Lawmakers Weigh Rewards for Stablecoins, Loophole Debate Intensifies

The passage of the Guiding and Establishing National Innovation for US Stablecoins (GENIUS) Act represents the first comprehensive federal framework for stablecoins.

Adam Willems reports in Wired that it requires issuers to maintain full reserves, submit to audits, and comply with anti-money-laundering obligations; and to reinforce their treatment as “digital cash,” the statute bars stablecoin issuers from paying interest.

But it does not prohibit crypto exchanges from offering rewards to customers who hold stablecoins on their platforms.

Major exchanges, including Coinbase and Kraken, currently advertise annual returns of 4–5.5% on USDC holdings, rates comparable to those of bank savings products.

Banking industry groups argue that this gap creates a regulatory loophole that could divert deposits from insured banks into less-regulated exchanges. Federal Reserve and Treasury research suggests significant shifts into stablecoins could reduce banks’ lending capacity, potentially raising borrowing costs across the economy.

By contrast, crypto advocates frame rewards as a form of market competition that could encourage banks to offer more favorable rates.

The GENIUS Act’s compromise emerged after years of debate. Lawmakers agreed issuers should not pay interest, but exchange-based rewards remained permissible.

Industry figures view this as a partial win, while banking associations signal they will challenge the provision during consideration of the forthcoming CLARITY Act, which aims to regulate blockchain financial markets more broadly.

Early indications suggest that the next round of negotiations may reopen unresolved disputes over the treatment of stablecoins.

The key takeaway for attorneys is that stablecoin regulation remains unsettled and fragmented. Advising clients will require attention to evolving statutory language, the potential reclassification of exchange-based rewards, and the broader implications for deposit insurance, lending markets, and consumer protection.