Treasury Faces Industry Divide on Stablecoin Interest Rules in GENIUS Act

Major US banks and crypto exchange Coinbase now argue over how the Treasury should implement the new GENIUS Act. Their positions expose a sharp divide on stablecoin yields, regulation, and the future of dollar-pegged tokens in the United States.

The GENIUS Act, signed in July 2025, creates a federal framework for payment stablecoins. It sets backing, audit, and oversight rules for issuers and gives the Treasury authority to write detailed regulations.

Banks Push for Blanket Stablecoin Yield Ban Under GENIUS Act

Leading banking groups, including the Bank Policy Institute, want the Treasury to extend the law’s interest ban as widely as possible. They urge officials to prohibit any form of yield or interest on payment stablecoins, regardless of who offers it.

Their joint letters argue that stablecoin rewards could draw money out of traditional deposits. In earlier comments, they warned that generous yields might redirect trillions of dollars from the banking system into tokenized cash products.

These groups frame a strict approach as a way to prevent regulatory “workarounds.” They claim that if exchanges or affiliates can pay yield, issuers could still support interest-bearing products indirectly.

Banks also present the risk as systemic rather than niche. According to them, stablecoin interest programs compete directly with insured bank deposits and could erode the traditional funding base for lenders.

Coinbase Seeks Narrow GENIUS Act Rules for Stablecoin Interest

Coinbase takes the opposite tack and presses for a narrow reading of the statute. The exchange tells the Treasury that the GENIUS Act bans interest only when issuers themselves pay it on stablecoins.

Under Coinbase’s proposal, non-issuers such as exchanges could still offer rewards on stablecoin balances. They frame these programs as loyalty or promotional offers, not as issuer interest, and say the law’s text supports that distinction.

The company also asks regulators to exclude non-financial software developers, blockchain validators, and open-source protocol contributors from the rulemaking. It argues that these actors do not issue or custody payment stablecoins in a traditional sense.

Coinbase further recommends that payment stablecoins receive treatment similar to cash equivalents for tax and accounting. It says this approach would match how users treat these tokens in payments and settlements.

Future of US Stablecoin Regulation Hinges on Treasury’s Choices

The Treasury’s rulemaking under the GENIUS Act now sits at the center of this policy fight. Public comment rounds, including the latest advance notice of proposed rulemaking, show how far apart banks and crypto firms remain.

A strict interpretation, as banks request, would shut down most interest-bearing stablecoin products in the US market. A narrow approach, closer to Coinbase’s position, would still restrict issuers while leaving room for exchange-based rewards.

The law takes effect after regulators finish the final rules, likely in late 2026 or early 2027. Until then, stablecoin issuers, exchanges, and banks will all position themselves for a landscape that could favor one business model over another.

Also Read: Coinbase Fined $24.7 Million in Ireland for Failing to Flag Risky Crypto Transactions