Banks Push to Block Stablecoin Rewards to Shield $180B Profits

Stablecoin rewards are facing increasing scrutiny from traditional banks, who argue that such incentives threaten to destabilize the financial system. Coinbase CEO Brian Armstrong has publicly criticized the banking sector for opposing these rewards, accusing banks of leveraging regulatory influence to protect their monopoly. Armstrong, appearing before Capitol Hill lawmakers, emphasized that the banking industry's efforts to restrict stablecoin rewards are an attempt to shield $180 billion in profits from their payment businesses. "The real reason they're bringing this up is that they're trying to protect the $180 billion that they made on their payment business," he stated. This sentiment is echoed by other crypto executives, who argue that stablecoin rewards foster competition and consumer choice.

The debate centers on the GENIUS Act, a bipartisan law passed in April 2025 that permits stablecoin rewards but prohibits interest-bearing stablecoins. Under this framework, exchanges like Coinbase offer 4.1% rewards on USDC holdings, while Kraken provides 5.5%. Bank advocacy groups, including the Bank Policy Institute, warn that such rewards could trigger a mass exodus of deposits from community banks, undermining their ability to fund economic growth. John Court of the Bank Policy Institute stated, "If people are pulling their deposits out of their bank accounts and transferring them into stablecoin investments, you are effectively neutering the ability of banks to lend into the real economy".

Crypto firms counter that stablecoins represent less than 1% of global financial transactions and argue that the benefits to consumers-such as higher returns on holdings-justify their existence. A Treasury Borrowing Advisory Committee report estimates that $6.6 trillion could shift from traditional bank deposits to stablecoins if rewards remain unregulated. This figure has amplified banks' concerns, with the American Bankers Association and state associations urging lawmakers to "close this loophole and protect the financial system". In contrast, crypto groups argue that banning rewards would "tilt the playing field in favor of legacy institutions," stifling innovation and consumer options.

The political landscape remains contentious. Sen. Cynthia Lummis (R-Wyo.), a key architect of the GENIUS Act, has stated that the issue was "heavily litigated" and should not be reopened. However, JPMorgan Chase CEO Jamie Dimon noted that stablecoin reward discussions did not arise during recent Senate meetings, though he stressed the need for "thoughtful" regulation. Meanwhile, the Blockchain Association has launched a campaign to defend the GENIUS Act, framing it as a bipartisan achievement that positions the U.S. as a global leader in financial innovation.

As the debate unfolds, the financial sector remains divided. While banks emphasize systemic risks, crypto advocates highlight the potential for stablecoins to democratize access to financial services. With stablecoin usage rising, the outcome of this regulatory tug-of-war could reshape the future of digital finance. For now, the Senate's market structure bill remains the focal point, with no clear resolution in sight.

Source: [1] Coinbase CEO: Banks using 'boogeyman' issues versus stablecoin ... (https://www.cnbc.com/2025/09/18/stablecoin-rewards-crypto-banks-coinbase.html?msockid=39ef85b8d9d4637815a693cfd84e62f3)

[2] Coinbase's Brian Armstrong Hits Back at Banks Over Blocked ... (https://coinpedia.org/news/coinbases-brian-armstrong-hits-back-at-banks-over-blocked-stablecoin-rewards/)