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Regulators Under Pressure
Coinbase has pushed back hard against U.S. banking groups that are urging financial regulators to ban merchant rewards, cashback and discounts linked to stablecoin payments. The request, which banking lobbyists sent to regulators this week, claims merchant incentives tied to stablecoins may indirectly violate the GENIUS Act — a newly established stablecoin framework that prohibits issuers from offering interest or yield.
However, the Coinbase Institute argues the banks’ reasoning is flimsy and rooted in self-preservation, not consumer protection. According to Coinbase, the lobbying groups are stretching the law far beyond its intended scope, using the GENIUS Act as a weapon to slow the rapid rise of stablecoin adoption.
GENIUS Act Dispute
The core of the dispute revolves around the statutory language of the GENIUS Act. The law clearly prohibits stablecoin issuers themselves from offering interest, yield or rewards to token holders. But nowhere does the statute suggest that crypto exchanges, merchants, or third-party businesses cannot provide incentives such as cashbacks or discounts for using stablecoins.
Banking groups insist that rewards offered by merchants or exchanges create an “indirect interest,” effectively circumventing the prohibition. Coinbase strongly rejects this interpretation. In a post on X, Coinbase’s Chief Policy Officer Faryar Shirzad called the argument “baseless” and urged regulators to “stick to the statutory text.”
He argued that the banks are attempting to expand regulatory power far beyond what Congress intended, simply to restrict consumer choice and protect their own business models.
‘Un-American’ Restrictions
Shirzad went further, calling the push from banking lobbyists distinctly “un-American.”
According to him, telling people what they can and cannot do with their own money — after a stablecoin has already been issued and purchased — is a direct attack on personal financial freedom.
“There is something un-American about bank lobbyists pressing regulators to tell stablecoin customers what they can and cannot do with their own money after it is issued,” he said.
Coinbase argues that stablecoins are being unfairly singled out, while traditional banks continue offering rewards programs, credit card incentives, and deposit bonuses without scrutiny. The company emphasized that merchant rewards, stablecoin cashbacks, and crypto payments play a crucial role in driving innovation and competition in the U.S. financial system.
Banking Sector Fears
The sharp reaction from banking groups seems to stem from their growing concern over stablecoin adoption. According to U.S. Treasury estimates, widespread stablecoin usage could strip over $6.6 trillion in deposits from the traditional banking system. Banks rely heavily on deposits to fund loans, and a massive shift toward stablecoins could weaken their core business model.
In addition, stablecoins pose a threat to the credit card ecosystem, where U.S. merchants paid over $180 billion in card fees in 2024 alone. Stablecoin transactions — especially those built on fast, low-cost networks — could drastically reduce or even eliminate those fees. Coinbase highlighted this as a major benefit for merchants, but one that “big banks are desperate to prevent.”
Payments System at Stake
Coinbase argues that banning or restricting stablecoin rewards would hurt not just crypto users, but U.S. merchants and the broader economy.
If third parties cannot offer cashback or discounts, consumers will be less inclined to shift from traditional payment rails — dominated by banks and card networks — to lower-cost stablecoin systems.
This would effectively cement the dominance of expensive card-based payments and stop merchants from adopting crypto payments that reduce fees and settlement delays. Coinbase insists that innovation should not be halted simply because banks are uncomfortable with competition.
Exchange Incentives Threatened
Centralized exchanges like Coinbase benefit significantly from stablecoin usage. Increased stablecoin payments often translate into higher trading volumes, on-chain activity, and broader consumer engagement. Many exchanges also offer crypto debit cards or cashback incentives, helping merchants accept digital assets while rewarding consumers with crypto payouts.
Shirzad warned that the banking groups’ proposal could threaten these rewards, making stablecoins less appealing and stalling adoption. Still, he expressed optimism that regulators would not overreach:
He believes “common sense will prevail,” and that financial innovation should not be suppressed under the guise of misinterpreting the law.
Innovation Versus Entrenchment
The broader fight reflects a historic clash between crypto innovation and entrenched financial interests. Stablecoins — fast, programmable, and globally accessible — offer a genuine challenge to traditional banking and payments infrastructure. As stablecoin usage rises, banks face mounting pressure to compete.
Coinbase’s response underscores a fundamental point: if U.S. regulators allow banking lobbyists to block stablecoin rewards, the country risks slowing adoption of digital assets and losing its competitive edge to jurisdictions that welcome payment innovation.
Future Outlook
The debate over stablecoin rewards is far from over. Regulators must now interpret the GENIUS Act and decide whether banking lobbyists’ concerns hold weight — or whether Coinbase is right in saying the request is simply an attempt to maintain control over America’s payments system.
For now, Coinbase is clearly ready to fight back, framing the issue not just as a technical regulatory dispute, but as an ideological battle over financial freedom, competition, and consumer rights.