Washington's "Stablecoin War": When Banking Giants Encounter 4.1% Rewards, Whose Deposits Will Disappear First?

An underground battle over "Digital Dollar Interest" is unfolding on Capitol Hill. Coinbase CEO Brian Armstrong is personally lobbying lawmakers, solely to preserve a "weapon"—paying users holding USDC stablecoins up to a 4.1% annualized reward. Meanwhile, the banking lobbying groups are attempting to legislate to confiscate this weapon entirely.

This is not just simple industry competition but a critical battle that will determine the future decade of America's financial power structure.

Banks Are Panicking: Deposit Outflows Are About More Than Numbers

The American Bankers Association (ABA) explicitly stated in a public letter on January 5: "If billions of dollars flow out of community banks, small businesses, farmers, and homebuyers in our towns will suffer." They are pushing the Senate Banking Committee to expand the scope of the GENUIS Act ban, not only prohibiting stablecoin issuers like Circle from paying interest but also including exchanges, brokers, and related institutions like Coinbase.

The logic of the banking industry is straightforward:

• Stablecoin rewards (4.1%) > Bank deposit interest rates (average 0.45%)

• Moving deposits → Reduced bank lending capacity → Harm to local economies

• Stablecoins lack FDIC insurance, increasing systemic risk

But Coinbase’s Chief Policy Officer Faryar Shirzad presented counter-data: stablecoins have not caused substantial outflows from bank deposits. Interestingly, he cited the example of digital renminbi paying interest—while China’s central bank considers paying interest on digital currency, the US is trying to ban it. Isn’t this a "voluntary relinquishment of dollar hegemony" in the competition for global dominance?

Coinbase’s Strategic Play: Rewards Are More Than Marketing, They Are an Ecosystem Moat

According to BlockBeats, Armstrong explicitly stated during the earnings call: "We are not an issuer, and what we pay is not interest, but rewards." This subtle legal wording is central to Coinbase’s strategic layout.

Currently, Coinbase offers a 4.1% annualized yield on USDC deposits for US users, while PayPal’s PYUSD also offers a 3.7% return. These rewards have become a "nuclear weapon" for user growth—during crypto market downturns, stablecoin rewards contribute significantly to platform stickiness.

Data shows USDC currently holds about 25% market share, far behind USDT’s 65%, but leading in compliance and institutional adoption. If rewards are banned, USDC’s differentiated advantage will vanish. More critically, Coinbase has applied for a federal trust bank license; once approved, even under strict legislation, it could continue offering rewards as a "regulated financial institution."

This is a clever "two-pronged" game: on one hand, obtaining licenses for compliance; on the other, lobbying to buy time.

Market Landscape: The Life-and-Death Race of the Stablecoin Triumvirate

According to Bernstein’s latest report, the stablecoin market could reach $4 trillion by 2026. The current landscape is:

• USDT (Tether): 65% share, the "wild growth" king, but facing US regulatory pressure

• USDC (Circle/Coinbase): 25% share, the leading player in the "compliance camp," with rewards as a key growth engine

• Decentralized stablecoins (DAI, etc.): about 7% share, introducing off-chain yields via RWA (real-world assets), projected to reach 18-28% by 2026

If the US Congress ultimately passes an amendment banning stablecoin rewards:

• USDT, registered abroad, may continue "playing the edges"

• USDC will lose its most important user growth tool, with market share stagnating

• Decentralized stablecoins might unexpectedly benefit, becoming a new safe haven for "yield seekers"

But a more likely outcome is a "compromise": allowing only licensed financial institutions to offer rewards. This would fully integrate stablecoins into the traditional banking system, raising entry barriers and reinforcing the dominance of Circle + Coinbase.

The Butterfly Effect in 2026: The Fed’s "Three-Piece Suite" Meets Crypto Yields

It’s noteworthy that this stablecoin battle coincides with a critical period of the Federal Reserve’s shift in interest rate policy. According to the previously shared 2025 Fed rate adjustment mechanism—the reserve balance rate (main tool) + overnight reverse repurchase agreements (floor) + standing repurchase agreements (upper limit)—the system makes liquidity management more precise.

In today’s environment, the Fed’s interest rate policy directly impacts the underlying yields of stablecoins. USDC’s 4.1% reward is not arbitrary but derived from the returns on its reserve assets (mainly US Treasuries). The $6.63 billion net inflow into Bitcoin ETFs over five weeks in 2025 indicates traditional financial capital is flowing into crypto through compliant channels.

When bank deposit rates are suppressed by Fed policies and stablecoins offer market-based yields, the flow of funds is already predetermined. The real fear of banking lobbies is not short-term deposit outflows but losing monopoly control over the monetary transmission mechanism.

Regulatory Crossroads: The Three Dilemmas of US Crypto Policy

The Senate Banking Committee faces a decision revealing the core contradictions of US crypto regulation:

1. Protect consumers vs. stifle innovation: Banning rewards may seem to protect depositors but could push users toward more lax overseas platforms

2. Maintain the banking system vs. embrace technological change: Clinging to traditional deposit models might cause the US to fall behind in digital currency competition

3. Dollar hegemony vs. decentralization vision: Who will be the future carrier of the dollar—CBDC (central bank digital currency) or stablecoins?

Armstrong’s remark "We’d rather have no bill than a bad bill" exposes the industry’s sentiment. Chairman Tim Scott’s delay in bill review also indicates Washington’s awareness of the long-term costs of hasty legislation.

Conclusion: The 4.1% Reward and the Democratization of Finance

The core of this controversy is whether financial power should continue to be monopolized by traditional banks. When Coinbase offers a 4.1% reward, allowing users to directly benefit from reserve asset yields, it is effectively doing what banks should do but often don’t—returning interest to depositors.

Banks’ real concern isn’t risk but competition; Congress’s hesitation isn’t regulation but stance. As the global crypto market reclaims $2 trillion in market cap and Bitcoin approaches $100,000 again, the US must decide: pursue a more open financial future or maintain a closed privileged system?

What are your thoughts on this stablecoin reward battle? Do you think Coinbase’s 4.1% reward should be banned? Feel free to leave a comment below and join us in exploring the potential of cryptocurrencies to reshape financial power!

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Disclaimer: This content is based on publicly available information and does not constitute investment advice. Cryptocurrency markets are highly volatile; please assess risks rationally. #COINBASE $BTC