Armstrong's Red Line: "We Won't Let Anyone Reopen GENIUS"
Coinbase CEO Brian Armstrong escalated his fight against banking lobbyists this week, declaring that any attempt to reopen the GENIUS Act would cross a "red line" for the company and the broader crypto industry. The warning came after the American Bankers Association and 52 state banking groups intensified their push to strip stablecoin platforms of the ability to share yield with users.
The GENIUS Act, passed in 2025 after months of negotiation, struck a deliberate compromise: stablecoin issuers like Circle cannot pay interest directly on USDC, but platforms like Coinbase and exchanges can offer rewards to users who hold stablecoins on their platforms. Banks now want to close that loophole entirely, and Armstrong is not having it.
"We won't let anyone reopen GENIUS," Armstrong wrote. He accused banks of engaging in "regulatory capture," using political influence to ban competition rather than competing on merit.
The 4% vs 0.01% Gap Banks Don't Want You to See
The core economics tell the story. Banks currently earn approximately 4% on reserves they park at the Federal Reserve. What do they pass on to retail depositors? Often 0.01% on savings accounts, sometimes as high as 0.5% on promotional high-yield accounts.
Stablecoin platforms threaten that spread. When Coinbase offers 4-5% yield on USDC, or when ether.fi links card spending to DeFi yield, they are sharing revenue that banks have traditionally kept for themselves. The proposed amendment would not just ban issuers from paying interest. It would restrict "rewards" more broadly, cutting off the indirect yield-sharing mechanisms that platforms use to return value to users.
For crypto card holders, this matters directly. The Coinbase Card currently offers up to 4% back in crypto on purchases funded by USDC. If the broader rewards ban passes, that cashback structure could be legally challenged. Cards that link stablecoin spending to yield, like ether.fi's points system or Nexo's interest-bearing accounts, could face similar restrictions.
What the Proposed Amendment Would Actually Change
The current GENIUS Act framework works like this: Circle issues USDC and holds reserves but cannot pay interest on the tokens themselves. Coinbase, as a platform, can offer rewards (effectively sharing revenue from lending or investing those reserves) to users who hold USDC on Coinbase. This is the same model traditional brokerages use with money market funds.
The proposed amendment, pushed by banking lobbyists, would go further. It would restrict "rewards" broadly, not just direct interest payments. This means:
- Coinbase's USDC yield program could be classified as an illegal interest payment
- Exchange-based stablecoin reward programs could be shut down
- Cashback rewards funded by stablecoin reserve yield could face regulatory challenge
- Third-party DeFi yield aggregators could fall into a grey area
Armstrong specifically called out the hypocrisy: banks fought for decades to deregulate their own interest rate offerings, and now they want to use regulation to prevent crypto platforms from doing the same thing.
The White House Meeting and "Win-Win" Signal
On February 12, Armstrong met with White House officials and signaled that a compromise may be achievable. He described the potential outcome as a "win-win" that would advance the President's crypto agenda while addressing bank concerns about deposit flight.
But the optimism comes with caveats. Treasury Secretary Scott Bessent separately called out a "nihilist group in the industry who prefers no regulation over this very good regulation," a comment widely interpreted as directed at firms, including Coinbase, that have stalled the related CLARITY Act over the yield dispute.
Crypto executives and banking chiefs now reportedly have until March 1 to reach an agreement on the broader market structure bill. If they miss the deadline, the legislative window could close entirely, leaving both the GENIUS Act's implementation details and the CLARITY Act's passage in limbo through 2026.
Armstrong's Prediction: Banks Will Flip
Perhaps the most notable part of Armstrong's public stance is his prediction about the endgame. He argues that banks will eventually reverse course entirely.
"The banks will actually flip and be lobbying FOR the ability to pay interest and yield on stablecoins in a few years, once they realize how big the opportunity is for them," Armstrong wrote. "So it's 100% wasted effort on their part, in addition to being unethical."
The logic tracks historically. Banks initially fought against money market funds in the 1970s and 1980s, then adopted them. They fought against online banking, then built digital platforms. They fought against mobile payments, then integrated Apple Pay. Armstrong is betting the same pattern will repeat with stablecoin yield.
For US-based crypto card users, the short-term risk is real. If the broad rewards ban passes, the 4% USDC yield that makes Coinbase's card economics work could disappear overnight. Users in zero-tax jurisdictions would be unaffected by the US regulatory fight, but the precedent could influence global regulators.
What Crypto Card Holders Should Watch
Three outcomes are possible before March 1:
Scenario 1: Compromise. Banks accept the current GENIUS Act framework (no direct issuer interest, but platform rewards allowed). The CLARITY Act passes. Crypto card rewards continue unchanged. This is Armstrong's "win-win" scenario.
Scenario 2: Broad rewards ban passes. Stablecoin yield programs are restricted. Coinbase, Nexo, and yield-linked card programs restructure. Cashback funded by stablecoin reserves may shift to different reward mechanisms. Self-custody cards like Gnosis Pay and Ready would be less affected since they do not rely on centralized yield programs.
Scenario 3: Deadlock continues. No agreement by March 1. CLARITY Act stalls. Regulatory uncertainty persists. Markets stay in limbo. The Fear and Greed Index, already at 9, stays in extreme fear territory.
For card holders, scenario 1 preserves the status quo. Scenario 2 would reshape stablecoin card economics but would not kill the product category. Scenario 3 is the worst outcome for everyone, as prolonged uncertainty discourages new card products from launching and existing programs from expanding.
FAQ
What is the GENIUS Act? The GENIUS Act is 2025 stablecoin legislation that bars stablecoin issuers from paying interest directly on tokens but allows platforms and third parties to offer rewards. Banks are now lobbying to close this distinction by banning all forms of stablecoin yield sharing.
Will my Coinbase card rewards disappear? Not immediately. Even if a broad rewards ban passes, implementation would take months. Coinbase has signaled it will fight any attempt to restrict platform-level rewards. The March 1 negotiation deadline is the next key date to watch.
Why do banks want to ban stablecoin yield? Banks earn approximately 4% on reserves at the Federal Reserve but pass on a fraction to depositors. Stablecoin platforms sharing yield with users threatens this spread, potentially triggering deposit outflows from traditional banks.
How does this affect self-custody cards? Self-custody cards like Gnosis Pay, MetaMask, and Ready do not depend on centralized yield programs. They would be less directly affected by a rewards ban, though broader regulatory uncertainty could still impact the ecosystem.
Overview
Coinbase CEO Brian Armstrong declared reopening the GENIUS Act a "red line," fighting banking lobbyists who want to ban all stablecoin yield sharing, not just direct interest payments. The 4% vs 0.01% yield gap between what banks earn on reserves and what they pay depositors is the economic flashpoint. A March 1 deadline looms for crypto firms and banks to reach agreement, with crypto card rewards, stablecoin spending programs, and the broader CLARITY Act all hanging in the balance.
Recommended Reading
- White House Stablecoin Talks Collapse as Banks Demand a Total Ban on Yield
- White House Stablecoin Yield Showdown: $500B Bank Exodus on the Line
- Gate.io CEO: Banks Lost the War on Stablecoins
