In a significant clash on Capitol Hill this week, Coinbase CEO Brian Armstrong and other cryptocurrency leaders faced off against banking advocates over the future of rewards offered by crypto exchanges. With trillions of dollars potentially at stake, the banking sector is pushing for legislative measures that would prevent platforms like Coinbase from providing rewards to customers that resemble the interest payments traditionally associated with banks.
Armstrong expressed his confusion over the banks’ renewed push against these rewards, advocating for a competitive landscape in the cryptocurrency realm. “I’m not sure why the banks would want to bring that up again at this point, but they should have to compete on a level playing field in crypto,” he stated in an interview.
Currently, Coinbase is enticing customers with a 4.1% reward for holding USDC stablecoins, while its competitor, Kraken, offers a slightly higher rate of 5.5%. Recently passed regulations under the GENIUS Act stipulate that while customers can’t earn interest on stablecoins, exchanges can still provide customer incentives in the form of rewards.
Banking advocacy groups have voiced concerns that allowing these rewards could siphon depositors away from local banks, destabilizing the financial system. John Court, executive vice president of the Bank Policy Institute, emphasized this point, arguing that if consumers withdraw their funds in favor of crypto investments, banks may struggle to lend and support economic growth.
An April report from the Treasury Borrowing Advisory Committee suggested a staggering $6.6 trillion could transition from traditional bank deposits to stablecoins, intensifying the urgency of the debate. Armstrong dismissed these warnings as exaggerated, characterizing them as a “boogeyman” tactic used by larger banks to safeguard their substantial earnings from payment processing.
JPMorgan Chase CEO Jamie Dimon, following discussions with Senate Republicans, noted that the topic of stablecoin rewards did not come up but highlighted the need for thoughtful regulatory consideration of the crypto landscape. Meanwhile, the American Bankers Association, along with state banking associations, has formally requested lawmakers to address what they term a loophole, advocating for protections within the financial system.
In response, crypto advocates penned their own letter to lawmakers, advocating that restricting exchanges from offering rewards would unfairly benefit legacy banking institutions, particularly larger banks that often fail to provide competitive returns for consumers.
As legislators work on several drafts of upcoming market structure bills, the topic of rewards offered by crypto exchanges remains in flux. Senator Cynthia Lummis, R-Wyo., who is collaborating with Banking Chair Tim Scott, R-S.C., believes the matter has already been sufficiently addressed. She expressed confidence in the compromise reached between banks and the digital asset sector, stating, “I do not think this issue should be reopened.”
