Banks Move to Protect 4% Reserve Yields from Stablecoin Competition

Coinbase CEO Brian Armstrong issued a stark warning against attempts to revise U.S. stablecoin legislation, accusing the banking industry of pressuring Congress to stifle competition. In a post on X, Armstrong declared that any effort to reopen the GENIUS Act would cross a “red line.” The act, a result of extensive negotiations, prohibits stablecoin issuers from paying interest directly but carves out a critical allowance for third-party platforms like Coinbase to offer “rewards” to users.

The conflict highlights a fundamental disruption to the traditional banking model. Digital asset analysts point out that banks currently earn approximately 4% on reserves held at the Federal Reserve, a yield rarely passed on to consumers, who often receive interest rates close to zero on savings accounts. Stablecoin platforms threaten this lucrative gap by offering to share a portion of the yield earned on their reserves with customers. Banking lobbyists are reportedly framing their push for amendments as a “safety concern,” a claim crypto proponents argue is unsubstantiated.

Lawmakers Propose $200 Tax Exemption for Stablecoin Payments

While the lobbying battle intensifies, some U.S. lawmakers are simultaneously working to promote the utility of stablecoins. Last week, Representatives Max Miller and Steven Horsford introduced a discussion draft for a bill that would exempt small stablecoin transactions from capital gains taxes. The proposal specifically targets payments of up to $200 made with regulated, dollar-pegged stablecoins, eliminating the need for users to recognize a gain or loss on minor purchases.

This legislative effort aims to reduce the tax burden and transactional friction for using stablecoins in everyday commerce. By making small payments more practical, the bill could significantly boost the adoption and real-world application of stablecoins, positioning them as a viable alternative to traditional payment methods. The proposal also includes provisions allowing taxpayers to defer income recognition on staking and mining rewards for up to five years, further clarifying the tax treatment of digital assets.