The Interest War of Stablecoins: The "Siege" of Traditional Banking and the Breakthrough of the Crypto Industry

Jan 09, 2026 22:49:29

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Author: 100y.eth

Compiled by: Saoirse, Foresight News

According to the GENIUS Act, issuers of stablecoins are prohibited from paying interest to stablecoin holders.

However, currently, Coinbase is offering a 3.35% reward to users holding USDC on its platform. This is possible because the GENIUS Act only prohibits issuers from paying interest and does not impose restrictions on distributors.

Nevertheless, before the relevant committee of the U.S. Senate reviews the Crypto Market Structure Act (which aims to systematize cryptocurrency regulation) on January 15, a debate has fully unfolded around "whether the prohibition on stablecoin interest should extend to the distribution phase."

Strong Opposition from the Banking Sector

The American Bankers Association (ABA) is the main group calling for a complete ban on interest payments for stablecoins. In an open letter released on January 5, the association argued that the interest payment prohibition in the GENIUS Act should not only apply to issuers but should also be broadly interpreted to extend to affiliates. They are pushing to have this interpretation explicitly written into the Crypto Market Structure Act.

Reasons Behind the Banking Sector's Strong Opposition

The banking sector's desire to completely ban interest payments on stablecoins is quite simple:

Concern over the outflow of bank deposits;
A decrease in deposits means a reduction in lending capacity;
Stablecoins are not protected by the Federal Deposit Insurance Corporation (FDIC).

Ultimately, stablecoins threaten the stable and highly profitable business model that the banking industry has relied on for decades.

Counterattack from the Crypto Industry

From the perspective of the crypto industry, the banking sector's move is a major issue. If, due to lobbying pressure from the banking sector, the Crypto Market Structure Act expands the restrictions of the GENIUS Act, it would essentially rewrite and limit the already passed legislation. Unsurprisingly, this action has sparked strong opposition from the crypto industry.

Coinbase's Position

Coinbase's Chief Policy Officer Faryar Shirzad rebutted this, citing relevant research indicating that stablecoins have not had a substantial impact on the outflow of bank deposits. He also referenced news about interest payments on the digital yuan as a new argument in this debate.

Paradigm's Perspective

Alexander Grieve, Vice President of Government Affairs at crypto investment firm Paradigm, offered another perspective. He argued that even allowing interest payments on stablecoins used solely for payment scenarios would effectively amount to a "holding tax" on consumers.

What About China and South Korea?

Although China and South Korea have not advanced their cryptocurrency-related policies as quickly as some other Asian countries, both have recently introduced a series of new measures regarding central bank digital currencies (CBDCs) and stablecoin policies. The policy differences between the two countries regarding interest payments are particularly noteworthy:

The People's Bank of China has decided to pay interest on the digital yuan, treating it the same as regular bank deposits to promote its adoption.

South Korea's policy direction is closer to that of the U.S.: it prohibits issuers from paying interest but does not explicitly ban distributors from doing so.

From a macro perspective, China's aggressive policy stance is understandable. The digital yuan is not a private stablecoin but a legal digital currency issued directly by the central bank. Promoting the digital yuan can both counterbalance the dominance of private platforms like Alipay and WeChat Pay and strengthen a central bank-centered financial system.

Conclusion

New technologies give rise to new industries, and the rise of new industries often poses a threat to traditional industries.

Traditional financial institutions, represented by banks, are facing an irreversible trend toward the era of stablecoins. At this juncture, resisting change is more harmful than beneficial; embracing change and exploring new opportunities is the wiser choice.

In fact, even for existing market participants, the stablecoin industry holds enormous opportunities. Many banks have already begun to proactively position themselves:

Bank of New York Mellon is developing custody services for stablecoin reserves;
Cross River Bank acts as an intermediary for Circle's USDC fiat recharge channels through application programming interfaces (APIs);
JPMorgan is testing tokenized deposit services.

Major card organizations also have vested interests at stake. As on-chain payment volumes continue to grow, traditional card organizations may face shrinkage in their business. However, companies like Visa and Mastercard have not chosen to resist this trend; instead, they actively support stablecoin payment settlements, seeking new development opportunities.

Asset management firms are also entering the fray. Firms like BlackRock are actively promoting the tokenization of various investment funds.

If the banking sector's lobbying ultimately succeeds and a complete ban on stablecoin interest payments is written into the Crypto Market Structure Act, the crypto industry will suffer a severe blow.

As a professional in the crypto industry, I can only hope that the Crypto Market Structure Act will not include provisions that effectively undermine the GENIUS Act.