Coinbase CEO Brian Armstrong and other crypto executives took to Capitol Hill this week as part of a regulatory showdown between the industry and banks with potentially trillions at stake.
Banking advocacy groups are urging lawmakers to prohibit crypto exchanges like Coinbase from offering customers rewards that are structured like interest payments banks offer.
“I’m not sure why the banks would want to bring that up again at this point, but they should have to compete on a level playing field in crypto,” Armstrong told CNBC on Wednesday.
Coinbase currently offers a 4.1% reward for those holding USDC stablecoin. Kraken offers a 5.5% on USDC holdings.
Under the recently passed GENIUS Act, customers can’t earn interest on stablecoins, but exchanges can offer rewards.
Bank advocacy groups are warning that allowing the rewards will lead to a rush of customers yanking funds from community banks and putting them into stablecoins or other crypto.
“If people are pulling their deposits out of their bank accounts and transferring them into stablecoin investments, you are effectively neutering, to some degree, the ability of the banks to continue to lend into the real economy and to support and fuel the economic growth,” said John Court, executive vice president at the Bank Policy Institute, an advocacy group representing banks.
The Treasury Borrowing Advisory Committee estimated that $6.6 trillion could go from deposits to stablecoins in an April report.
Armstrong called the argument a “boogeyman.”
“The real reason that they’re bringing this up as an issue is that they’re trying to protect the $180 billion that they made on their payment business,” he said. “This is something that big banks are funding behind the scenes. It’s not small banks whatsoever.”
Following a meeting with Senate Republicans on Wednesday, JPMorgan Chase CEO Jamie Dimon said the subject of stablecoin rewards did not come up, but that regulators need to be thoughtful about any regulations.
“We’re not against crypto,” he said.
The American Bankers Association and state association asked in an August 12 letter for lawmakers to “close this loophole and protect the financial system.”
Crypto groups hit back several days later in their own letter to lawmakers, saying that preventing exchanges from offering rewards “would tilt the playing field in favor of legacy institutions, particularly larger banks, that routinely fail to deliver competitive returns and deprive consumers of meaningful choice.”
While senators have released several drafts of the market structure bill, changes to crypto exchanges offering rewards are still being worked out.
Sen. Cynthia Lummis, R-Wyo., who is working on the bill with Banking Chair Tim Scott, R-S.C., said she believes the issue is 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 in a statement to CNBC. “I do not think this issue should be reopened.”
