The Rebellion of American Banking: The Endless Debate Over Interest-Bearing Stablecoins
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The Rebellion of American Banking: The Endless Debate Over Interest-Bearing Stablecoins
New technologies give rise to new industries, and the emergence of these new industries often poses a threat to traditional ones.
Navigating Web3 tides with focused insightsAuthor: 100y.eth
Translation: Saoirse, Foresight News
Under the GENIUS Act, stablecoin issuers are prohibited from paying interest to stablecoin holders.
However, Coinbase is currently offering users who hold USDC on its platform a 3.35% reward. This is possible because the GENIUS Act only bans interest payments by issuers, not by distributors.
Yet, ahead of the U.S. Senate's relevant committee reviewing the Crypto Market Structure Act—legislation aimed at systematizing cryptocurrency regulation—on January 15, a full-scale debate has erupted over whether the stablecoin interest ban should be extended to cover distribution channels.
Strong Opposition from the Banking Sector
The American Bankers Association (ABA) is the leading group advocating for a comprehensive ban on stablecoin interest payments. In an open letter released on January 5, the ABA argued that the interest payment prohibition in the GENIUS Act should not apply solely to issuers but should be interpreted broadly to include affiliated parties. The association is pushing to have this interpretation explicitly codified into the Crypto Market Structure Act.
Why Banks Are Fighting So Hard
The reason behind the banking sector’s push for a total ban on stablecoin interest payments is quite simple:
- Fear of deposit outflows;
- Reduced deposits mean diminished lending capacity;
- Stablecoins are not insured by the Federal Deposit Insurance Corporation (FDIC).
Ultimately, stablecoins threaten the long-standing, stable, and highly profitable business model upon which the banking industry has relied for decades.
Crypto Industry Pushback
From the crypto industry’s perspective, the banking sector’s move poses a serious problem. If pressure from bank lobbying leads to expanding the scope of the GENIUS Act through the Crypto Market Structure Act, it would effectively amount to rewriting and narrowing a law already passed. Unsurprisingly, this has triggered strong resistance from the crypto community.
Coinbase’s Position
Faryar Shirzad, Coinbase’s Chief Policy Officer, pushed back, citing research indicating that stablecoins have not caused any significant outflow of bank deposits. He also introduced new arguments into the debate—for example, referencing recent news about China’s digital yuan paying interest.
Paradigm’s Perspective
Alexander Grieve, Vice President of Government Affairs at crypto investment firm Paradigm, offered another viewpoint. He argued that even if interest were allowed only on stablecoins used for payments, it would still amount to an implicit “holding tax” on consumers.
What About China and South Korea?
Although China and South Korea have advanced more cautiously than some other Asian countries in their cryptocurrency-related policies, both nations have recently introduced a series of new measures concerning central bank digital currencies (CBDCs) and stablecoins. On the issue of interest payments, their policy differences are particularly noteworthy:
The People’s Bank of China has decided to pay interest on the digital yuan, treating it the same as regular bank deposits, in order to promote adoption of the digital currency.
South Korea’s policy direction is closer to that of the United States: prohibiting issuers from paying interest, but not explicitly banning distributors from doing so.
From a macro perspective, China’s aggressive stance is understandable. The digital yuan is not a private stablecoin but a legal tender issued directly by the central bank. Promoting its use helps counterbalance the dominant position of private platforms like Alipay and WeChat Pay while reinforcing a central bank-centric financial system.
Conclusion
New technologies give rise to new industries, and the emergence of these industries often threatens traditional ones.
Traditional financial institutions, represented by banks, are facing an irreversible shift toward the stablecoin era. At this juncture, resisting change carries greater risks than benefits. Embracing transformation and exploring new opportunities is the wiser path forward.
In fact, even for existing market participants, the stablecoin industry holds tremendous potential. Many banks have already begun proactive initiatives:
- BNY Mellon in New York is positioning itself around custodial services for stablecoin reserves;
- Cross River Bank serves as an intermediary for Circle’s fiat on-ramp via application programming interfaces (APIs);
- JPMorgan Chase is experimenting with tokenized deposits.
Major card networks also have significant stakes in the outcome. As on-chain payment volumes grow, traditional card networks risk shrinking revenues. Yet companies like Visa and Mastercard are not resisting this trend; instead, they are actively supporting stablecoin-based payment settlements to seize new growth opportunities.
Asset management firms are also entering the space. Funds such as BlackRock are advancing the tokenization of various investment products.
If banking lobbying ultimately succeeds in embedding a complete ban on stablecoin interest payments into the Crypto Market Structure Act, the crypto industry will suffer a major setback.
As someone working in the crypto industry, I can only hope that the Crypto Market Structure Act does not include provisions that effectively gut the GENIUS Act.
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