The cryptocurrency industry is witnessing a major confrontation between trading platforms like Coinbase and traditional American banks. At the heart of the debate: the GENIUS Act and the crucial question of who can offer returns on stablecoins.
The GENIUS Act: A Revolutionary but Controversial Regulation
Signed in July 2025, the Guiding and Establishing National Innovation for U.S. Stablecoins Act (GENIUS Act) marks a historic advancement for digital asset regulation in the United States. This bipartisan legislation establishes the first comprehensive federal framework for « payment stablecoins » – digital assets designed to maintain a 1:1 parity with the US dollar.
Key provisions include the obligation for issuers to maintain equivalent reserves in high-quality liquid assets, publish monthly reports on their reserves, and submit to independent annual audits.
However, Article 4(a)(11) of the GENIUS Act created major controversy by explicitly prohibiting stablecoin issuers from paying interest or yields to holders. This prohibition aims to differentiate stablecoins from traditional bank deposit products and preserve banks’ role in financial intermediation.
Coinbase Exploits a Legal Gray Zone
The GENIUS Act presents a fundamental ambiguity: while the law explicitly prohibits issuers from paying interest, it doesn’t clearly mention third-party platforms such as exchanges. This regulatory gap has allowed Coinbase, Kraken, and other platforms to continue offering « rewards » on USDC deposits held on their platforms.
Until December 2025, Coinbase offered a 4.1% then 3.5% yield on USDC holdings. Following Federal Reserve interest rate cuts, Coinbase modified its policy on December 15, 2025: only paying subscribers to Coinbase One ($4.99/month) can now benefit from a 3.5% yield, while free users no longer receive any rewards.
These programs are funded by interest income generated by stablecoin reserves, invested in short-term assets like US Treasury bonds.
The Lucrative Circle-Coinbase Deal: An Explosive Business Model
The financial relationship between Circle (USDC issuer) and Coinbase perfectly illustrates the economic stakes of this regulatory battle. According to documents filed with the SEC during Circle’s 2025 IPO, the agreement provides a revenue-sharing arrangement particularly advantageous to Coinbase:
- Coinbase retains 100% of interest generated by USDC reserves held directly on its platform
- For USDC held elsewhere, Circle and Coinbase split interest revenue 50/50
The figures are staggering: in Q1 2025, Coinbase received approximately $300 million from Circle, while Circle only recorded $230 million in total net revenue. In other words, Coinbase earned more money from USDC than Circle itself, despite Circle bearing all operational costs.
Coinbase’s market share in USDC holdings has risen from just 5% in 2022 to approximately 20% of all USDC in circulation in 2025, representing about $9 billion in Q3 2025.
Columbia Law School’s Explosive Legal Analysis
An article published by Columbia Law School in December 2025 dropped a bombshell by arguing that the Circle-Coinbase agreement already violates the spirit of the GENIUS Act.
The central argument rests on a subtle interpretation: in Coinbase custodial wallets (where Coinbase holds the private keys), it is legally Coinbase that is the USDC holder, not the end user. Consequently, when Circle pays Coinbase a portion of interest revenue based on the amount of USDC held, Circle is technically paying interest to a stablecoin « holder » – exactly what the GENIUS Act prohibits.
If this interpretation were adopted by regulators, it could force a complete restructuring of the Coinbase-Circle business model, with multi-billion dollar implications for the entire industry.
The Banking Lobby: $6.6 Trillion at Stake
American banking institutions are conducting an intensive lobbying campaign led by the Bank Policy Institute (BPI), the American Bankers Association (ABA), and 52 state banking associations.
The main argument relies on an April 2025 Treasury Department study estimating that interest-bearing stablecoins could lead to up to $6.6 trillion in bank deposit outflows. This figure represents an existential threat to the traditional banking model.
In a joint letter to Congress published in December 2025, banking associations stated that certain platforms « exploit a loophole to offer yield-type incentives on stablecoins, a practice that risks disintermediating basic banking activities, including deposit collection and lending. »
A Federal Reserve study published in December 2025 estimates that for every $100 billion in net deposit outflows, there would be a $60 to $126 billion contraction in bank lending.
Coinbase’s Counter-Offensive: Innovation vs Protectionism
Brian Armstrong, Coinbase CEO, and Faryar Shirzad, Chief Policy Officer, have led a vigorous media counter-offensive. Armstrong called any attempt to modify the GENIUS Act an « absolute red line, » promising total resistance from the crypto industry.
On X (formerly Twitter), Armstrong stated: « I’m impressed by the audacity of banks to lobby so openly against competition. » He predicts that banks will eventually seek authorization to offer interest on stablecoins themselves, revealing the hypocrisy of their current position.
Coinbase published a report in September 2025 titled « Rejecting the Banks’ Deposit Erosion Myth, » which directly contests Treasury projections:
- No significant correlation has been observed between stablecoin adoption and bank deposit flight over the past five years
- Banks currently generate $187 billion in annual revenue from their payment processing monopoly
- Average US savings accounts offer only 0.6% yield, compared to up to 5% on stablecoin platforms
The Chinese Threat: Digital Yuan Strikes Back
The debate takes on a new geopolitical dimension with the People’s Bank of China’s announcement that starting January 1, 2026, Chinese commercial banks will be authorized to pay interest on digital yuan (e-CNY) holdings.
The digital yuan is transitioning from M0 classification (physical currency) to « digital deposit currency, » now benefiting from interest payment calculated according to commercial bank deposit rates and protection from the Chinese deposit insurance system.
Current adoption is already impressive: as of November 30, 2025, the digital yuan had recorded 3.48 billion cumulative transactions worth 16.7 trillion yuan (approximately $2.38 trillion).
Faryar Shirzad warned that the United States risks losing its advantage in the digital financial economy: « Tokenization is the future and the GENIUS Act was a visionary initiative. If this issue is mishandled, it could give our global rivals a significant competitive advantage at the worst possible time. »
The 2025 Stablecoin Market: Explosion in Adoption
The global stablecoin market reached a new all-time high in October 2025, with a total capitalization of $308 billion, marking the 25th consecutive month of expansion.
Tether (USDT) maintains its dominant position with $183.2 billion (59.4% of the market), while USDC demonstrated impressive growth, rising from $44 billion to $70-75 billion in 2025, bringing its market share to 25.5%.
Stablecoins are now massively used for cross-border payments: volumes reached $27.6 trillion in 2024, surpassing the combination of Visa and Mastercard. Over 70% of OTC crypto exchanges in emerging economies are settled in USDT.
According to JPMorgan, stablecoin adoption could generate an additional $1.4 trillion in demand for the US dollar by 2027. Treasury Secretary Scott Bessent stated he considers $2 trillion a « very reasonable figure » for the stablecoin market by 2028.
Conclusion: A Pivotal Moment for Digital Finance
The battle over stablecoin rewards transcends a simple regulatory debate to become a major strategic issue. Three fundamental tensions structure this debate:
- Innovation vs financial stability: crypto platforms argue that restricting rewards handicaps American innovation, while banks fear massive deposit outflows
- Literal interpretation vs legislative intent: the GENIUS Act’s ambiguity creates a legal gray zone exploited by exchanges
- Dollar dominance vs competitiveness: paradoxically, restricting yields could weaken the dollar’s global position against foreign CBDCs
The next 12 to 18 months will be decisive. The finalization of GENIUS Act implementation regulations, Senate negotiations, and the renegotiation of the Circle-Coinbase agreement in 2026 will determine the framework in which the industry will evolve for the next decade.
What is certain: with $308 billion in capitalization and over $8.9 trillion in transactions in H1 2025, stablecoins represent a structural transformation of global payment infrastructure. The question is no longer whether stablecoins will play a central role, but how the United States will regulate this transformation to preserve innovation, financial stability, and international dollar dominance.
