The U.S. Department of the Treasury is currently consulting on the implementation of the GENIUS Act, a piece of legislation that prominently features a prohibition on interest-bearing stablecoins. This aspect of the law has sparked significant debate between key players in the finance and cryptocurrency sectors.
Coinbase, one of the largest cryptocurrency exchanges, has posited that the yields it offers through its “Earn” program should be classified as loyalty rewards rather than interest payments. This interpretation aims to create an exemption that would allow Coinbase to continue offering yields to its customers despite the GENIUS Act’s restrictions. The legislation explicitly states that payment stablecoin issuers cannot pay holders any form of interest or yield related to the holding or use of stablecoins. However, Coinbase argues that since platforms like itself and PayPal are not the issuers of these stablecoins, the prohibition may not apply to their reward programs.
The distinction between issuers and third-party platforms is proving to be complex, as platforms like Coinbase and PayPal share in the financial benefits from stablecoin reserves through revenue-sharing agreements. Despite this, traditional banking institutions, represented by a coalition of banking associations, have voiced their concerns. They assert that any payment of interest or yield, whether direct or through affiliates, should be broadly interpreted under the GENIUS Act, as allowing yields could fundamentally alter the consumer perception of stablecoins from mere payment instruments to investment products. This shift, they warn, might trigger “deposit flight,” which could negatively impact banks’ capabilities to generate credit.
As the consultation continues, the Treasury faces the challenging task of clarifying its stance on how to enforce the prohibition on interest-bearing stablecoins. Any interpretation perceived as favoring crypto platforms could anger traditional financial institutions, which insist that the rules are intended to ensure that stablecoins remain strictly payment vehicles rather than investments.
The dialogue surrounding the taxation of stablecoins adds another layer of complexity. Coinbase has expressed concerns that classifying stablecoins as debt for tax purposes would introduce unnecessary complications. Instead, they advocate for treating stablecoins as cash equivalents to simplify the tax framework.
As this conversation unfolds, the Treasury’s upcoming decisions will have profound implications for the future of stablecoins and the broader cryptocurrency landscape, balancing the interests of traditional banking systems against the innovative pursuits of digital finance platforms.
