A growing battle over the future of digital money is taking shape in Washington, and Coinbase CEO Brian Armstrong is making it clear that the crypto industry is prepared to push back. As discussions quietly resurface around the GENIUS Act, one of the key legislative proposals governing stablecoins in the United States, Armstrong has publicly labeled certain potential changes a “red line,” warning that they represent an aggressive attempt by traditional banks to undermine a rapidly growing competitor rather than a genuine effort to improve financial safety.
At the heart of the dispute is a long-standing restriction in current legislative drafts that prevents stablecoin issuers, such as the companies behind USDC, from paying interest directly to token holders. While that rule remains in place, crypto platforms and fintech intermediaries have found ways to share yield with users through reward programs funded by reserves and treasury exposure. This model has proven popular, particularly at a time when interest rates remain elevated and consumers are increasingly sensitive to the opportunity cost of idle cash.
Traditional banks see this as an existential threat. Banks typically earn meaningful returns by placing customer deposits into safe assets, including reserves held at the Federal Reserve that currently yield around four percent. Yet most retail savers receive little to no interest on standard accounts. Stablecoin-based platforms, operating with lower overhead and modern infrastructure, can pass a portion of that yield back to users, making digital dollars more attractive than traditional deposits for everyday savings and payments.
Industry analysts like Max Avery of Digital Ascension Group argue that this economic imbalance explains the intensity of bank lobbying efforts. According to Avery, banks are pushing lawmakers to close not only direct interest payments by issuers but also indirect reward programs offered by platforms. Framed publicly as measures to protect consumers and preserve deposit stability, these proposals would effectively eliminate one of the strongest value propositions in the stablecoin ecosystem.
Armstrong has been unusually blunt in his response. He has described the lobbying campaign as an open attempt to use Congress to stifle competition, noting that the same institutions calling stablecoins unsafe continue to benefit from regulatory protections while offering minimal returns to customers. From his perspective, the fight goes far beyond crypto and cuts across the entire fintech sector, threatening innovation in payments, savings, and programmable money.
In a striking prediction, Armstrong suggests that the current resistance from banks is short-sighted. He believes that once traditional institutions fully grasp the efficiency and global reach of stablecoins, they will reverse course and lobby for the right to issue yield-bearing digital dollars themselves. If that happens, he argues, today’s effort to block rewards will be remembered as a costly and unnecessary delay in financial modernization.
Adding to the complexity is a clear split among U.S. lawmakers. While some legislators, influenced by banking interests, are seeking tighter restrictions on stablecoin usage, others are moving in the opposite direction. A recent discussion draft introduced in Congress proposes exempting small stablecoin transactions, up to 200 dollars, from capital gains taxes. The aim is to encourage stablecoins as practical payment tools rather than speculative assets, signaling that not all policymakers see digital dollars as a threat.
For the market, the outcome of this debate could shape how billions of dollars move through the financial system over the next decade. A ban on stablecoin rewards would likely slow adoption and entrench existing banking models, while a more permissive framework could accelerate the shift toward on-chain payments and yield-sharing financial products. Technologically, the stakes involve more than interest rates, touching on open access, financial inclusion, and the ability to build global payment rails without traditional gatekeepers.
As the regulatory tug-of-war intensifies, Armstrong’s warning underscores a broader truth: stablecoins have moved from the fringes of crypto into the center of policy discussions about money itself. Whether banks succeed in preserving the status quo or are forced to adapt to a more competitive landscape will help define the next chapter of digital finance, and the decisions made in Washington now may determine who controls the dollar in its digital form tomorrow.
