The U.S. Senate Banking Committee is poised to reignite a crucial debate next week concerning stablecoin rewards, as it prepares to mark up new market structure legislation. This unexpected turn reopens a policy area industry participants believed had been settled by the GENIUS Act, introducing significant uncertainty into the framework governing digital assets and potentially reshaping the competitive landscape for stablecoins in payments and onchain commerce.
The Renewed Rewards Debate
The question of whether stablecoin issuers should be permitted to offer rewards, akin to interest on traditional deposits, has resurfaced late in the legislative process. Previously, the GENIUS Act established a framework that allowed for such rewards while implementing necessary guardrails for consumer protection. Reconsidering this stance now risks unraveling earlier compromises and could lead to new provisions restricting rewards, impacting how stablecoins function within the U.S. financial system. The upcoming Senate markup will be pivotal in determining the final language, with a lack of clear consensus among lawmakers raising the specter of late-stage amendments.
Payments, Competition, and Economic Impact
A central argument supporting stablecoin rewards frames the issue primarily as one of competition within the payments sector, rather than financial stability. Industry advocates, such as Faryar Shirzad of Coinbase, contend that stablecoins compete directly with established card networks and other payment rails. Restricting rewards, they argue, could stifle consumer choice and protect the significant revenue streams generated by traditional banks from payment-related activities. Furthermore, claims that stablecoin rewards could drain deposits from community banks have been challenged by empirical research. Studies from Charles River Associates and Cornell University suggest no meaningful correlation between stablecoin growth and community bank deposits, indicating that stablecoins serve different user bases and use cases, with current reward rates far below any thresholds that would materially affect bank lending.
Broader Implications and Future Outlook
Beyond domestic payment dynamics, the stablecoin rewards debate carries geopolitical weight. Limiting rewards in the U.S. could weaken the dollar’s competitiveness in the rapidly evolving landscape of onchain commerce, especially as other nations, like China, explore interest-bearing features for their digital currencies. The Senate Banking Committee’s markup will determine whether the new market structure bill upholds the GENIUS Act's approach to stablecoin rewards or introduces revisions that could profoundly impact the industry. This legislative fragility underscores that even previously addressed issues in digital asset regulation remain subject to change, with wide-ranging implications for the utility, pricing, and adoption of stablecoins in the future.
