Synopsis: Banks are urging the US Treasury to impose a total ban on stablecoin yields under the GENIUS Act, while Coinbase argues for narrower issuer-only restrictions to protect innovation and consumer rewards.
The US Treasury is under mounting pressure as banks and crypto companies clash over how to apply the new GENIUS Act. This law, signed by President Donald Trump in July 2025, is the first federal framework for regulating payment stablecoins. It aims to balance innovation with stability and prevent digital tokens from becoming shadow banking tools.
Banking groups want the Treasury to impose a complete ban on stablecoin yields, covering both issuers and intermediaries such as exchanges. In contrast, Coinbase argues for a narrower rule that only applies to stablecoin issuers.
Honestly, the contrast in positions shows how strongly traditional finance and crypto view stablecoins as a battlefield for future payments.
On Tuesday, Coinbase submitted a detailed comment urging the Treasury to limit restrictions strictly to issuers. The company believes this interpretation aligns better with Congress’s intent when passing the GENIUS Act.
On the other hand, the Bank Policy Institute (BPI) and several major banking associations pressed for a blanket approach, calling it essential for protecting the banking system.
The GENIUS Act
The Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act defines payment stablecoins as digital assets backed 1:1 by safe reserves like dollars or Treasury bills. It prohibits issuers from offering any form of yield or interest on users’ holdings, aiming to prevent them from becoming interest-bearing investment tools.
The law’s Section 9 became a flashpoint because it is silent on non-issuers, including exchanges or custodians. This ambiguity opened the door for Coinbase and others to argue for limited oversight. Honestly, that seems reasonable if exchanges merely pass stablecoins between users, should they face the same rules as issuers?
Treasury officials are reviewing hundreds of public comments after the final round closed on November 5, 2025. The outcome will shape not only compliance rules but also how stablecoins integrate into mainstream finance by 2027, when the Act takes effect.
Banks Warn of $6.6 Trillion Outflows
The banking lobby’s case hinges on the risk of massive deposit flight. According to BPI estimates, allowing yield-bearing stablecoins could drain up to $6.6 trillion from traditional deposits roughly a quarter of the US total. That would reduce lending capacity by about $1.5 trillion, hitting small businesses and rural banks hardest.
In their joint letter, BPI and partners argued that failing to act could recreate the instability seen during the 2020 Treasury market turmoil. They warned that exchanges might offer “rewards” programs mimicking yields, undermining the GENIUS Act’s purpose. Their preferred language calls on Treasury to enforce the interest ban across all affiliates, partners, or intermediaries to prevent evasion.
Community banks especially fear being left behind if stablecoin users shift away from deposits. I honestly find their concern valid the cost of losing liquidity could ripple throughout regional economies.
Coinbase Defends Innovation and Consumer Choice
Coinbase, however, insisted that Congress meant the prohibition only for issuers, not for platforms facilitating transactions. Chief Policy Officer Faryar Shirzad argued the company’s Earn program offers “loyalty rewards,” not interest, helping new users adopt safe, regulated stablecoins. A broader ban, Coinbase says, would hurt consumer incentives and push innovation offshore.
The exchange’s argument also rests on practical grounds. Its stablecoin-related revenues reached $355 million in the third quarter, driving its total $1.86 billion revenue up 25 percent from the prior quarter. Coinbase believes overregulation could stifle this growth and contradict US goals of fostering innovation.
Other crypto players, like Circle, have backed the need for clear but balanced rules. Their statements suggest a middle path could preserve stability while keeping the US ahead in digital payments innovation.
Stablecoin Policy
Treasury’s final rules, expected by mid-2026, will determine the industry’s direction. If banks win, stablecoins could remain tightly constrained as non-yielding payment tools. If Coinbase’s camp prevails, exchanges might continue offering rewards that resemble deposit yields in spirit.
Either way, this debate signals a turning point. The US financial system is grappling with how to integrate crypto within its traditional structure without risking instability. Personally, it feels like a defining test whether policymakers can balance innovation with safety, or let old boundaries shape the future of digital finance.
Written By Fazal Ul Vahab C H