The OCC’s new GENIUS Act rules let exchanges like Coinbase and Robinhood keep paying interest-like stablecoin rewards, despite warnings from banks about deposit flight.
TLDR
- Federal regulators have confirmed that crypto exchanges can keep paying interest-like rewards on stablecoin balances.
- Under the OCC’s new GENIUS Act rules, stablecoin issuers like Circle still cannot pay interest to holders directly.
- Exchanges such as Coinbase and Robinhood can pass on earnings from the reserves backing the coins, handled on a case-by-case basis.
- Banking groups and consumer advocates have criticized the decision, warning of deposit flight and a lack of consumer protections.
Crypto companies can keep paying interest-like rewards to customers, according to federal bank regulators. The ruling arrives despite warnings from banks that such programs could pull trillions of dollars out of the banking system.
The decision is part of the rollout of the GENIUS Act, which was signed into law last year to set rules for stablecoin issuers. The Office of the Comptroller of the Currency (OCC) published the new rules on Wednesday.
What the New Rules Allow
Under the OCC’s framework, stablecoin issuers like Circle remain barred from paying interest to people who hold their coins. Exchanges that trade and hold those stablecoins, including Coinbase and Robinhood, can pass earnings from the coins on to customers as interest-like rewards. Regulators said exchanges can do so on a case-by-case basis. Banks had wanted the practice banned outright.
Stablecoins are crypto tokens designed to hold a steady value, typically $1 per coin. They are backed by bank deposits and U.S. Treasuries, which earn interest, and that interest sits at the center of the fight between banks and crypto firms. The industry wants to turn the income from those reserves into a yield for customers.
Why Banks Are Worried About Deposit Flight
Banking groups have pushed for tighter limits because crypto firms often offer higher yields than traditional savings accounts. Coinbase, for example, offers up to 3.5% on USDC balances. The FDIC’s latest figures put the average savings account yield at 0.38%.
If stablecoins and exchanges outcompete banks on yield, customers could shift their savings into crypto, a trend known as deposit flight. The banking industry argues this would reduce banks’ ability to lend and, in a worst-case scenario, cause some to fail. The same issue sparked intense debate when lawmakers drafted the CLARITY Act.
Banks and Consumer Groups Push Back
The American Bankers Association said the decision threatens the funds banks use to make loans that drive the U.S. economy. It argued the rule preserves the status quo for crypto platforms despite Congress’s clear intent to protect local lending.
Consumer advocates have joined banks on this issue, which is unusual. They worry that customers will see crypto rewards as equivalent to bank account interest, even though the crypto world has no equivalent of FDIC deposit insurance. Phillip Basil of Better Markets said the OCC has handed stablecoin issuers a free pass to do the work of banks without the protections that keep the banking system safe.
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