Coinbase CEO Calls for Congress to Allow Stablecoin Interest Payments

Coinbase's Chief Executive Officer, Brian Armstrong, has advocated for Congress to permit stablecoin companies to pay interest to users. He believes that prohibiting interest payments on stablecoins would stifle competition within the cryptocurrency industry. Armstrong expressed his views on the social media platform X, highlighting the potential adverse effects on the sector if the current restrictions persist.

Armstrong emphasized that stablecoins should be able to offer interest payments to consumers, similar to traditional banking and cryptocurrency companies. He noted that current proposed stablecoin legislation, including the STABLE Act in the House and the GENIUS Act in the Senate, explicitly prohibits stablecoin issuers from paying interest to users. This restriction could subject stablecoins to securities regulations, which would impose significant compliance burdens.

In a detailed post on X, Armstrong argued that stablecoins should benefit from the same exemptions under securities law that allow traditional savings accounts to pay interest. He stated, "Unlike interest-bearing checking and savings accounts, stablecoins currently do not benefit from the same exemptions under securities law that allow issuers to pay interest to users. Stablecoins should be able to pay interest like regular savings accounts, without the onerous disclosure requirements and tax implications of securities law."

Stablecoins like USDT and USDC are backed by the US dollar on a 1:1 basis, and issuers typically hold reserves in cash and short-term US Treasury bonds. Historically, these assets have served as a bridge between traditional financial systems and cryptocurrency ecosystems, with investors closely monitoring them for insights into market demand, liquidity, and trading activity.

In recent years, stablecoins have gained popularity for their ability to pay interest to users who simply hold them. However, this interest is usually provided as an incentive by exchanges or wallet operators like Coinbase or Kraken, rather than by the stablecoin issuers themselves. Coinbase has a revenue-sharing agreement with Circle, the company behind USDC, where they share 50% of the income from USDC. Circle's SEC filing echoes Armstrong's concerns, stating that without federal regulations, their stablecoins could be classified as securities, leading to increased regulatory scrutiny and potential business disruptions.

The Securities and Exchange Commission (SEC) generally considers an asset to be a security if it involves investment of money with the expectation of profit derived from the efforts of others. This classification often results in stricter regulatory oversight and compliance costs, which can be burdensome for companies. Allowing issuers to pay interest to users would mark a significant shift in who benefits from the profits in the cryptocurrency space. Currently, exchanges and platforms generate revenue by investing user deposits and retaining most of the earnings. If stablecoin issuers start paying interest directly to users, it could change this dynamic, benefiting users more and compressing the middlemen, making holding stablecoins more attractive.