Crypto vs Banks: Fight Over Stablecoin Rewards Heats Up
- Banks push for stablecoin reward restrictions in the CLARITY Act, risking consumer rights.
- Coinbase CEO Armstrong warns that yield restrictions favor banks while harming consumers.
- Blockchain Association campaigns to uphold the GENIUS Act’s stablecoin reward provisions.
A significant clash has emerged between banks and the crypto industry as lawmakers review the CLARITY Act. The focus is on a provision that would block rewards on stablecoins offered by crypto platforms. Banks argue this move is necessary to protect the traditional financial system. Banks argue that this move is necessary to protect the traditional financial system, while crypto advocates see it as an attempt to preserve bank dominance at the expense of consumer rights.
Coinbase CEO Brian Armstrong has been vocal about the issue. In an X post, he revealed that large banks are lobbying to remove consumer protections that allow users to earn yield on stablecoins. He believes revisiting these restrictions undermines the spirit of the GENIUS Act, which was passed to secure consumer rights.
‘Yield Restrictions Would Benefit Banks Over Consumers’
Armstrong argues that adding yield restrictions would favor banks at a time when they are seeing record profits. He claims that such actions would harm consumers who view rewards as a fundamental benefit of using digital assets like USDC. He frames this as a critical test for lawmakers on whether they would uphold consumer protections.
The debate follows the passage of the GENIUS Act in July, which tackled various aspects of digital asset regulation. While the law prohibited stablecoins from offering bank deposit interest, it did not restrict rewards. Now, banks are seeking to extend the restriction to crypto exchanges also, claiming that stablecoin rewards also function like traditional bank interest. The CLARITY Act markup has been pushed back due to the threat of a government shutdown. Though the markup is slated for next month, it is unclear if the bill will pass by year’s end.
Crypto Community Defends Stablecoin Rewards
The push from banks to prohibit rewards on exchanges has led to a strong response from the crypto community. The Blockchain Association has launched a campaign to protect the provisions of the GENIUS Act. Moreover, CEO Summer Mersinger sent a letter to lawmakers urging them to respect the settled provisions of the law and refrain from reopening debates that had already been resolved.
The Blockchain Association argues that stablecoins improve financial access. They claim that stablecoins enable people to send money abroad quickly and at a low cost, thereby benefiting the crypto economy. The association views stablecoin rewards as a critical part of the decentralized finance system, providing an alternative to traditional banking.
Related: Will the GENIUS Act Secure U.S. Stablecoin Global Dominance?
Bank advocates claim that stablecoin rewards could drain funds from the traditional financial system, disrupting banks’ ability to lend. The Bank Policy Institute has been a vocal proponent of expanding the restrictions on stablecoins to include exchanges. They contend that stablecoins themselves could destabilize the financial system by replicating bank interest rates.
With the GENIUS Act prohibiting stablecoins from paying interest, it is viewed as a loophole by the banks, concerned that widespread rewards could divert billions away from traditional banks. A Treasury report issued earlier this year warned that values of up to $6.6 trillion could flow from banks in search of stablecoin rewards.
This debate highlights the broader battle between decentralized finance and traditional financial power. The crypto community advocates a new financial order, while banks seek to maintain their dominance. This conflict could reshape finance, determining whether decentralized systems could coexist with traditional institutions.
