Congress passed the GENIUS Act in 2025 and created the first federal framework for stablecoins. The law prohibits issuers like Circle from paying interest directly to holders. Yet lawmakers left open a path for third‑party platforms — exchanges such as Coinbase or Kraken — to offer rewards on stablecoin deposits. That legislative choice ignited the current conflict. In the months that followed, crypto platforms began paying yields ranging from 4% to 5% per year on USDC and similar assets. Coinbase and Kraken now compete to attract user balances from individuals who seek to preserve purchasing power against inflation.
The rewards come from the interest generated by reserve assets, mainly U.S. Treasury bills. The model replicates, in essence, what a bank does: it takes funds, invests in sovereign debt, and returns part of the yield to the depositor. But it does so without a branch network or legacy capital requirements.
Traditional banking reacted with alarm. Trade groups like the Bank Policy Institute and the American Bankers Association are pushing regulators to close what they call a loophole. Banks argue that the rewards amount to interest on uninsured deposits and that, if they spread, they would drain trillions of dollars from the banking system. The scenario they describe would reduce lending capacity and destabilize the financial system. Crypto firms respond that banks are defending a monopoly over low‑cost deposits.
A coalition of more than 125 companies sent a letter to Congress in defense of the rewards. Coinbase CEO Brian Armstrong warned that restricting yields in the United States would hand a strategic advantage to jurisdictions like China. Kraken CEO David Ripley framed the dispute as a matter of consumer freedom. For the crypto companies, the near‑zero rate banks pay on savings accounts represents a value extraction that stablecoins correct.
On Capitol Hill, Senators Thom Tillis and Angela Alsobrooks tried to forge a compromise. They introduced an amendment that banned rewards “economically or functionally equivalent” to interest on deposits but permitted rewards tied to genuine platform activity. The text sought to draw a line between paying for custody of funds and rewarding the use of services.
The banking sector rejected the proposal. Major trade groups issued a joint statement saying the amendment falls short and still opens the door to circumventing the ban through membership programs. By contrast, Coinbase, Circle, and other crypto firms accepted the language and urged Congress to advance the bill.
The banking sector’s refusal to accept a compromise strips away any ambiguity about its real intent. Banks do not seek a balance; they pursue a total ban. Their strategy aims to eliminate any product that competes with insured deposits, even when that product offers a market return that consumers demand. For more than a decade, banks have paid savers rates below inflation while the Treasury paid much higher yields. Stablecoins close the gap.
The banking regulator, the Office of the Comptroller of the Currency, added another layer to the conflict. It proposed a rule to implement the GENIUS Act that could prevent platforms from paying yield on stablecoins held in custody. Banks are lobbying the OCC to adopt a broad interpretation that treats any custody‑originated interest as illegal. Crypto firms argue that third‑party arrangements are legal and that the law grants the OCC no authority to prohibit them.
The systemic risk argument merits careful examination. Banks warn of a massive flight of deposits. However, the issuers of yield‑paying stablecoins hold reserves in highly liquid assets, mainly Treasury bills and overnight repos. They do not operate under a fractional‑reserve model. A mass withdrawal from stablecoins does not trigger a bank run because the issuers keep the funds in custody and can liquidate the underlying bonds. The real risk lies in pushing users toward offshore platforms that operate without any supervision. A ban does not eliminate the demand for yield; it shifts that demand to less transparent jurisdictions.
The same entities that criticize crypto for a lack of regulation now demand that the government prohibit a regulated product — the yield‑bearing stablecoin — under a federal framework. The GENIUS Act requires issuers to hold one‑to‑one reserves, undergo periodic audits, and disclose the composition of assets. Consumers receive more information about USDC holdings than they ever get about a commercial bank’s balance sheet. The third‑party rewards proposal operates within that regulatory perimeter.
The solution does not involve banning a service that millions of users already employ. It involves setting clear disclosure rules and proportionate prudential requirements. Platforms must inform users about the source of yields, the associated risks, and the absence of deposit insurance. Congress can require that underlying funds reside in transparent vehicles and that platforms refrain from marketing the rewards as “savings accounts.” But eliminating competition by decree only benefits banks that refuse to improve their offering.
The current moment defines what type of financial system arises from technological progress. If regulators yield to banking lobbyists, the United States will export digital money technology to other latitudes and consumers will remain trapped in accounts that yield almost nothing. If, on the contrary, they allow rewards to thrive under sensible rules, the market will offer a genuine alternative to traditional deposits. The decision is not technical; it is a decision about who captures the value that digital dollars generate.
