The debate over stablecoin rewards and bank deposits is becoming one of the key issues surrounding the U.S. crypto market structure legislation.
Coinbase Chief Policy Officer Faryar Shirzad argues that the evidence does not support the American Bankers Association's claim that stablecoin rewards could significantly drain deposits from community banks.
The American Bankers Association (ABA), however, maintains that reward and yield programs could encourage customers to move money away from banks and ultimately reduce lending to local communities.
Coinbase Challenges the Deposit-Flight Argument
Coinbase argues that stablecoin rewards have already existed for several years, providing an opportunity to observe whether they are causing significant deposit outflows.
The company points to community-bank deposits increasing substantially since 2019, despite the growth of stablecoins and reward programs.
Coinbase also cites research from the Council of Economic Advisers, Charles River Associates and academic researchers, which it says found no significant relationship between stablecoin growth and community-bank deposits.
Coinbase’s analysis of stablecoins and community-bank deposits
The argument is also supported by Coinbase's existing USDC rewards program. Coinbase says its rewards are designed to encourage customers to hold USDC, with rewards calculated according to eligible balances.
Banks See a Different Risk
The banking industry strongly disagrees with Coinbase's interpretation.
The ABA argues that stablecoin rewards can function similarly to interest on deposits, potentially creating incentives for consumers to move money from regulated bank accounts to crypto platforms.
In a recent analysis, the ABA examined transaction data from more than 225,000 transactions across 92 community banks. The association said the data showed meaningful links between community-bank customers and crypto platforms and warned that stablecoin rewards could increase deposit migration.
American Bankers Association analysis of stablecoin deposit risks
The banking industry has therefore called for stronger language in the CLARITY Act to ensure that stablecoin issuers, exchanges and affiliated platforms cannot effectively replicate interest payments through rewards programs.
CLARITY Act Becomes the Battleground
The dispute centers on Section 404 of the CLARITY Act, which addresses rewards and yield associated with payment stablecoins.
Banking groups have argued that the legislation needs clearer restrictions on interest-like incentives, while crypto companies argue that overly broad restrictions could prevent legitimate payment-related rewards and limit competition.
The ABA has described its requested changes as targeted refinements rather than an attempt to stop the legislation.
ABA’s latest position on stablecoin rewards
The disagreement is important because Congress is attempting to establish a broader regulatory framework for digital assets while balancing traditional financial institutions against emerging crypto businesses.
Why Stablecoin Rewards Matter
Stablecoins are increasingly being used for payments, trading, settlement, collateral and decentralized finance.
That makes rewards programs different from traditional savings products in the eyes of crypto companies. Coinbase argues that incentives can encourage customers to use stablecoins for payments and other activities rather than simply compensate them for leaving funds idle.
The distinction could become critical as lawmakers determine which types of rewards should remain legal under the new regulatory framework.
At the same time, the ABA argues that allowing platforms to provide economically equivalent rewards could undermine the intended prohibition on stablecoin interest.
A Bigger Competition Between Banks and Crypto
The debate ultimately reflects a broader competition between traditional banking and digital-asset platforms.
Banks rely heavily on deposits to fund mortgages, small-business loans and agricultural lending. Crypto platforms, meanwhile, see stablecoins as a new financial infrastructure layer capable of moving dollars globally and settling transactions around the clock.
The GENIUS Act already established federal rules around payment stablecoins, including restrictions on issuers paying interest or yield directly on stablecoin balances. The remaining question is how broadly those restrictions should apply to rewards offered through exchanges, affiliates and other partners.
Conclusion
The fight over stablecoin rewards is becoming an important test for U.S. crypto regulation.
Coinbase argues that years of stablecoin growth have not produced evidence of widespread community-bank deposit flight, while the ABA says emerging reward programs could eventually put significant pressure on bank funding and local lending.
As Congress works through the CLARITY Act, the final treatment of stablecoin rewards could determine how closely crypto platforms compete with traditional banks—and how quickly stablecoins become part of mainstream U.S. financial infrastructure.
