Treasury Faces Divide Over GENIUS Act & Stablecoin Regulation

Key Takeaways

• Disagreement on the scope of the ban on stablecoin interest payments under the GENIUS Act.
• Coinbase proposes limiting the ban to stablecoin issuers.
• Bank Policy Institute (BPI) advocates for a blanket ban, including non-issuers.
• BPI's concerns about the impact of stablecoin interest payments on deposit outflows.
• Coinbase emphasizes Treasury's obligation to adhere to Congressional intent.

The US Department of the Treasury is grappling with divergent feedback from cryptocurrency firms and traditional banking organizations concerning the execution of the GENIUS Act, legislation designed to govern stablecoin payments within the United States. Coinbase, in a letter issued on Tuesday, urged the Treasury to confine the prohibition on stablecoin interest payments solely to stablecoin issuers, while permitting such payments for non-issuers, such as cryptocurrency exchanges. Coinbase asserted that its proposition aligns with the legislative intent of Congress when enacting the GENIUS Act.

Concurrently, several banking groups, spearheaded by the Bank Policy Institute (BPI), have been pressing the Treasury to extend the prohibition to non-issuers, advocating for a comprehensive ban on stablecoin interest payments. These recommendations were submitted in response to the Treasury’s advance notice of proposed rulemaking (ANPRM), marking the second phase of public commentary on the implementation of the GENIUS Act, which concluded on Tuesday.

BPI: A Vocal Opponent

In a joint announcement released on Wednesday, BPI and several banking groups stated that they urged the Treasury to broaden the ban on stablecoin interest payments to encompass digital asset service providers, including exchanges and their affiliates. “Implement the GENIUS Act’s prohibition on the payment of interest or yield on payment stablecoins [...] whether paid directly by an issuer or indirectly by an issuer’s affiliates or partners,” BPI stated in a separate communication on Tuesday.

This same coalition previously contested the issue in August, arguing that stablecoin interest payments could potentially trigger $6.6 trillion in deposit outflows from the conventional banking system.

"Treasury Has No Authority to Second-Guess Congress’s Work"

According to Coinbase, the Treasury is obligated to follow the congressional intent in implementing the GENIUS Act, including preserving the right of non-issuers to offer interest on stablecoin holdings. “Congress went no further,” Coinbase stated, adding: “It declined to include non-issuer third parties within that prohibition because banning other types of payments on stablecoins across the board would have inhibited growth and innovation of the stablecoin market — contrary to the GENIUS Act’s core purposes.” The exchange concluded: “Treasury has no authority to second-guess Congress’s work.”

In addition to advocating for stablecoin yields, Coinbase called for excluding non-financial software, blockchain validators, and open-source protocols from the GENIUS Act. It also recommended treating payment stablecoins as cash equivalents for tax and accounting purposes.

The GENIUS Act, signed into law in July, is anticipated to take effect either 18 months after enactment or 120 days after relevant federal regulators issue final implementing regulations, likely occurring in late 2026 or January 2027.