Stablecoins vs. Banks: A Battle for $360 Billion in Revenue

On January 8, Faryar Shirzad, the Chief Policy Officer of Coinbase, in a Twitter thread, claimed that stablecoin rewards were still under scrutiny as Congress reviewed market structure legislation. His message included a shocking truth that financial institutions prefer to keep hidden. US banks generate a staggering $176 billion in annual revenue from the $3 trillion they hold with the Federal Reserve, and also receive $187 billion from card transaction fees. This represents a total revenue of over $360 billion just from payments and deposits, a revenue stream threatened by competitive yields on stablecoins.

The GENIUS Act, signed in July 2025, prohibits stablecoin issuers from paying interest or returns, either directly or indirectly. However, crypto exchanges have found creative ways around these restrictions by offering rewards through affiliate programs, presenting them as loyalty incentives rather than interest. Banking groups have labeled this a glaring loophole. The American Bankers Association, supported by 52 state banking associations, therefore called on Congress on January 6th to extend the ban to all "affiliated entities and partners."

The Hidden Subsidy

Banks will hold $2,9 trillion in reserve balances at the Federal Reserve through the end of 2025. In 2023, the Fed paid $176,8 billion in interest on these reserves, a gross income for the banks before their own funding costs are factored in. Before the 2008 credit crisis, reserve balances were negligible. The Fed's policy, aimed at maintaining "adequate reserves" after quantitative easing, has created a permanent pool of interest-earning deposits that banks can hold with zero credit risk.

The Fed's recent decision to purchase Treasuries indicates that reserve balances are unlikely to decline much further. If stablecoins, funded by the same Treasuries that back the reserves, offer competitive returns, this will create a parallel system where users can earn comparable returns without having their dollars flow through banks' balance sheets. While this doesn't completely eliminate banks' lending capacity, it does shift control over the distribution of returns.

In 2024, the US processed $11,9 trillion in card payment volume, resulting in merchants paying $187,2 billion in acceptance and processing fees. This equates to approximately 1,57% per $100 of spend. According to Nilson Research, the eight largest card issuers account for 90,8% of all Visa, Mastercard, and American Express transactions, while small banks capture only a fraction of this revenue. Debit interchange alone generated $34,1 billion in 2023, with network costs of $12,95 billion. Credit card interchange is even substantially higher.

Stablecoins bypass this infrastructure, as on-chain payments incur a fraction of card network fees. Even if stablecoins capture 5% of card sales volume—approximately $595 billion at current rates—that translates to $9,3 billion in annual savings for merchants. For banks, this translates to $9,3 billion in lost revenue, which becomes more manageable at 10% market share, when the figure rises to $18,6 billion. In the context of the crypto market, stablecoin transaction volume will reach $33 trillion by 2025, outweighing the potential competitive advantage of stablecoins.

Banks claim their resistance stems from concerns about deposit stability, fearing that a rush to stablecoins would undermine their lending capacity. However, research by Charles River Associates, commissioned by Coinbase, showed no significant relationship between the growth of USDC and the deposits of regional banks. Even under the strictest assumptions, these banks would lose less than 1% of their deposits in a base scenario.

Stablecoins generate passive returns, as their issuers hold reserves in government bonds with yields of 3% to 5%. If platforms pass on half of this return as rewards, the payout pool grows proportionally to the outstanding stablecoin supply. With a market capitalization of approximately $307,6 billion, a reward rate of 1,5% to 2,5% yields an annual payout of $4,6 billion to $7,7 billion for the entire sector. If the stablecoin supply rises to $1 trillion, the same calculation results in annual payouts of $15 billion to $25 billion.

These forms of income compete with both low-yield savings accounts and credit card rewards programs, which are always funded by merchant fees. Banks' commitment becomes clearer when we consider this not only from the perspective of deposit stability, but also from the perspective of margin protection.

The GENIUS Act makes it illegal for a payment stablecoin issuer to pay interest, either directly or indirectly, while explicitly mentioning affiliate arrangements. Banks argue that rewards programs run through exchanges violate this provision. Crypto platforms, on the other hand, argue that the law targets issuers, not intermediaries. The Bank Policy Institute advocates for clarification in the market structure legislation to ensure that rewards run through affiliates are considered prohibited returns.

Fed researchers have determined that stablecoins can "reduce, recycle, or restructure" deposits. Banks want this restructuring on their terms: prohibiting them from offering stablecoin rewards while offering their own, bank-issued, tokenized deposits that keep balances within the regulated system. The result? Users receive on-chain dollars, but banks keep the deposits and their associated margins.

However, stablecoin platforms have a different strategy; if the ban on rewards applies only to publishers, exchanges can compete through affiliate revenue, lending capacity, or fees from trading activities. This maintains the attractiveness of stablecoins without publishers having to pay interest directly. If China announces that it will pay interest on the digital yuan, this will lead to direct competition with dollar-denominated stablecoins. If US policy prohibits rewards while foreign digital currencies offer returns, this will have far-reaching consequences for the US's competitive position on the global stage.

Congress's final decision will revolve around the interpretability of the GENIUS Act: a narrow interpretation would protect competition, while a broader interpretation would ensure banks' established margins are safeguarded. This conflict isn't so much about whether stablecoins diminish lending capacity, but about defending a $360 billion revenue stream that could be threatened by the rise of this new financial technology.

Frequently Asked Questions

Why are stablecoin rewards important to the financial ecosystem?
Stablecoin rewards offer users the opportunity to earn returns on their digital assets without the intervention of traditional banks, allowing them to invest their capital more efficiently.

What is the effect of the ban on rewards for stablecoins?
A ban on rewards makes it harder for stablecoins to compete with traditional savings products, potentially reducing their attractiveness to investors and hindering the development of innovative financial services.

How does the market assess the impact of stablecoins on banking revenues?
Market research indicates that stablecoins can significantly contribute to the displacement of traditional banking revenues, particularly by bypassing transaction fees and delivering returns that compete with bank deposits.