Coinbase Urges Treasury to Honor Legislative Intent Behind GENIUS Act Amid Regulatory Debate
Coinbase has formally submitted its recommendations to the U.S. Department of the Treasury, calling for a precise interpretation and implementation of the GENIUS Act that adheres to the original objectives outlined by Congress. The cryptocurrency exchange is pushing back against mounting pressure from traditional banking institutions, which are lobbying for a broad application of the Act’s restrictions on interest payments related to stablecoins.
Signed into law in July during the Trump administration, the GENIUS Act explicitly prohibits any “permitted payment stablecoin issuer or foreign payment stablecoin issuer” from offering interest, yield, or any similar financial reward—whether in fiat, crypto, or other forms—to holders of stablecoins simply for holding or using them. The law aims to keep payment stablecoins as non-interest-bearing instruments to avoid blurring the lines between digital currencies and traditional savings accounts.
However, Coinbase argues that the law’s language applies strictly to issuers of stablecoins, not to third-party platforms like itself that offer yield-generating products tied to stablecoin deposits. In a letter dated November 4, the company warned that interpreting the statute to include loyalty programs or staking rewards provided by non-issuers would diverge from the legislative intent and contradict the actual wording of the law.
Coinbase emphasized that such a broad interpretation could stifle innovation and harm consumer benefits. The company’s response highlighted that market-driven incentives—such as rewards for stablecoin use—help reduce transaction costs, foster broader merchant adoption, and ease the transition for users entering the world of regulated digital payments. By curbing these incentives, regulators risk undercutting the very goals of financial inclusion and efficiency that stablecoins are designed to promote.
In contrast, several major banking lobby groups, including the American Bankers Association, the Consumer Bankers Association, and the Bank Policy Institute, have collectively urged the Treasury to adopt a stricter stance. In a letter submitted on their behalf, these organizations argued that the prohibition on interest should apply not only to issuers but also to any affiliated parties or platforms offering economic benefits tied to stablecoin holdings. They warned that permitting such incentives could mislead consumers into viewing stablecoins as substitutes for insured bank deposits, potentially triggering destabilizing capital outflows from traditional banks.
Banking representatives also cautioned that allowing interest-bearing stablecoins would effectively reclassify them as investment products, making them subject to an entirely different set of regulatory standards. This, they claimed, could undermine the clarity and control that regulators aim to establish in the fast-evolving digital asset landscape.
Aside from the interest-related debate, Coinbase also addressed another critical issue in its communication: the tax treatment of stablecoins. The firm advocated for stablecoins to be recognized as pure payment instruments rather than being categorized as debt or investment assets. According to Coinbase, aligning tax policy with the transactional nature of stablecoins would simplify compliance and support their use in everyday commerce.
The company argued that interpreting stablecoins as debt instruments could introduce unnecessary regulatory complexity and potentially deter adoption. Instead, they recommended treating stablecoins as cash equivalents, which would mirror their intended function and facilitate their integration into both traditional and digital payment systems.
This regulatory standoff underscores the growing tension between emerging crypto platforms and entrenched financial institutions as they compete over the future structure of the digital economy. While banks are concerned about preserving systemic stability and protecting deposit bases, crypto firms argue that overly restrictive rules could stifle innovation and limit consumer choice.
The Treasury’s forthcoming regulations will play a pivotal role in determining how stablecoins evolve within the U.S. financial system. A narrow interpretation of the GENIUS Act could enable crypto platforms to continue offering yield-bearing products, while a broader reading may significantly curtail such practices—even if they originate from third parties.
As the debate intensifies, industry observers anticipate that the Treasury’s final guidance could set a precedent for stablecoin regulation not only in the U.S. but also globally. With central banks, financial watchdogs, and lawmakers around the world closely monitoring the U.S. approach, the decision could influence how other jurisdictions define and regulate payment stablecoins.
Moreover, this case highlights the broader ideological divide over how digital assets should be integrated into the financial system. For traditional banks, the rise of stablecoins presents both a competitive threat and a regulatory challenge, particularly when these digital instruments begin to mimic the functions of savings products.
In contrast, crypto-native firms like Coinbase view stablecoins as tools for democratizing access to financial services. They advocate for a regulatory framework that encourages innovation while safeguarding consumers—without unnecessarily extending banking-style restrictions to decentralized platforms.
As of now, the Treasury has not issued a final ruling on the matter. However, the depth and intensity of the current debate suggest that any decision will have far-reaching implications. Whether the regulations favor the cautious approach of the banks or the more progressive stance of the crypto sector remains to be seen.
In the meantime, Coinbase continues to expand its presence in the stablecoin space. The company is reportedly in advanced talks to acquire BVNK, a major player focused on stablecoin infrastructure, in a deal valued at approximately $2 billion. This move underscores Coinbase’s commitment to building a robust ecosystem around digital payments and its intention to play a defining role in shaping the future of regulated crypto transactions.
As the regulatory landscape evolves, both sides—traditional finance and the crypto industry—will likely continue to lobby for their respective visions of the future. The outcome of this clash will not only determine the role of stablecoins in everyday commerce but could also redefine how trust, value, and financial utility are delivered in the digital age.