Brian Armstrong Calls for Changes to Proposed Stablecoin Laws

Coinbase CEO Brian Armstrong is calling for changes to proposed stablecoin laws that would allow holders to earn interest directly from their digital assets, similar to traditional bank accounts.

Coinbase CEO Brian Armstrong is calling for changes to proposed legislation on stablecoins to enable interest to be paid directly to holders of the digital assets, similar to traditional bank accounts.

In a March 31 post on X, formerly Twitter, Armstrong argued that this approach would be “consistent with a free market approach” and that stablecoin issuers should be “allowed to, and incentivized to, share interest with consumers.”

Currently, two competing pieces of federal stablecoin legislation are working through the U.S. legislative process. These are the STABLE Act, which stands for Stablecoin Transparency, Accountability, and Better Ledger Economy, and the Guiding and Establishing National Innovation for U.S. Stablecoins, or GENIUS Act.

Neither bill currently allows for interest-bearing stablecoins. The STABLE Act includes language that explicitly prohibits “payment stablecoin” issuers from paying yield to holders.

Similarly, the GENIUS Act, which recently passed the Senate Banking Committee with an 18-6 vote, has been amended to exclude interest-bearing instruments from its definition of a “payment stablecoin.”

According to Armstrong, this addition lessens the chances of the bill advancing in the House, as it would require a new vote in the Senate to amend the bill further.

“The good news is that we still have time to get this right,” Armstrong stated.

Highlighting the potential benefits, Armstrong pointed out that while stablecoins have found a market fit by “digitizing the dollar and other fiat currencies,” adding onchain interest would allow “the average person, and the U.S. economy, to reap the full benefits.”

According to Armstrong, if legislative changes allowed stablecoin issuers to pay interest to holders, U.S. consumers could earn a yield of around 4% on their holdings.

This rate stands in stark contrast to the 2024 average interest yield on consumer savings accounts, which Armstrong cited as 0.41%. With inflation nearing 3%, many Americans are actually losing purchasing power with traditional savings accounts.

Stablecoin issuers already hold U.S. dollar reserves in low-risk investments such as short-term U.S. Treasuries. But unlike banks, they typically retain the interest earned rather than distributing it to stablecoin holders.

Armstrong defines onchain interest as “the ability of a stablecoin to function as a form of payment and directly deliver interest earned on reserve assets to the stablecoin holder, effectively an interest-bearing checking account.”

The Coinbase CEO argues that onchain interest could benefit the broader U.S. economy by incentivizing global use of U.S. dollar stablecoins. This could extend “dollar dominance in an increasingly digital global economy,” according to Armstrong.

He also suggested that the potential for higher yields than traditional savings accounts would result in “more yield in consumers’ hands means more spending, saving, investing — fueling economic growth in all local economies where stablecoins are held.”

Without onchain interest, Armstrong warned that “the U.S. misses out on billions more USD users and trillions in potential cash flows.”

This push for interest-bearing stablecoins has also been supported by Bitwise Chief Investment Officer Matt Hougan, who expressed agreement with Armstrong's point of view.

Responding to arguments that suggested stablecoin issuers offering interest could affect bank deposits and their ability to offer mortgages, Hougan stated that "free markets will develop a new way for customers to get loans to buy houses."

This would align with the broader economic shifts unfolding as a result of technological advancements, according to Hougarti. In his words, "every generation has to solve the same problems with the tools and technologies available to them."

Framing the issue as one of fairness, Armstrong concluded his post by stating, "Consumers deserve a bigger piece of the pie. Opening the door for onchain interest will force us all to up our game for the ultimate benefit of consumers, and will keep this innovation onshore."

Some regulatory experts have pointed out that yield-bearing stablecoins might be subject to more complex regulation due to similarities with securities. This is likely why the current legislation has avoided including provisions for interest-bearing features.

As reported by Blockworks, Representative Bryan Steil, a key figure in crafting the STABLE Act, commented on the varying versions of the bill.

During a recent episode of the Crypto in America podcast, hosted by Eleanor Terrett, Steil mentioned that the two pieces of legislation are converging following feedback from various stakeholders.

"At the end of the day, I think there’s recognition that we want to work with our Senate colleagues to get this across the line," Steil remarked about the path forward for stablecoin legislation.