Key points
- Banking groups want to ban crypto rewards resembling bank interest.
- Coinbase and Kraken offer rewards on stablecoin holdings (4.1% and 5.5% respectively).
- The GENIUS Act allows rewards, but banks fear a massive shift in deposits to stablecoins.
- Banks claim this could cripple lending and economic growth. The crypto industry argues that this protects banks’ high-profit payment systems.
Coinbase CEO Brian Armstrong and other cryptocurrency executives recently engaged in a regulatory showdown on Capitol Hill with banking institutions, a conflict with potentially trillions of dollars at stake. At the heart of the dispute is the issue of rewards offered by cryptocurrency exchanges on stablecoin holdings, a practice that banking advocacy groups are fiercely opposing.
These groups are pushing for legislation to prohibit exchanges like Coinbase and Kraken from offering these rewards, arguing they unfairly compete with traditional banking interest payments. Armstrong countered that banks should compete fairly, rather than seeking to stifle innovation.
Coinbase currently offers a 4.1% reward for holding USDC stablecoin, while Kraken provides a 5.5% reward. The recently passed GENIUS Act allows for such rewards, creating a loophole that banks are attempting to close.
Banking groups warn that these attractive rewards could trigger a massive exodus of funds from traditional banks into stablecoins and other cryptocurrencies, potentially destabilizing the financial system. They claim that this shift would severely impair banks’ ability to lend and support economic growth, citing a Treasury report that estimates a potential $6.6 trillion shift to stablecoins.
Armstrong dismissed these concerns as a “boogeyman,” arguing that the real motive behind the banking industry’s opposition is the protection of their lucrative payment processing business, which generates approximately $180 billion annually. He alleges that large, not small, banks are orchestrating this opposition.
While JPMorgan Chase CEO Jamie Dimon stated the issue wasn’t discussed in a recent Senate meeting, he emphasized the need for thoughtful regulation. The American Bankers Association and state associations have formally requested lawmakers to “close this loophole,” echoing concerns about systemic risk.
The cryptocurrency industry, however, strongly refutes these claims, asserting that preventing rewards would unfairly favor established banking institutions and limit consumer choice.
While the final form of the market structure bill is still under negotiation, Senator Cynthia Lummis believes the issue has been resolved through the GENIUS Act compromise. The ongoing debate highlights the fundamental tensions between established financial systems and the rapidly evolving cryptocurrency landscape.
