Coinbase CEO Brian Armstrong and other crypto executives went to Capitol Hill this week for a regulatory showdown with banking advocacy groups. The central point of contention is whether crypto exchanges should be allowed to offer rewards that are structured like the interest payments banks offer.
Banking groups are pushing lawmakers to prohibit these rewards, warning that they could lead to a significant number of customers withdrawing funds from traditional banks and moving them into stablecoins or other crypto assets. John Court, an executive vice president at the Bank Policy Institute, an advocacy group for banks, argued that if people pull their deposits from bank accounts and put them into stablecoins, it would “neuter, to some degree, the ability of the banks to continue to lend into the real economy and to support and fuel the economic growth.” An April report from the Treasury Borrowing Advisory Committee estimated that as much as $6.6 trillion could potentially move from bank deposits to stablecoins.
A Fight Over Deposits and Profits
Coinbase CEO Brian Armstrong called the banks’ argument a “boogeyman.” He argued that the real reason banks are pushing this issue is “they’re trying to protect the $180 billion that they made on their payment business.” He also stated that “This is something that big banks are funding behind the scenes. It’s not small banks whatsoever.”
Currently, Coinbase offers a 4.1% reward for holding USDC stablecoins, while Kraken offers an even higher 5.5%. This is possible under the recently passed GENIUS Act, which prohibits customers from earning interest on stablecoins but still allows for rewards. The American Bankers Association, along with state associations, sent a letter to lawmakers asking them to “close this loophole and protect the financial system.”
In a meeting with Senate Republicans, JPMorgan Chase CEO Jamie Dimon said the issue of stablecoin rewards did not come up, but he added that regulators need to be thoughtful about any new regulations. “We’re not against crypto,” he said. In contrast, crypto groups hit back with their own letter, arguing that preventing exchanges from offering rewards would “tilt the playing field in favor of legacy institutions” and “deprive consumers of meaningful choice.”
The Legislative Outlook
Although senators have released several drafts of a market structure bill, changes to the rules for crypto exchanges offering rewards are still being debated. However, Senator Cynthia Lummis, who is working on the bill, believes the issue is already settled. “The issue was heavily litigated in the GENIUS Act, and I am supportive of the compromise achieved by the banks and the digital asset industry,” she said. “I do not think this issue should be reopened.”
What The Author Thinks
This regulatory battle is a microcosm of the broader conflict between traditional finance and the crypto industry. The banks’ position, while framed as a concern for economic stability, is fundamentally about protecting their long-standing business model from a more efficient and innovative form of competition. The crypto industry’s growth, enabled by technologies that offer higher returns to consumers, is forcing regulators and lawmakers to confront the limitations of existing financial laws. The outcome of this debate will not only shape the crypto market but also signal how ready the U.S. financial system is for a new, digitally-native future. This battle is about far more than just “rewards”; it’s about who gets to control the flow of money in the 21st century.
Featured image credit: Hubert Lamela via Flickr
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