Senate Stablecoin Rewards Debate Could Fracture Crypto Industry Unity

The upcoming Senate Banking Committee markup scheduled for January 15 has exposed a critical fault line in cryptocurrency regulation—one that could determine the fate of $6 billion in annual stablecoin rewards. At stake is whether exchanges and platforms can continue offering incentives to users, or if the restrictions imposed on issuers will extend throughout the entire distribution chain.

The controversy stems from the recently enacted GENIUS Act (Public Law 119-27), which established America's first regulatory framework for payment stablecoins. While the law explicitly prohibits stablecoin issuers from paying interest or yield directly to holders, it left a significant question unanswered: can third-party platforms and exchanges offer rewards using their own revenue streams?

The Battle Lines Are Drawn

The CLARITY Act, currently under Senate consideration, will determine how strictly the GENIUS prohibition is enforced. Three distinct types of stablecoin rewards exist in today's market: issuer-paid yield (already banned), platform-funded loyalty programs where exchanges pay from their own margins, and pass-through treasury economics where reserve yields flow through affiliate structures.

Major cryptocurrency exchange Coinbase has signaled it may withdraw support for CLARITY if the legislation moves beyond disclosure requirements to impose substantive restrictions on platform rewards. The company's stance reflects serious financial exposure—Coinbase reported $355 million in stablecoin revenue during Q3 2025, with rewards programs maintaining average USDC balances around $15 billion across its platforms.

Traditional financial institutions are advocating for the closure of what they term the "affiliate loophole." The American Bankers Association, joined by 52 state banking organizations, explicitly urged Congress to clarify that GENIUS prohibitions should extend to partners and affiliates of stablecoin issuers. Their concern centers on deposit disintermediation—the risk that stablecoin rewards will function as de facto interest payments, pulling deposits away from regulated banks.

Standard Chartered has projected that stablecoin adoption could extract $1 trillion from emerging-market bank deposits over approximately three years, with savings usage rising materially by 2028.

The Billion-Dollar Economics

Current market data reveals the enormous economic stakes. At the existing stablecoin supply of approximately $309 billion, annual rewards ranging from 1.5% to 2.5% translate to $4.6 billion to $7.7 billion in annual incentives.

Projections amplify these figures dramatically. Bernstein forecasts total stablecoin supply reaching $420 billion by the end of 2026, which would expand the annual rewards pool to $6.3 billion to $10.5 billion. Stablecoins registered $33 trillion in transaction volume during 2025, up 72% year-over-year, with USDC and Tether accounting for the majority of flows.

What Happens Next

The January 15 markup will reveal congressional intent across four critical dimensions: whether CLARITY imposes disclosure-only requirements or substantive restrictions; whether language targets only issuers or extends to affiliated platforms; whether "reward" definitions capture pass-through economics; and what enforcement mechanisms will look like in practice.

The Blockchain Association-led coalition argues that Congress deliberately distinguished between issuer-paid yield and platform rewards. Their position maintains that the law bans direct issuer payments while preserving the ability of platforms to offer lawful incentives using their own capital. They warn that expanding the ban would reduce competition and inject uncertainty during early implementation.

If the Senate text limits itself to disclosure requirements, exchanges can plausibly maintain rewards programs with transparency. If language tightens into substantive limits, the economics of USDC distribution and on-platform stablecoin balances transform entirely.

The coalition supporting cryptocurrency regulation was built on the premise that clear rules enable innovation. CLARITY's rewards language will test whether that coalition can survive when abstract principles become specific statutory text with billion-dollar implications.

Coinasity's Take

The stablecoin rewards debate exposes a fundamental tension between innovation and traditional finance that regulation cannot easily resolve. While banks frame this as deposit protection, they're fighting to maintain their monopoly on interest-bearing accounts—a privilege generating massive profits from customers' money.

The $6 billion in annual rewards at stake represents genuine value flowing to consumers rather than being captured by financial institutions. The smarter regulatory approach would embrace disclosure requirements while preserving platform autonomy, letting markets decide whether exchange-funded rewards deliver value while ensuring consumers understand what they're getting.