Coinbase Reconsiders Support for Key Crypto Bill Amid Stablecoin Reward Debate
As the January 15 deadline approaches for the crypto market structure bill, known as the CLARITY Act, Coinbase (COIN) is reportedly re-evaluating its backing for the proposed legislation. This potential shift in support underscores a deepening divide over how stablecoin incentives will be regulated, with significant implications for both crypto platforms and traditional banking.
High Stakes for Coinbase in Regulatory Showdown
The CLARITY Act is slated for markup in a Senate committee this Thursday. Coinbase's reconsideration is tied to whether the bill will extend beyond enhanced disclosure requirements for stablecoin rewards. Sources close to the exchange indicate that Coinbase might withdraw its support if the legislation deviates too much from its core interests, particularly concerning stablecoin incentives. There's a prevailing concern among some insiders that the bill could restrict crypto platforms from offering rewards, a move that would align with the banking sector's long-standing fears of losing deposits to digital asset platforms. Currently, Coinbase holds applications for a national trust charter that would enable it to offer these reward programs under regulatory oversight. However, many crypto-native firms are actively opposing such potential restrictions, arguing they could stifle market competition. Rewards programs are a crucial component of Coinbase's business model, with the exchange notably offering 3.5% rewards on Circle's USDC holdings. Should the bill introduce bans on these incentives, it could deter users from holding stablecoins on the platform, potentially jeopardizing a projected $1.3 billion revenue stream for Coinbase in 2025.
Banking Industry vs. Crypto Innovation: A Clash Over Stablecoins
The debate intensifies with the banking industry's concerns about the impact of crypto rewards on traditional finance. While the GENIUS Act, enacted last July, prevents stablecoin issuers from offering interest on token holdings, it doesn't currently bar third-party partners like Coinbase from providing rewards linked to customer balances. Banks, however, contend that allowing exchanges to offer such rewards could negatively affect bank deposits and, consequently, community lending, potentially diverting billions from local lending and harming small businesses and households. Conversely, Faryar Shirzad, Coinbase’s chief policy officer, argues that maintaining stablecoin rewards is vital for preserving the U.S. dollar's global dominance, especially given moves by countries like China to offer interest on their digital currencies. A potential compromise under discussion could limit the provision of stablecoin rewards exclusively to licensed banking entities or established financial institutions. Such restrictions could compel crypto firms to devise innovative workarounds to continue rewarding their customers, further highlighting the industry's dynamic response to evolving regulatory landscapes.
