• Banking groups push to limit stablecoin rewards while Coinbase challenges the claim that such incentives violate the GENIUS Act.
• Banks fear large deposit outflows as stablecoins grow while crypto firms argue rewards help expand low cost digital payments.
• Regulators face pressure to define stablecoin rules while payment providers await clarity on future reward and fee structures.

Coinbase Institute has criticized banking groups for urging regulators to block merchant rewards for stablecoin users. The dispute centers on how the GENIUS Act applies to stablecoin activity. The Act bans interest for token holders but does not address rewards from exchanges. 

The banking associations are arguing that merchant rewards tied to stablecoin payments are “indirect interest” should be banned. Two problems with this argument: (1) Congress was clear that the GENIUS Act only prohibits interest/yield paid by the issuer, and nothing else; and (2)… pic.twitter.com/SqHawjm0Es

— Faryar Shirzad 🛡️ (@faryarshirzad) November 13, 2025

Banking groups claim indirect interest arises when third parties benefit. Coinbase opposes such an interpretation and advocates a strict interpretation of the statute. The dispute reveals a wider rift between the digital asset companies and the traditional banks.

Regulatory Language Under Scrutiny

Banking groups warn that reward programs could bypass limits set by the GENIUS Act. They argue that incentives may resemble restricted yield. Coinbase maintains that the Act restricts only issuers, not exchanges or affiliated businesses. The company views stablecoin payments as separate from activities that generate interest. 

The issue has grown as stablecoins move into mainstream payments. Regulators now face pressure to clarify rules created before widespread adoption. Their interpretation may shape how payment platforms operate.

Concerns About Deposit Flight

Traditional banks voice concern about major shifts in deposits. Treasury estimates show stablecoins could draw more than $6.6 trillion from bank accounts. Banks argue shrinking deposits could reduce lending capacity. They also claim reward incentives might speed up adoption by lowering costs for users. 

Coinbase asserts stablecoins could cut merchant expenses. US merchants paid more than $180 billion in card fees in 2024. Stablecoin transactions could reduce reliance on established card networks. This debate reflects deeper concerns about competition within the payments landscape.

Impact on Merchant Incentives And Future Outlook

Crypto exchanges issue cards that offer cashback or crypto rewards to increase stablecoin spending. For example Bitget wallet partnered with Mastercard to launch direct access to digital wallets through crypto cards. Banking groups want regulators to limit these incentives. They argue that such programs could act like prohibited returns. 

Coinbase claims restrictions would reduce consumer interest. Merchants may continue paying high fees without alternatives. Consumers may also lose access to flexible digital payment tools. Coinbase recently urged the U.S. Treasury to narrowly interpret the GENIUS Act to protect stablecoin innovation and U.S. competitiveness.

The conflict now influences how exchanges design new products. Market participants expect continued scrutiny as regulators assess the impact of incentives. Industry leaders anticipate extended regulatory discussions. They expect further debate about how stablecoin rules should apply across payment channels. 

Banks will likely defend their existing position in consumer payments. Stablecoin firms plan to press for clearer guidance that supports new technologies. The final approach may influence future adoption patterns across merchants and consumers.