Banks Push Back Against Stablecoin Rewards to Safeguard Revenue
U.S. banks are actively opposing stablecoin rewards, likely to protect their substantial revenue stream. Faryar Shirzad, Coinbase’s chief policy officer, recently remarked on Twitter that discussions surrounding stablecoin rewards are ongoing as Congress deliberates on market structure legislation. He also shared figures that may be uncomfortable for banking institutions.
These banks reportedly generate around $176 billion annually from the approximately $3 trillion they hold in deposits at the Federal Reserve. Additionally, they bring in another $187 billion through card transaction fees, amounting to nearly $1,400 for each household. Altogether, this results in over $360 billion in revenue from deposits and payments, both of which could be threatened by the emergence of stablecoins with attractive yields.
The GENIUS Act, enacted in July 2025, makes it illegal for stablecoin issuers to offer interest or yield, directly or indirectly. Yet, exchanges have found ways to provide rewards through affiliate programs, portraying them more as loyalty incentives than traditional interest.
Banking organizations, like the American Bankers Association—with 52 affiliated state banking associations—view this as a significant loophole. They sent a letter to Congress on January 6, urging legislators to expand this ban to encompass all related entities.
Understanding the Revenue Landscape
Banks currently maintain around $2.9 trillion in reserve balances at the Federal Reserve, an increase from negligible amounts before 2008. Given the Fed’s transition to a “deep reserve” strategy following quantitative easing, there’s a steadily available pool of interest-bearing deposits that banks can use without credit risk.
The Fed’s recent purchases of Treasury bills indicate that these reserve balances won’t likely diminish anytime soon. If stablecoins are backed by similar Treasury bills and offer competitive yields, they may create a parallel financial system. This means users could potentially earn similar rewards without having their money tied up in bank accounts. While this doesn’t entirely impact banks’ lending capabilities, it does shift who manages the yield spread.
The Impact of Card Payment Fees
In 2024, card payments in the U.S. are projected to reach $11.9 trillion, resulting in about $187.2 billion paid in receiving and processing fees by merchants. This translates to approximately 1.57% of every $100 spent. Notably, eight major issuers dominate the market, accounting for nearly 90.8% of Visa, Mastercard, and American Express transactions.
Stablecoin transactions could potentially bypass this existing infrastructure, which is important considering that if stablecoins captured just 5% of card purchases, it could save merchants $9.3 billion annually. For banks, that represents lost revenue of around $9.3 billion, doubling at a 10% capture rate.
Regulatory Concerns
Research suggests that stablecoin transaction volumes might surge to $33 trillion by 2025, emphasizing their competitive threat. Many of these transactions will likely occur within the crypto sphere, but the relevant infrastructure is gearing up for high-volume payment flows.
Banking groups claim that the rising use of stablecoins poses health-related concerns and could lead to deposit flight, which would hamper lending. However, research indicates that there’s no significant statistical correlation between stablecoin growth and regional bank deposits. In extreme scenarios, community banks could lose less than 6.8% of their deposits, even under stringent conditions.
Other studies echo this sentiment, with findings suggesting that rewards need to be close to 6% to significantly impact deposits. Currently, reward programs typically offer 1% to 3%, funded by Treasury yields, which isn’t quite enough to drive mass withdrawal from traditional banks.
The Mechanics of Stablecoin Yields
Stablecoins generate passive yields since the issuer retains Treasury bills yielding between 3% to 5%. As the platform allocates a portion of that yield back to users, the reward pool could increase proportionally to the stablecoin supply. At a market cap of about $307.6 billion, a compensation rate of 1.5% to 2.5% could mean total industry payouts of up to $7.7 billion a year. Should the backing stablecoin supply expand to $1 trillion, annual payouts might reach between $15 billion and $25 billion.
This direct yield distribution competes with standard low-yield checking accounts and credit card rewards, which mainly derive their funds from merchant fees.
Underlying this conflict is the banks’ desire to safeguard their margins. The income from $176 billion in reserve interest and $187 billion in transaction fees presents a risk-free revenue source, and any competition that threatens this could significantly impact their profits.
Legal Frameworks and Future Implications
The GENIUS Act explicitly prohibits stablecoin issuers from paying interest, encompassing a wide variety of affiliate arrangements. Banking groups allege that programs providing rewards through exchanges breach this legislation, while crypto platforms argue that the law targets issuers and not intermediaries.
While banking advocates see this as crucial for maintaining deposit stability, it’s evident that the stakes are much higher—a fight over a vast $360 billion revenue stream tied to stablecoin competition.
With discussions in Congress set to determine whether the GENIUS Act should be interpreted narrowly or broadly, the outcome could have profound implications for the future of stablecoins and their role in the financial ecosystem.
