Invest1 publisher3 min readPublished
A GENIUS Act carve-out for non-issuers lets Coinbase pay up to 4.5% on USDC
Coinbase's rewards run from 3.75% to 4.5%, funded by interest on the Treasuries backing USDC. The statute permitting them turns on which company issues the token, and the bill that would change that stalled in September 2026.
The Investor · Invest desk
What happened
- Coinbase's USDC rewards have run from 3.75% to 4.5% depending on user status, funded by interest earned on the short-term Treasuries backing the token under its revenue-sharing deal with Circle.
- Banking industry lobbyists have warned that rewards programs could trigger trillions of dollars in deposit flight as consumers move savings balances into stablecoins.
- Armstrong argues that restricting domestic rewards would push users toward foreign-issued digital currencies that hold no US Treasuries and add nothing to demand for American government debt.
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Why it matters
- constraint A rival would need a market-structure statute in force to build a competing distribution product against, so Coinbase holds its position without winning a vote.
- decision Any revival of the bill forces Coinbase to choose between lobbying for codification that also legitimises imitators and defending a deadlock that preserves the programme as it stands.
- exposure Because the protection attaches to the non-issuer role, a bill that redefines what a distributor may pay reaches Coinbase directly while leaving Circle's existing prohibition untouched.
The argument about Treasuries is the one Armstrong takes to Washington. The program's legal footing is a matter of statute. The GENIUS Act, enacted around July 2025, bars stablecoin issuers from paying yield directly to holders and leaves non-issuers outside the prohibition, and Coinbase distributes USDC while Circle issues it [3]. The test turns on who issues the token.
Interest earned on the short-term Treasuries backing USDC flows to Coinbase under its deal with Circle, and Coinbase passes a portion of it to users as rewards [2]; the company has not disclosed what share it retains. At the top advertised rate, every billion dollars of USDC held on the platform costs about 45 million dollars a year in payouts [1]. Coinbase gets customer acquisition for the money: users who would otherwise hold a high-yield savings account convert to USDC and stay inside the platform to trade or stake [5]. The 75 basis points between the 3.75% base and the 4.5% top rate mean the best-treated customer earns 20% more on the same dollar than the worst [2].
Against that sits the banks' number. Lobbyists warned that rewards programs could pull trillions of dollars out of deposits, according to Cryptobriefing [4], while the same account puts USDC reserves at billions [5], a gap of at least a thousand to one between the harm being argued and the balances in the program [3].
Banks pushed for CLARITY Act language that would effectively neuter programs like Coinbase's, and crypto-friendly legislators pushed back [6]; as of September 2026 the bill had failed to advance, primarily over rewards terms [7]. Armstrong has pointed out that the inertia banks helped create has worked in Coinbase's favour by keeping new competitors from entering under clearer rules [8]. The carve-out has now been in force for roughly 14 months with no market-structure statute for any rival to build against [4].
Restrictive rewards language forces a restructuring or ends the program [10]. Language that codifies the non-issuer carve-out protects the program and hands every other distributor a printed instruction sheet for copying it [10]. Deadlock preserves both the rate and the absence of rivals, and I would expect deadlock, because it requires nobody to agree on anything. Armstrong's competitiveness case, that restricting domestic rewards pushes users toward foreign-issued tokens which will not hold US Treasuries or add to demand for American government debt [9], is aimed at the second outcome and not the third.
If a bill codifies the carve-out and, a year later, Coinbase is still paying 4.5% [1] while several distributors compete for the same balances, then the statute was worth more than the delay and I have this backwards.
What to watch
- Whether CLARITY returns with rewards language that spells out a distributor's obligations.
- Any disclosure of how much of the Circle interest share Coinbase retains rather than pays out.
- Whether the 4.5% top rate moves while the bill stays stalled.