Coinbase Responds to Challenges Against the Genius Stablecoin Act

Coinbase is standing firm against U.S. banking groups that want changes to the recently passed Genius Stablecoin Act. The exchange refutes claims that stablecoins are negatively impacting traditional bank deposits, asserting that data does not support the notion of significant fund shifts from banks.

Key Takeaways

Coinbase dismisses claims that stablecoins are leading to a decline in bank deposits.
The exchange argues that banks are not facing a liquidity crisis as claimed.
U.S. banks seek to amend the Genius Stablecoin Act, citing concerns over a "rewards loophole" that favors crypto platforms.
Coinbase and other industry groups argue that this loophole promotes innovation and competition rather than harming the banking sector.

Coinbase defends Genius Stablecoin Act amid U.S. bank pushback - 1

Coinbase's Defense Against Banking Concerns

Coinbase, a prominent cryptocurrency exchange, is actively challenging U.S. banking associations' efforts to amend the recently passed Genius Stablecoin Act. The company argues against the assertion that stablecoins are causing significant withdrawals from the traditional banking sector. According to Coinbase, the narrative of "deposit erosion" is unfounded, backed by on-chain data and bank statistics showing no substantial movement of funds away from banks.

This defense comes in light of an August initiative by U.S. banking associations seeking revisions to the Genius Stablecoin Act shortly after it became law. These banking groups have urged lawmakers to address parts of the legislation that they believe create disadvantages for traditional banks and may lead to potential regulatory loopholes for cryptocurrency platforms.

Coinbase highlighted that U.S. banks currently hold approximately $3.3 trillion in reserves at the Federal Reserve and generated around $176 billion in interest income last year. The exchange argued that these figures undermine claims of an exodus of deposits and indicate that banks are not experiencing the liquidity crises they suggest.

Furthermore, Coinbase questioned predictions of a $6 trillion reduction in bank deposits driven by stablecoin expansion, pointing out that the total supply of stablecoins is estimated to reach only about $2 trillion by 2028. The company emphasized that the primary use of stablecoins is for payments and remittances, rather than withdrawing money from savings accounts. This implies that banks may be more worried about losing an estimated $187 billion in annual payment-processing revenue than about maintaining financial stability.

The Banking Sector's Concerns with the Genius Stablecoin Act

U.S. banking institutions have expressed concerns regarding the Genius Stablecoin Act, advocating for Congress to impose stricter regulations. They argue that a specific "rewards loophole" within the law grants cryptocurrency platforms an undue advantage. While the law forbids stablecoin issuers from offering interest or yield, banks contend that it does not explicitly prevent exchanges and other intermediaries from introducing reward programs associated with stablecoin holdings.

These banking groups warn that this potential oversight could lead crypto platforms to attract customers through yield-like incentives, ultimately drawing deposits away from traditional banks and destabilizing credit markets.

Organizations such as the American Bankers Association, Bank Policy Institute, and Consumer Bankers Association have requested lawmakers to revise the Act to plug this loophole. Their proposed amendments aim to broaden restrictions on paying any form of “interest, yield, or rewards” to all entities involved in stablecoin-related services, not just the issuers.

Bank lobbyists assert that failing to implement these changes will allow stablecoin platforms to continuously pull deposits from traditional institutions while operating outside the stringent capital and liquidity rules that banks must follow, thereby creating a competitive imbalance.

In contrast, Coinbase's stance is aligned with other industry players who argue that the so-called loophole should be viewed as a crucial aspect that encourages competition and innovation within the financial sector. They maintain that limiting exchanges from offering rewards would unduly protect banks while hindering consumer choice in the growing stablecoin market.