Coinbase has submitted formal feedback to the U.S. Department of the Treasury, urging strict adherence to the original legislative framework of the GENIUS Act. The exchange emphasized that the upcoming regulatory interpretations must remain faithful to the intentions of Congress, particularly in relation to the treatment of stablecoins and the prohibition of interest payments.
The GENIUS Act, enacted in July during the Trump administration, includes a provision that prohibits any authorized or foreign issuer of payment stablecoins from offering interest or yield in any form—be it cash, tokens, or other benefits—linked solely to the holding or usage of such stablecoins. This clause was designed to prevent stablecoins from functioning as de facto interest-bearing investment products, which could blur the lines between banking and digital assets.
Despite this, Coinbase is challenging the way this clause is currently being interpreted. In a detailed letter dated November 4, the company argued that the prohibition should apply strictly to the issuers of the stablecoins—not to third-party platforms like Coinbase that may offer yield through reward or loyalty programs. According to Coinbase, extending the ban to such third-party incentives would misrepresent congressional intent and contradict the plain language of the legislation.
Coinbase warned that a misinterpretation of the GENIUS Act could stifle innovation and consumer benefits. The company noted that loyalty programs and market-driven rewards play a crucial role in lowering transaction costs, increasing merchant adoption, and encouraging the use of regulated U.S. stablecoins. Removing these tools could hinder adoption and reduce the competitiveness of U.S.-based digital payment solutions.
On the other side of the debate, major banking institutions and associations have expressed strong opposition to Coinbase’s stance. Groups such as the American Bankers Association, the Consumer Bankers Association, and the Financial Services Forum have jointly urged the Treasury to adopt a broad interpretation of the interest prohibition. These organizations argue that any indirect or affiliated form of yield—regardless of whether it comes from an issuer or a related party—should be considered within the scope of the ban.
The banking sector’s concern is rooted in financial stability. They contend that permitting stablecoins to offer returns could mislead consumers into viewing them as equivalents to traditional savings accounts. This could prompt a shift of deposits from banks to digital platforms, potentially undermining the banking system’s ability to lend and support the economy.
Coinbase also addressed the issue of taxation in its correspondence with the Treasury. The company advocated for treating stablecoins strictly as payment instruments for tax purposes, rather than as debt instruments or investment vehicles. They argued that categorizing them as debt would introduce unnecessary complexity and hinder the efficient use of stablecoins for everyday transactions. By recognizing them as cash equivalents, regulators could simplify compliance and encourage broader adoption.
This debate underscores deeper questions about how digital assets fit into the existing financial and regulatory framework. Stablecoins, in particular, occupy a unique space: they are not traditional currencies, yet they are designed to maintain a stable value, often pegged to fiat like the U.S. dollar. This dual nature makes them both useful as a means of payment and potentially attractive as an investment—blurring regulatory boundaries.
Furthermore, the outcome of this regulatory interpretation could have far-reaching consequences for the future of decentralized finance (DeFi) in the United States. If the Treasury adopts a strict interpretation aligned with the banking sector’s position, DeFi platforms offering yield on stablecoins may be forced to restructure or shut down certain services. Conversely, a more narrow interpretation might allow innovation to flourish but could increase systemic risks.
In addition, the international implications should not be overlooked. Many non-U.S. stablecoin issuers and crypto platforms are watching closely, as U.S. policy often sets a precedent globally. A restrictive approach may push innovation offshore, while a more flexible stance could position the U.S. as a leader in the next generation of digital finance.
The GENIUS Act and its implementation come at a critical time when central banks, financial institutions, and fintech companies are exploring the role of digital currencies in modern economies. As the lines between banking and blockchain continue to blur, finding the right regulatory balance will be essential for promoting innovation while maintaining consumer protection and financial stability.
Looking ahead, further dialogue between regulators, lawmakers, and industry leaders will be crucial. Coinbase’s proactive engagement with the Treasury signals an industry-wide desire for clear, consistent rules that reflect both the letter and spirit of the law without stifling growth. With the digital asset landscape evolving rapidly, regulatory frameworks must adapt to ensure fair competition, transparency, and trust.
In conclusion, the Treasury’s response to Coinbase’s arguments—and its ultimate interpretation of the GENIUS Act—will likely shape the future of stablecoins in the U.S. financial ecosystem. Whether stablecoins will remain pure payment tools or evolve into interest-bearing digital assets will depend on how regulators interpret and enforce a few critical lines of legislative text. The coming months will reveal whether innovation and regulation can coexist—or collide—in the rapidly transforming world of digital finance.