Stablecoin Yield Controversy Intensifies as Treasury Receives Conflicting Guidance on GENIUS Act Implementation
The U.S. Department of the Treasury is navigating a growing rift between cryptocurrency firms and traditional financial institutions over how to enforce the GENIUS Act—a newly enacted law designed to govern the use of payment stablecoins in the United States. At the center of the disagreement is whether interest, or yield, should be permitted on stablecoin holdings.
Crypto exchange Coinbase has taken a firm stance, arguing that the Treasury lacks the authority to reinterpret the legislative framework established by Congress. The company insists that the GENIUS Act was deliberately crafted to prohibit interest payments from stablecoin issuers, but not from third parties such as exchanges or trading platforms. According to Coinbase, extending the ban beyond issuers would contradict the law’s intention to promote stablecoin innovation and broader financial inclusion.
In contrast, banking coalitions led by the Bank Policy Institute (BPI) are urging the Treasury to impose a sweeping ban on all interest payments tied to stablecoins, regardless of who distributes them. In their latest public comment submitted during the Treasury’s advance notice of proposed rulemaking (ANPRM), the BPI called for the ban to apply not only to stablecoin issuers but also to their affiliates, partners, and digital asset platforms.
BPI emphasized that allowing interest on stablecoins—even indirectly—could trigger a massive migration of capital out of traditional banks, estimating potential outflows as high as $6.6 trillion. They contend that such a shift could undermine the stability of the financial system and create an uneven playing field between banks and crypto service providers.
Coinbase, however, maintains that these concerns are overstated and not supported by the legislative text. In its letter to the Treasury, the exchange stated, “Congress chose not to extend the prohibition to non-issuers because doing so would stifle innovation and the development of a competitive stablecoin ecosystem.” Coinbase further argued that limiting the ban to issuers preserves regulatory clarity while allowing non-bank entities to experiment with new business models.
Beyond the interest debate, Coinbase also proposed several additional recommendations for the implementation of the GENIUS Act. These include exempting blockchain validators, non-financial software providers, and open-source protocol developers from regulatory oversight under the Act. The company also called for payment stablecoins to be treated as cash equivalents in accounting and tax frameworks, a move that could simplify financial reporting for companies using stablecoins in their operations.
The Treasury’s current challenge is to reconcile these opposing viewpoints and issue clear regulatory guidance that reflects the intent of Congress while also maintaining financial stability. The GENIUS Act, which became law in July, is scheduled to come into full effect either 18 months after its enactment or 120 days following the publication of final implementing regulations—putting its likely activation date in late 2026 or early 2027.
This regulatory limbo places both traditional financial institutions and digital asset companies in a holding pattern, awaiting formal rules that will shape the future of stablecoins in the U.S. economy.
The debate also underscores the broader struggle between crypto innovation and traditional banking interests. While crypto firms see stablecoins as a tool for democratizing access to financial services and enhancing payment efficiency, banks remain wary of losing their competitive edge and control over deposits.
Regulators will need to tread carefully. A blanket ban on stablecoin interest could drive innovation offshore, pushing U.S.-based crypto firms to more permissive jurisdictions. On the other hand, allowing unrestricted interest could indeed divert massive capital from banks into decentralized finance, with unpredictable consequences.
Some analysts suggest a middle ground could be achieved by implementing tiered regulations based on the type of entity offering the yield, the risk management practices they employ, and the degree of transparency provided to consumers.
Moreover, the GENIUS Act could set a precedent for how digital assets are treated under U.S. law going forward. Its interpretation will likely influence future legislation on stablecoins, central bank digital currencies (CBDCs), and the broader digital asset ecosystem.
As the Treasury prepares to release its final rulemaking, stakeholders across the financial sector will be watching closely. The outcome will help determine whether the U.S. remains a competitive hub for blockchain innovation or cedes leadership to other regions with more flexible regulatory frameworks.
In the meantime, companies like Coinbase continue to campaign for a regulatory environment that fosters innovation while respecting the original legislative intent. Their argument rests on maintaining a balance between flexibility for innovators and safeguards for the financial system—a balance that policymakers must now strike with precision.