Coinbase draws ‘red line’ as banks lobby to reopen GENIUS Act and curb stablecoin yields
Banks are lobbying to reopen the GENIUS Act to restrict stablecoin issuers from enabling yields to customers, arguing safety concerns and risks to community bank deposits. The GENIUS Act had previously compromised by banning stablecoin issuers from directly paying interest to holders while permitting platforms and third parties to offer rewards and yields. Coinbase CEO Brian Armstrong calls any attempt to reopen those provisions a “red line issue,” saying banks are protecting profit margins and blocking competition while offering consumers near-zero savings rates. Crypto groups including the Blockchain Association, Stand With Crypto, and the North American Blockchain Association joined Coinbase in opposing the lobbying. Critics note independent research shows no unusual deposit outflows from community banks and warn that banning third-party rewards would effectively close the existing yield-sharing pathway, chilling fintech competition and deterring entrants. Armstrong predicted banks may later seek the ability to pay stablecoin yields once they see the market opportunity, calling current lobbying efforts “wasted” and “unethical.”
Bearish
This news is bearish for crypto markets, particularly for stablecoin-linked trading activity and yield-sensitive tokens. If banks succeed in reopening and tightening the GENIUS Act to ban third-party rewards or further restrict stablecoin yield mechanisms, platforms that distribute yields could see reduced product capability and user outflows, lowering demand for stablecoin-based strategies and short-term liquidity. The threat of regulatory rollback also raises political and execution risk, increasing uncertainty that typically depresses trader risk appetite. Historically, attempts to curtail crypto business models through targeted regulation (for example, stricter DeFi or exchange rules) have led to short-term sell-offs and higher volatility as market participants price in reduced utility and user engagement. In the longer term, if the provision remains intact or Coinbase and industry groups block the changes, the bearish effect would be mitigated and confidence could recover. However, the current active lobbying by entrenched banking interests increases the probability of adverse amendments, making near-term sentiment and trading flows more negative — especially for stablecoin capital flows, yield-bearing products, and intermediaries that rely on them.