Summary:
Coinbase is fighting back against U.S. banking groups that are urging regulators to prohibit merchant rewards, cashbacks, and discounts for customers paying with stablecoins. Coinbase argues that the banks’ position lacks legal basis under the GENIUS Act and undermines innovation, calling their lobbying “un-American.”
What’s Going On
- The Dispute: Major banking associations are lobbying regulators to block third-party rewards tied to stablecoin payments—arguing these benefits could undermine the banking system. Coinbase strongly opposes this push.
- GENIUS Act Interpretation: Under the GENIUS Act, stablecoin issuers are banned from paying interest or yield directly to token holders. However, the law does not clearly prohibit exchanges or merchants from offering cashback or discount rewards when customers use stablecoins. Coinbase’s Chief Policy Officer Faryar Shirzad insists regulators should “stick to the statutory text.”
- Coinbase’s Criticism: Coinbase calls the banks’ push to expand this restriction “un-American” because it limits what customers can do with their own money once they hold stablecoins.
Why Banks Feel Threatened
According to their own lobbying groups, banks are alarmed by the rising use of stablecoins for rewards because:
- Deposit Risk: They argue that stablecoin rewards could encourage users to pull money out of traditional bank accounts and into stablecoins, weakening banks’ deposit bases.
- Revenue Loss: Banks make a significant portion of their profits from payment-processing fees. Coinbase counters that stablecoins could dramatically reduce the ~$180 billion in annual card fees paid by U.S. merchants.
- Competition with Traditional Banking: By offering high rewards on stablecoins (e.g., Coinbase offers ~4.1% for USDC; Kraken ~5.5%), crypto firms are giving a compelling alternative to traditional savings or interest-bearing products.
Coinbase’s Defense & Broader Implications
- No Mass Bank Run: Coinbase claims that fears of stablecoin adoption causing a mass exodus from bank deposit accounts are overblown.
- Global Demand Over Domestic Risk: According to Coinbase, most stablecoin usage comes from international users, not U.S. bank customers. This undermines the idea that stablecoins will hollow out local banking systems.
- Innovation & Consumer Choice: Coinbase argues banning these rewards would favor legacy institutions and stifle competition.
- Real Stakes: Some in the crypto industry see the ban as part of a broader fight for payments innovation. Maple Finance’s CEO, for example, argues that stablecoin rewards are a “real threat to banks” because they could offer better value to customers than what traditional banks provide.
Regulatory & Market Outlook
- Ongoing Lobbying: Coinbase and banking groups are now locked in a debate with potential implications for how stablecoins can be used in commerce.
- Rule Interpretation Matters: Regulators will have to interpret the GENIUS Act—whether rewards from third parties are allowed could turn on the precise language of the law.
- Impacts on Payments: If rewards remain allowed, stablecoins could become a more prominent tool for merchant payments and consumer cashback programs. But if banned, some crypto firms’ business models may be threatened.
- Banking System Risk: The fight also underscores a core tension between crypto-native business models and traditional banking institutions competing to retain depositors and payment revenue.
Bottom Line:
Coinbase has taken a firm public stand against major banking groups seeking to ban stablecoin-based merchant rewards. Calling their lobbying “un-American,” Coinbase insists such a ban oversteps what the law (the GENIUS Act) actually requires—and could stifle innovation and competition in payments. The outcome of this debate may shape how stablecoins are used in everyday commerce and how much they can challenge traditional banking profit models.
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