The cryptocurrency exchange Coinbase is pushing back against a coordinated effort by major U.S. banks to amend the recently passed GENIUS Stablecoin Act. In a detailed rebuttal, Coinbase refuted the banking industry's claims that stablecoins will cause a mass deposit erosion from the traditional financial system. The exchange argues that the banks' true motivation is not financial stability, but the fear of losing billions in annual payment-processing fees to more efficient blockchain-based alternatives. The dispute centers on a so-called "rewards loophole" in the new law, which has now become the first major legislative battleground following the landmark bill's enactment.

• A major legislative victory for crypto has immediately become the new front line in the war between digital assets and traditional finance.
• Discover the specific "loophole" that U.S. banks claim gives crypto platforms an unfair advantage to drain their deposits.
• Learn about Coinbase's data-driven counterargument that questions the banks' motives and the reality of the threat.

The GENIUS Stablecoin Act, signed into law earlier this year, was intended to provide a clear regulatory framework for stablecoin issuers in the United States, ending years of legal uncertainty. However, the legislation has immediately become the subject of an intense lobbying campaign by a coalition of banking associations, including the American Bankers Association and the Bank Policy Institute. They are urging Congress to revisit the law, arguing that it creates an uneven playing field. This conflict underscores the broader tensions in Washington, where regulators are signaling a move toward clarity, as seen in the recent joint statement from the SEC and CFTC, but incumbent industry players are now fiercely contesting the details of that new landscape.

At the heart of the banking industry's complaint is a provision they have labeled the "rewards loophole." The GENIUS Stablecoin Act explicitly prohibits the issuer of a stablecoin (like Circle or Tether) from paying interest or yield on the asset. However, the U.S. banks argue that the law does not explicitly stop a third-party intermediary, such as an exchange like Coinbase, from offering its own "reward" programs to customers for holding stablecoins on its platform. They contend that this functions as a form of yield, allowing crypto firms to lure customer funds away from traditional savings and checking accounts without being subject to the same strict capital and liquidity requirements as banks.

Coinbase has mounted a strong, data-driven counter-offensive to this narrative. The exchange dismissed the claims of a potential deposit erosion by pointing to the robust health of the U.S. banking system, which currently holds approximately $3.3 trillion in reserves at the Federal Reserve and earned about $176 billion in interest from those reserves last year. The company argues these figures do not support the image of a fragile system vulnerable to deposit flight. Furthermore, Coinbase challenged the banks' projection that stablecoins could drain as much as $6 trillion in deposits, noting that most industry forecasts project the entire stablecoin market to reach only about $2 trillion by 2028.

Instead, the exchange posits that the banking lobby's true concern is the existential threat stablecoins pose to their lucrative control over the payments industry. Banks earn an estimated $187 billion annually from payment-processing fees through systems like ACH, wire transfers, and credit cards. Stablecoins offer a near-instant, low-cost global alternative that could bypass these legacy rails entirely. This is particularly relevant in the context of the tokenization of all assets, a future envisioned by events like Nasdaq's recent SEC filing to trade tokenized stocks, where stablecoins would likely become the default settlement asset, cutting banks out of the process.

Despite this legislative battle, the GENIUS Stablecoin Act is already having a profound impact on the market. It has spurred action from major industry players who are now confident in building U.S.-compliant products. A prime example is Tether's recent partnership with a federally chartered bank to launch its USAT stablecoin, a product specifically designed from the ground up to meet the new law's requirements. This demonstrates that the act is succeeding in its goal of fostering onshore innovation, which is the very outcome the crypto industry argues is threatened by the banks' proposed amendments.

Looking ahead, the debate has now moved from regulatory agencies to the halls of Congress. Lawmakers must weigh the arguments from U.S. banks regarding potential financial stability risks against the case made by Coinbase and the broader crypto industry for fostering competition and innovation in the digital payments space. The resolution of this dispute over the "rewards loophole" will have significant consequences, shaping the competitive landscape and determining how quickly the United States embraces a new generation of financial technology.

FAQs

What is the core dispute surrounding the GENIUS Stablecoin Act?
U.S. banks are lobbying to amend the GENIUS Stablecoin Act, claiming it contains a "rewards loophole" that allows crypto firms like Coinbase to unfairly attract customer deposits. Coinbase argues the claims are unfounded and that the banks are trying to stifle competition.

What is the "rewards loophole" that U.S. banks are concerned about?
The Act prohibits stablecoin issuers from paying interest, but it doesn't explicitly stop intermediaries like exchanges from offering their own reward programs on stablecoin holdings. Banks argue this functions as yield and gives crypto platforms an unfair advantage.

What is Coinbase's argument against the "deposit erosion" claim?
Coinbase argues that the U.S. banking system is extremely well-capitalized with over $3 trillion in reserves and that there is no statistical evidence of a significant deposit erosion due to stablecoins. They suggest the real fear is losing payment-processing fees.

How is the GENIUS Stablecoin Act already impacting the market?
The new law is already encouraging onshore innovation. For example, major players like Tether are now launching new, fully compliant stablecoins specifically designed to meet the standards of the GENIUS Stablecoin Act.