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Brian Armstrong, the CEO of Coinbase, emphasized the importance of introducing interest-bearing stablecoins during a recent discussion on CNBC’s “Money Movers.” This conversation comes ahead of the House Financial Services Committee’s markup of proposed stablecoin legislation.
Armstrong advocated for stablecoins to provide interest to their holders, arguing that both banks and cryptocurrency companies should have the ability to offer this feature. He pointed out the disparity between the meager interest rates many Americans receive from traditional savings accounts—approximately 0.14%—and the much higher rates available on U.S. Treasurys, which can reach around 4.5%. In his view, the lack of interest-bearing options in stablecoins is unjust, especially when savings instruments are being outperformed by government securities.
“While we support the draft bill working its way through the Senate, I am concerned about the stipulation preventing consumers from earning interest on stablecoins,” Armstrong stated. He hopes to see changes in legislation that would allow for interest accrual on these digital assets.
The House’s proposed STABLE (Stablecoin Transparency and Accountability for a Better Ledger Economy) Act explicitly states that stablecoin issuers “may not pay interest or yield to holders.” A similar approach is reflected in the Senate’s GENIUS (Guiding and Establishing National Innovation for U.S. Stablecoins) Act, which also restricts payment of yield or interest for defined “payment stablecoins.” This Senate bill was approved earlier in the year.
Armstrong elaborated further on his thoughts through a detailed post on his account on X. He noted, “Current regulations do not allow stablecoins to pay interest like traditional savings accounts without cumbersome disclosure and tax consequences imposed by securities laws.” He believes that stablecoins should function similarly to regular savings accounts in this regard.
Implications for Profit Distribution
Stablecoins such as Tether (USDT) and USD Coin (USDC) are designed to be backed one-for-one by the U.S. dollar. Their issuers typically maintain reserves in cash and short-term Treasury securities. These assets have historically served as a conduit for traders navigating between conventional financial systems and cryptocurrency platforms, prompting significant scrutiny from market participants looking for trends in demand and liquidity.
In recent times, the role of stablecoins has expanded, especially regarding the interest they can offer users. However, this interest is often provided by exchange platforms like Coinbase or wallet services rather than the stablecoin issuers directly.
Coinbase is collaborating with Circle, the issuer behind USDC, to share 50% of the revenue generated from USDC. In its initial public offering prospectus filed with the SEC, Circle echoed Armstrong’s concerns over regulatory ambiguity, stating that absent clear federal guidelines, there is a risk that stablecoins may be classified as securities, leading to stricter regulatory measures.
The SEC typically categorizes assets as securities when there is an intention to profit from the efforts of others, imposing more stringent compliance and regulatory costs on companies involved.
Ben Kurland, the CEO of DYOR, a cryptocurrency research platform, noted that allowing issuers to pay interest would significantly alter the dynamics of profit distribution within the crypto ecosystem. He pointed out that exchanges currently reap considerable yields from stablecoin deposits whereas if issuers began to pay interest directly, it would benefit consumers more directly and reduce the profit margins of intermediary platforms.
Rapid Growth of Yield-Bearing Stablecoins
“The landscape for yield-bearing stablecoins has been witnessing exponential growth after the U.S. elections, with the largest five exceeding a $13 billion market cap, representing about 6% of the entire stablecoin market,” wrote JPMorgan’s Nikolaos Panigirtzoglou in a recent report.
He also speculated that yield-bearing stablecoins may ultimately absorb a larger share of the “idle cash” currently held in traditional stablecoins, though he predicts this will not exceed 50% of the total stablecoin market capitalization.
“Existing stablecoin issuers like USDT and USDC do not distribute reserve yields back to users, which could drastically diminish their profits. More crucially, doing so may classify stablecoins as securities, thus exposing them to additional regulations that would complicate their current operation within the cryptocurrency market,” he added.
—CNBC’s Michael Bloom contributed reporting
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