Coinbase has mounted a fierce defense of stablecoin reward programs, accusing banking associations of attempting to expand Congress’s interest prohibition beyond its statutory limits illegally.
The crypto exchange’s pushback targets efforts by bank lobbyists to classify merchant discounts and third-party benefits as prohibited “indirect interest” under the GENIUS Act.
Chief Policy Officer Faryar Shirzad argued that banking associations are misinterpreting congressional intent by claiming merchant rewards tied to stablecoin payments constitute illegal interest.
“Congress was clear that the GENIUS Act only prohibits interest/yield paid by the issuer, and nothing else,” Shirzad stated on X, warning that expanding the ban to third-party benefits would create “unprecedented, far-reaching and unpredictable” implications.
Banking Groups Push Expansive Interest Ban
The American Bankers Association and 52 state banking associations submitted letters to the Treasury urging strict implementation of the GENIUS Act’s interest prohibition.
Their November 4 filing proposes defining “interest or yield” broadly to encompass any economic benefit, preventing evasion through affiliates, and treating indirect payments as if they were issuer payments.
Brooke Ybarra, ABA’s senior vice president of innovation and strategy, told the organization’s annual convention that “a detriment would be allowing Coinbase or Kraken to pay interest on payment stablecoins.”
Jess Sharp, ABA senior vice president, acknowledged the challenge ahead.
“This is not an easy fight, it’s a very well resourced group on the other side,” Sharp said. “Banks take deposits and convert them into loans, that’s what we do, and fewer deposits means fewer loans.”
The associations warned that community banks face particular vulnerability to deposit outflows, citing analysis showing disintermediation could eliminate approximately $1.5 trillion in lending capacity and shrink small business and farm credit by $110 billion and $62 billion, respectively.
Coinbase Argues Consumer Harm
Coinbase Institute’s argument shows an analysis that U.S. merchants paid over $180 billion in card fees in 2024, costs that stablecoins could help reduce.
The company’s November 4 Treasury submission emphasized that the GENIUS Act prohibits only permitted payment stablecoin issuers from paying interest “solely in connection with the holding, use, or retention” of stablecoins.
“The statute addresses payments by issuers only—nowhere does the text reference ‘indirect’ interest, affiliates, or third-party benefits,” Coinbase wrote, adding that “treating third-party rewards or loyalty programs as prohibited interest would rewrite Congress’s carefully-drawn lines.”
The exchange warned that broad interest bans would hurt consumers by eliminating market-based incentives that lower payment costs and spur merchant acceptance.
Coinbase cited scenarios where small businesses offering discounts for stablecoin payments could face prohibition if they maintain any relationship with issuers, even routine API integrations.
UK Expansion Amid Similar Regulatory Pressure
This new response comes as Coinbase recently launched a 3.75% AER savings account for UK users through ClearBank, offering FSCS protection of up to £85,000, effective November 11.
The move positions the exchange to compete with traditional British banks, where major institutions like HSBC and NatWest pay between 1.15% and 3.5%.
Keith Grose, CEO of Coinbase UK, framed the offering as building “the UK’s number 1 financial app.“
The launch coincides with the Bank of England proposing a £20,000 cap on individual stablecoin holdings.
Coinbase vice president Tom Duff Gordon called the restrictions “bad for UK savers, bad for the City and bad for sterling.”
Notably, Shirzad also published a Telegraph commentary criticizing the Bank’s excessive caution, arguing these constraints risk “deterring adoption and innovation, making GBP stablecoins unusable for wholesale markets, and undermining the UK’s global competitiveness.“
He noted that dollar-denominated stablecoin USDC has operated for nearly six years without evidence of destabilizing deposit flight.
Shirzad also argued that most stablecoin demand originates outside the U.S., expanding dollar dominance globally rather than competing with local banks. Standard Chartered projects that over $1 trillion could flow from emerging-market banks into stablecoins by 2028.
Treasury’s rulemaking decisions will determine whether stablecoins fulfill Congress’s vision of payment innovation or face restrictions that limit their practical utility.
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