Banks are fighting stablecoin rewards to protect a secret $360 billion revenue machine.
When Coinbase chief policy officer Faryar Shirzad posted a thread on Jan. 8 warning that stablecoin rewards “remain up for debate” as Congress tightens market structure legislation, he included figures that banking groups would prefer to keep quiet.
U.S. banks make $176 billion annually of the roughly $3 trillion they park at the Federal Reserve, and they collect another $187 billion in card scanning fees, nearly $1,400 per household.
That’s more than $360 billion in revenue from payments and deposits alone, and stablecoins with competitive returns threaten both streams simultaneously.
The GENIUS Act, signed into law in July 2025, prohibits stablecoin issuers from paying interest or earning returns “directly or indirectly.” Yet exchanges route rewards through affiliate programs, treating them as loyalty incentives rather than interest.
Banking groups call this a loophole. The American Bankers Association, along with 52 state bank associations, sent a letter to Congress on Jan. 6 urging lawmakers to expand the ban to “all affiliates and partners.”
The figures tell a different story about who actually benefits from the current scheme.
Hidden subsidy
Banks maintain reserve balances with the Federal Reserve totaling $2.9 trillion as of December 2025.
The Fed paid $176.8 billion in interest on these reserves in 2023, gross revenues to the banks before their own borrowing costs. Before 2008, reserves existed in trivial quantities.
The Fed’s introduction of an “extensive reserves” framework following quantitative easing has created a permanent pool of interest-bearing deposits that banks can hold without any credit risk.
The Fed’s decision in December 2025 to begin purchasing government bonds indicates that reserves will not shrink much further.
If stablecoins offer competitive returns funded by the same government bonds backing the reserves, they create a parallel system in which users can earn similar returns without routing dollars through bank balance sheets.
That doesn’t take away the lending capacity of banks, as stablecoin issuers hold reserves in government bonds and bank deposits, but it does change who picks up the spread.
The $187 billion toll booth
U.S. card payments processed $11.9 trillion in purchase volume in 2024, and merchants paid $187.2 billion in acceptance and processing fees. This implies a cost of approximately 1.57% per $100 of spend.
Nilson Research shows that the eight largest issuers are responsible for 90.8% of Visa, Mastercard and American Express purchase transactions. Community banks control a small portion of this revenue pool.
Debit traffic alone generated $34.1 billion in 2023, while network costs added another $12.95 billion. The number of credit card exchanges is significantly higher.
Stablecoins bypass this infrastructure because on-chain payments cost a fraction of card network fees. If stablecoins account for even 5% of card purchasing volume, which is roughly $595 billion at current rates, that represents $9.3 billion in annual savings for merchants.
For the banks, this amounts to $9.3 billion in lost revenue, which doubles to $18.6 billion at 10%.
According to Artemis, the value of stablecoin transactions will reach $33 trillion by 2025, making the competitive threat more than hypothetical. That’s roughly three times the purchase volume of American cards.
Most of these transactions take place within crypto markets, but the infrastructure already processes payment flows on a large scale.
Banking groups see their opposition as a prudential concern and warn that the flight of deposits will hit lending.
Charles River Associates tested this in research commissioned by Coinbase using monthly data from 2019 to 2025 and found no statistically significant relationship between USDC growth and community bank deposits.
Even under hard assumptions, community banks would lose less than 1% of their deposits in a base case and 6.8% in an extreme case.
Cornell researchers came to a similar conclusion: the rewards would have to be close to 6% to meaningfully impact deposits. The current programs range from 1% to 3% and are financed by the interest on government bonds.
That’s competitive with high-yield savings, but not transformative enough to trigger mass deposit migration.
Reserve budget scales mechanically
Stablecoins generate passive returns because issuers hold reserves in government bonds that yield 3% to 5%. If platforms pass on half of that revenue as a reward, the payout pool instantly scales with the excellent stablecoin offering.
At the current market cap of roughly $307.6 billion, a reward rate of 1.5% to 2.5% implies annual user payments of $4.6 billion to $7.7 billion across the industry. If the supply of stablecoins grows to $1 trillion, the same calculation would yield $15 billion to $25 billion annually.
That kind of distribution competes with both low-yield checking accounts and credit card rewards programs, which are ultimately funded by merchant fees.
Incentives for banks become clearer when they are understood as a defense of margin.
The $176 billion in reserve balance interest and $187 billion in card fees represent revenue streams that carry no credit risk. Reserve balances earn a spread over what banks pay depositors, and card fees extract value from every purchase.
Stablecoins compress both margins by introducing competition at the payment layer and offering users a direct claim on government bond yields.
The policy battle is not about whether stablecoins reduce borrowing capacity. At issue is whether incumbents can gain a regulatory advantage that prevents stablecoins from functioning as a replacement for transaction accounts.
What GENIUS actually forbids
The GENIUS Act makes it illegal for a stablecoin issuer to pay interest “directly or indirectly,” including arrangements through affiliates.
Banking groups claim that exchange-based rewards programs violate this provision. Crypto platforms counter that the statute focuses on issuers and not intermediaries.
The Bank Policy Institute wants to clarify language in the market structure law to ensure that “rewards routed through affiliates” are treated as prohibited returns.
That position reveals the strategy: prevent stablecoins from becoming an alternative to interest-bearing accounts in any way. If successful, stablecoin holders will receive no compensation for the value their deposits create, even though banks earn 3% to 5% on reserve balances.
Competitive endgame
Fed researchers note that stablecoins can “reduce, recycle, or restructure” deposits. Banks want the restructuring on their terms: ban stablecoin rewards and offer bank-issued tokenized deposits that keep balances within the regulated perimeter.
Users receive on-chain dollars. Banks keep the deposits and the spread.
However, stablecoin platforms have a different theory. If the yield ban applies only to issuers, exchanges could compete through member companies’ revenues, loan yields or trading fees. This keeps stablecoins attractive without requiring issuers to pay interest directly.
China has announced that it will pay interest on the digital yuan, explicitly competing with dollar-denominated stablecoins. If U.S. policy prohibits rewards while foreign digital currencies offer returns, the competitive implication becomes a national security concern.
Pro-crypto lawyer John Deaton called a US reward ban “a national security trap.”
Congress will decide whether to interpret GENIUS narrowly, by applying it only to issuers, or broadly, by expanding it to include affiliates and platforms.
The narrow interpretation preserves competition. The broad interpretation protects established margins.
Banking groups see this as a battle for deposit stability. The numbers show it’s a fight over $360 billion in revenue and whether stablecoins have a chance to compete for it.