Coinbase CEO Brian Armstrong Urges U.S. Lawmakers to Modernize Stablecoin Regulations

He argues that the current legal framework is outdated and prevents users from benefiting from the interest generated by the reserve assets backing these digital currencies.

Coinbase CEO Brian Armstrong is calling on U.S. lawmakers to modernize stablecoin regulations and grant consumers the ability to earn interest on their stablecoin holdings.

In a broad commentary on the legal landscape of stablecoins, Armstrong argued that the current legal framework is outdated and hinders the possibility of users benefiting from the interest generated by the reserve assets backing these digital currencies.

He envisions stablecoins functioning more like interest-bearing checking accounts but said that existing laws prevent this scenario.

According to Armstrong, although the technology to distribute interest from reserve assets to users already exists, stablecoins don’t qualify for exemptions under U.S. securities laws.

As a result, while stablecoins like USDC and USDT are backed by secure assets such as U.S. Treasury bonds, any interest earned typically goes to the issuing company rather than the stablecoin holders. This limitation, he said, puts stablecoins at a disadvantage compared to traditional banking products.

“We could be making great strides in rolling out new financial products and services, but instead, we’re largely limited to offering uncompetitive products that don’t fully leverage the technology at our disposal,” said Armstrong.

His call for regulatory change comes amid stalled progress on stablecoin legislation in Congress. Lawmakers have been debating issues like issuer oversight, reserve transparency, and potential risks to the financial system, but no clear consensus has been reached.

However, Armstrong believes that allowing users to earn interest on stablecoins would be a game-changer, making these assets more competitive and appealing.

“If we want to create an optimal financial system for the 21st century, we need to adjust our thinking and create the legal framework that will enable this future,” he concluded.

The call for broader interest-bearing stablecoins comes as several platforms have begun offering limited forms of interest-bearing products. For example, BlockFi offers high-yield crypto savings accounts, while Celsius Network allows users to lend out their crypto and earn interest.

However, these platforms typically operate in a gray area of U.S. regulations, and there are concerns about the stability and solvency of these platforms.

The lack of clear legislation has also led some industry leaders to move their operations to more crypto-friendly regions. For example, Circle, the issuer of the USD stablecoin, recently announced plans to expand its operations in Europe, where regulators are more open to innovation.

If the U.S. were to adopt regulations allowing stablecoin interest payments, it could transform the perception and use of digital dollars, making them a viable alternative to conventional bank deposits and accelerating crypto’s integration into the mainstream financial system.