whereby small businesses could be banned from offering discounts for stablecoin transactions if they have any connection with issuers, even through routine API integrations.

UK Expansion Amid Similar Regulatory Challenges

This response from Coinbase occurs as the exchange has recently rolled out a 3.75% AER savings account for users in the UK through ClearBank, effective November 11, with FSCS protection covering up to £85,000.

This initiative allows Coinbase to compete with traditional British banks, where major institutions like HSBC and NatWest currently offer interest rates between 1.15% and 3.5%.

Keith Grose, CEO of Coinbase UK, emphasized that they are working towards becoming “the UK’s number 1 financial app.”

The launch coincides with the Bank of England proposing a £20,000 cap on individual stablecoin holdings.

Coinbase's Vice President, Tom Duff Gordon, referred to the proposed restrictions as “bad for UK savers, detrimental to the City, and harmful to sterling.”

Notably, Shirzad also shared a commentary in the Telegraph criticizing the Bank of England's overly cautious stance, asserting that these limitations risk “deterring adoption and innovation, rendering GBP stablecoins impractical for wholesale markets, and undermining the UK's competitiveness on a global scale.”

He pointed out that the dollar-denominated stablecoin USDC has operated for nearly six years without causing destabilizing deposit flight.

Shirzad further noted that a significant portion of stablecoin demand comes from outside the U.S., enhancing dollar supremacy globally rather than competing with local banks. Standard Chartered estimates that over $1 trillion could be redirected from emerging-market banks into stablecoins by 2028.

Ultimately, the decisions made by the Treasury regarding rulemaking will dictate whether stablecoins can achieve Congress’s vision for payment innovation or if they will face restrictions that curtail their effectiveness in the market.