Crypto Firms Push Back as FDIC Nails Down Stablecoin Rules

The crypto industry is ramping up its defense of stablecoin rewards as regulatory interpretations of the GENIUS Act begin to narrow. The act, a landmark law approved by Congress, seeks to balance innovation with financial stability by setting guardrails for stablecoin issuance and use. Now, with the Federal Deposit Insurance Corp. (FDIC) proposing its first stablecoin rule under the act, the debate has intensified. The FDIC's rule outlines a 60-day public comment period and a 120-day approval process for banks issuing stablecoins from subsidiaries.

Regulators under Acting Chairman Travis Hill are working to ensure the process minimizes regulatory burden while evaluating safety and soundness. The FDIC's proposal is seen as the first concrete step in implementing the broader vision of the GENIUS Act, which assigns multiple regulators to oversee stablecoin operations. Hill, whose Senate confirmation is expected soon, emphasized the need for a tailored application process that aligns with the law's intent.

Meanwhile, industry groups and crypto platforms are pushing back against what they see as overly broad interpretations of the act. They argue that the law was designed to prevent stablecoin issuers from offering interest directly to users, but did not intend to restrict platforms from providing rewards or incentives. This distinction has become a focal point in ongoing negotiations between the industry and regulators.

Why the Standoff Happened

At the heart of the dispute lies the interpretation of the GENIUS Act's restrictions on interest and yield. The law explicitly prohibits stablecoin issuers from offering direct interest on their tokens but does not clearly address whether third parties, such as exchanges, can offer rewards on behalf of stablecoin holders. This ambiguity has led to conflicting views from regulators and the industry.

The American Bankers Association (ABA) and its affiliated state bankers associations have sent a joint letter to Congress, urging lawmakers to clarify that the prohibition on interest should extend to affiliated platforms and exchanges. They argue that allowing exchanges to offer yield-like incentives creates a competitive imbalance, as banks operate under strict regulatory frameworks and cannot offer similar returns without risking financial stability.

Critics of the ABA's stance, however, argue that the law's language is clear and should be interpreted narrowly. The Blockchain Association, representing over 125 industry stakeholders, has pushed back against efforts to reinterpret the law, stating that such moves would undermine competition and innovation in the payments sector. They emphasize that stablecoin rewards are akin to traditional incentives offered by card networks and should be permitted under the current framework.

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How Markets Reacted

The debate has already started to ripple through the market. SoFi, for instance, recently launched its own stablecoin, SoFiUSD, backed by cash reserves and issued by its national bank charter. This move underscores the growing appetite among fintech and traditional financial firms to integrate stablecoins into their services. The company's CEO emphasized the transformative potential of blockchain technology, aligning with broader industry optimism about the future of digital finance.

Meanwhile, other crypto platforms are preparing for potential regulatory shifts. Coinbase, Kraken, and others have been in active discussions with Senate lawmakers like Tim Scott, who is leading the market structure bill negotiations. These talks aim to clarify the industry's position and ensure that any new legislation aligns with existing market dynamics. The outcome of these negotiations could reshape the competitive landscape between traditional banks and crypto platforms, particularly for those offering yield-based incentives.

What Analysts Are Watching

Analysts are closely monitoring how the Treasury Department and the FDIC will finalize their interpretations of the GENIUS Act. The regulatory framework will determine whether crypto exchanges can continue offering rewards on stablecoin balances or if they will be forced to scale back or restructure these programs. A narrow interpretation would preserve the status quo, while a broader reading could disrupt current business models and force platform operators to seek alternative ways to attract users.

Some observers, like Todd Baker of Columbia Business School, believe that any legal challenges to the current arrangements would likely be limited to non-core activities and would not extend to stablecoin issuance or custody. This view suggests that while the ABA and other banking groups may push for broader interpretations, the courts could ultimately side with a more literal reading of the law.

The coming months will also see the finalization of the FDIC's stablecoin rule, along with potential legislative updates to the GENIUS Act. These developments will shape the future of stablecoin use in the U.S. and could set precedents for how digital assets are regulated more broadly. With both sides of the debate mobilizing their resources, the resolution of this issue will have lasting implications for the financial industry and the digital asset sector.