American bankers are urging the US Treasury Department to enforce the prohibition on interest for payment stablecoins in the GENIUS Act. In response, cryptocurrency exchange Coinbase, has called on the Treasury to ensure that the forthcoming regulations align with Congress’s original intentions regarding the act.
Coinbase Pushes Back On GENIUS Act’s Interest Restrictions
According to the bill, signed by President Trump back in July, “No permitted payment stablecoin issuer or foreign payment stablecoin issuer shall pay the holder of any payment stablecoin any form of interest or yield (whether in cash, tokens, or other consideration) solely in connection with the holding, use, or retention of such payment stablecoin.”
However, companies like Coinbase are exploring a potential loophole that they believe allows them to continue offering yields on stablecoin deposits. They argue that since these platforms are not the issuers of the stablecoins, the prohibition does not apply to them.
Coinbase’s letter to the Treasury was a direct response to an advanced notice regarding the GENIUS Act’s implementation. In this letter, dated November 4, Coinbase argued that interpreting third-party rewards or loyalty programs as prohibited “interest” would fundamentally alter the intent of Congress and contradict the statute’s text and purpose.
The letter warned that any misinterpretation of the GENIUS Act could harm consumers by eliminating market-based incentives that reduce payment costs, encourage merchant acceptance, and assist new users in adopting regulated US stablecoins.
Banking Sector Unites Against Stablecoin Interest
The response from the banking sector was robust, with the Consumer Bankers Association, the American Bankers Association, the Bank Policy Institute, the Financial Services Forum, and The Clearing House Association collectively representing the interests of American banks.
They asserted that Congress intended the prohibition on stablecoin interest to be broadly interpreted. Their letter indicated that any interest or yield payments that the GENIUS Act prohibits should encompass any economic benefits provided by issuers, directly or indirectly, including those through affiliates or partners.
They cautioned that allowing stablecoin interest would effectively transform these digital assets into investment products, which could lead consumers to perceive stablecoins as akin to bank accounts, potentially resulting in a “deposit flight” that threatens banks’ ability to generate credit.
Beyond concerns related to interest payments, Coinbase also raised issues regarding the taxation of stablecoins. The firm argued that stablecoins should be classified as pure payment instruments for tax purposes, rather than as forms of debt or investment.
They posited that treating payment stablecoins as debt would introduce unnecessary complexity into the financial system. Instead, Coinbase advocated for these stablecoins to be considered cash equivalents, which would simplify their tax treatment and support their intended use as payment mechanisms.
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