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The Stablecoin Loophole
Should Congress pass a law banning “gifts” and “rewards” on payment stablecoins? Yes, says a growing chorus from the banking industry. The so-called GENIUS Act passed last summer banned U.S. payment stablecoin issuers from paying yield, but some crypto partners are offering gifts or rewards. Coinbase, for example, offers certain customers 3.5% in rewards for holding a Circle-issued stablecoin, USDC, on the Coinbase platform.
The GENIUS Act has not gone into effect yet, and final rules haven’t been published. Meanwhile, the American Bankers Association wrote a letter this week to the U.S. Senate urging passage of a law closing the so-called loophole that allows issuers to indirectly fund interest payments through digital asset exchanges and other partners, potentially drawing deposits away from banks. “Without this prohibition, Treasury has estimated that $6.6 trillion in bank deposits are at risk,” the letter said.
A separate report in August 2025, from the Federal Reserve Bank of Kansas City, estimated that by redistributing funding from traditional banks to stablecoin issuers, which are precluded from making loans, lending could be reduced by 50 cents for every $1 equivalent of stablecoin issued. That would be a $325 billion reduction in bank loans.
The crypto industry has disputed the notion that stablecoins threaten credit supply and likened the rewards to airline loyalty points or credit card perks. The Blockchain Association wrote a letter to Congress saying stablecoin rewards programs enable platforms to share value directly with users, helping households benefit from higher interest rates rather than absorbing losses to inflation. “Eliminating or curtailing these programs would take money directly out of consumers’ pockets at a time when Congress is rightly focused on affordability, cost-of-living pressures, and household financial resilience,” the letter said.
Politico reported this week that the U.S. Congress is negotiating a crypto bill for a vote as early as next week. Coinbase and other crypto exchanges remain a powerful force in Washington. Coinbase boasts the venture capitalist Marc Andreessen on its board, along with an advisory council that includes former Congressional representatives and President Donald Trump’s 2024 co-campaign manager, Chris LaCivita.
Rebeca Romero Rainey, the CEO of the Independent Community Bankers of America, speaking at the Banking and Finance Symposium at the University of Mississippi last November, said crypto companies want to pay interest. “The crypto industry wants this greater than anything else. We’re saying, the entire industry is saying, ‘Absolutely not.’”
• Naomi Snyder, editor-in-chief for Bank Director
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