Banks are combating stablecoin rewards to guard a secret $360 billion income machine.
When Coinbase chief coverage officer Faryar Shirzad posted a thread on Jan. 8 warning that stablecoin rewards “stay below debate” as Congress marks up market construction laws, he hooked up numbers that banking teams would reasonably preserve quiet.
US banks earn $176 billion yearly on roughly $3 trillion they park on the Federal Reserve, they usually accumulate one other $187 billion from card swipe charges, practically $1,400 per family.
That is over $360 billion in income from funds and deposits alone, and stablecoins with aggressive yields threaten each streams without delay.
The GENIUS Act, signed in July 2025, bans stablecoin issuers from paying curiosity or yield “straight or not directly.” But, exchanges route rewards by way of affiliate packages, treating them as loyalty incentives reasonably than curiosity.
Banking teams name this a loophole. The American Bankers Affiliation, joined by 52 state banking associations, despatched a letter to Congress on Jan. 6 urging lawmakers to increase the ban to “all affiliated entities and companions.”
The numbers inform a unique story about who really advantages from the present association.
Hidden subsidy
Banks maintain reserve balances with the Federal Reserve totaling $2.9 trillion as of December 2025.
The Fed paid $176.8 billion in curiosity on these reserves in 2023, gross earnings to banks earlier than their very own funding prices. Reserve balances existed in trivial quantities earlier than 2008.
The Fed’s adoption of an “ample reserves” framework after quantitative easing created a everlasting pool of interest-earning deposits that banks can maintain with zero credit score danger.
The Fed’s December 2025 resolution to start buying Treasury payments alerts that reserve balances will not shrink a lot additional.
If stablecoins supply aggressive yields funded by the identical Treasury securities that again reserves, they create a parallel system the place customers can earn related returns with out routing {dollars} by way of financial institution steadiness sheets.
That does not eradicate financial institution lending capability, as stablecoin issuers maintain reserves in Treasury payments and financial institution deposits, but it surely shifts who captures the unfold.
The $187 billion toll sales space
US card funds processed $11.9 trillion in buy quantity in 2024, and retailers paid $187.2 billion in acceptance and processing charges. This suggests a price of about 1.57% per $100 of spending.
Nilson Analysis reveals that the eight largest issuers account for 90.8% of Visa, Mastercard, and American Categorical buy transactions. Neighborhood banks maintain a minor share of this income pool.
Debit interchange alone generated $34.1 billion in 2023, with community charges including one other $12.95 billion. Bank card interchange is considerably larger.
Stablecoins bypass this infrastructure, since on-chain funds price a fraction of card community charges. If stablecoins seize even 5% of card buy quantity, which is roughly $595 billion at present payment charges, that represents $9.3 billion in annual service provider financial savings.
For banks, it is $9.3 billion in foregone income, which doubles to $18.6 billion at 10%.
Stablecoin transaction worth hit $33 trillion in 2025, in keeping with Artemis, which makes the aggressive menace past hypothetical. That is roughly thrice the US card buy quantity.
Most of these transactions happen inside crypto markets, however the infrastructure already handles cost flows at scale.
Banking teams body their opposition as a prudential concern, warning that deposit flight will impair lending.
Charles River Associates, in analysis commissioned by Coinbase, examined this utilizing month-to-month knowledge from 2019 to 2025 and located no statistically vital relationship between USDC progress and neighborhood financial institution deposits.
Even below harsh assumptions, neighborhood banks would lose lower than 1% of deposits in a baseline situation and 6.8% in an excessive case.
Cornell researchers reached the same conclusion: rewards would want to strategy 6% to have an effect on deposits meaningfully. Present packages vary from 1% to three% and are funded by Treasury invoice yields.
That is aggressive with high-yield financial savings however not transformative sufficient to set off mass deposit migration.
Reserve finances scales mechanically
Stablecoins generate yield passively, since issuers maintain reserves in Treasury payments yielding 3% to five%. If platforms cross by way of half of that yield as rewards, the payout pool scales straight with excellent stablecoin provide.
At right this moment’s market cap of roughly $307.6 billion, a 1.5% to 2.5% reward fee implies annual person funds of $4.6 billion to $7.7 billion throughout the trade. If stablecoin provide grows to $1 trillion, the identical math produces $15 billion to $25 billion yearly.
That sort of distribution competes with each low-yield checking balances and bank card rewards packages, finally funded by service provider charges.
Financial institution incentives change into clearer when framed as a protection of margin.
The $176 billion in reserve steadiness curiosity and $187 billion in card charges symbolize income streams that require no lending danger. Reserve balances earn a diffusion over what banks pay depositors, and card charges extract worth from each buy.
Stablecoins compress each margins by introducing competitors on the cost layer and providing customers a direct declare on Treasury yields.
The coverage struggle is not about whether or not stablecoins cut back lending capability. It is about whether or not incumbents can lock in a regulatory benefit that forestalls stablecoins from functioning as substitutes for transaction accounts.
What GENIUS really prohibits
The GENIUS Act makes it illegal for a cost stablecoin issuer to pay curiosity “straight or not directly,” explicitly together with preparations by way of associates.
Banking teams argue that exchange-based reward packages violate this provision. Crypto platforms counter that the statute targets issuers, not intermediaries.
The Financial institution Coverage Institute desires clarifying language in market construction laws to make sure “rewards routed through associates” are handled as prohibited yield.
That place reveals the technique: forestall stablecoins from changing into an alternative choice to interest-bearing accounts by any means. If profitable, stablecoin holders obtain no compensation for the worth their deposits create, at the same time as banks earn 3% to five% on reserve balances.
Aggressive endgame
Fed researchers be aware that stablecoins can “cut back, recycle, or restructure” deposits. Banks need the restructuring on their phrases: forbid stablecoin rewards whereas providing bank-issued tokenized deposits that preserve balances contained in the regulated perimeter.
Customers get on-chain {dollars}. Banks preserve the deposits and the unfold.
Nevertheless, stablecoin platforms have a unique principle. If the yield ban applies solely to issuers, exchanges can compete by way of affiliate income, lending returns, or buying and selling charges. That retains stablecoins engaging with out requiring issuers to pay curiosity straight.
China introduced it’ll pay curiosity on the digital yuan, explicitly competing with dollar-denominated stablecoins. If US coverage bans rewards whereas international digital currencies supply yields, the aggressive implication turns into a nationwide safety concern.
Professional-crypto lawyer John Deaton referred to as a US reward ban “a nationwide safety lure.”
Congress decides whether or not to interpret GENIUS narrowly, making use of it solely to issuers, or broadly, extending it to associates and platforms.
The slim interpretation preserves competitors. The broad interpretation protects incumbent margins.
Banking teams body this as a struggle about deposit stability. The numbers present it is a struggle about $360 billion in income and whether or not stablecoins get an opportunity to compete for it.
