Cryptocurrency exchange Coinbase has strongly criticized U.S. banking groups for their request to regulators to prohibit merchants from offering rewards, cash back, and discounts to customers who pay with stablecoins, calling the request "against the spirit of America."

The controversy centers on the statutory language of the GENIUS Act, which prohibits stablecoin issuers from providing interest or returns to token holders but does not explicitly extend the ban to cryptocurrency exchanges or affiliated entities.

Banking groups claim that "indirect interest" arises when third parties gain economic benefits and have ties to stablecoin issuers. However, Coinbase's Chief Policy Officer Faryar Shirzad firmly opposed this view in a post on the X platform on Thursday, urging regulators to "stick to the statutory text."

These banking groups seem concerned that the widespread adoption of stablecoins could undermine the banking system, which relies on high-interest savings products to attract deposits to support lending activities.

According to estimates from the U.S. Treasury in April, the widespread adoption of stablecoins could lead to a loss of over $6.6 trillion in deposits from the traditional banking system.

Coinbase believes that stablecoins could cut over $180 billion in card fees that U.S. merchants pay in 2024; however, "big banks" continue to hinder stablecoin innovation, preventing it from challenging traditional payment systems.

Companies like Coinbase benefit from the popularity of stablecoins, as they can earn fees from higher trading volumes on their platforms.

Many cryptocurrency exchanges issue credit cards that incentivize merchant spending with cash back and cryptocurrency rewards—Shirzad is concerned that this model is under threat, but he remains optimistic that "common sense will ultimately prevail."

Related: Bitfarms' stock plummets 18% after announcing a gradual shutdown of its Bitcoin (BTC) mining operations.

Original article: “Coinbase says banning rewards tied to stablecoin payments is ‘un-American’”

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