Federal bank regulators have clarified that cryptocurrency companies can continue offering interest-like rewards to customers, despite concerns from traditional banks. The new rules, part of the GENIUS Act implemented last year, allow exchanges like Coinbase and Robinhood to pass along earnings from stablecoins to customers as rewards. However, stablecoin issuers such as Circle remain prohibited from paying interest directly to holders.
The decision comes amid a heated debate between the crypto industry and banks over the potential for stablecoins to siphon deposits away from traditional financial institutions. Stablecoins, which are backed by bank deposits and U.S. Treasuries, earn interest that crypto companies argue should be shared with customers. For instance, Coinbase offers yields of up to 3.5% on USDC balances, significantly higher than the average 0.38% yield on traditional savings accounts.
Banks and consumer advocacy groups have expressed concerns that such high yields could lead to deposit flight, where customers move their savings from banks to crypto platforms. The American Bankers Association warned that this could threaten the funds banks use for lending, potentially harming the U.S. economy. Phillip Basil of Better Markets criticized the OCC's rule, stating it allows stablecoin issuers to operate like banks without the same protections.
The OCC's new rules permit exchanges to offer interest-like rewards on a case-by-case basis, a compromise that falls short of the stricter restrictions banks had sought. The debate highlights the ongoing tension between innovation in the crypto space and the need to safeguard the traditional banking system.