Coinbase and Kraken offer rewards of up to 5.5% in USDC after the genius law

By Canuto

Genius law imposed strict reserves and prohibited emitters from paying interest, but left an open door: exchanges can offer stablcoins rewards. That lagoon promises to transfer deposits from traditional banks to crypto platforms and unleashed a dispute that could be worth billions of dollars.
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• Genius Act requires cash support or treasure bonds and prohibits emitters from paying interest.
• Exchanges such as Coinbase and Kraken offer rewards of up to 5.5% in USDC, taking advantage of a legal loom.
• The Treasury Department warns that up to USD $ 6,600,000,000 could migrate from bank accounts to Stablecoins.

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What establishes the genius law

On July 18, after more than a decade of debate, the United States Congress signed the Genius Law (Guiding and Establishing National Innovation for Us Stablecoins).

The standard forces Stablcoins emitters to maintain reservations covered by cash or short -term treasure bonds. It also establishes periodic audits and compliance with rules against money laundering.

A key component was the explicit prohibition of issues to pay interest for the stablcoins they issued. The editors sought to distinguish these tokens as a form of “digital money” and not as an instrument with performance.

However, the law does not prevent cryptocurrency exchanges from offering user rewards for maintaining stablcoins on their platforms. That technical point opened a margin of maneuver that is today in the center of the conflict.

According to Wired, the combination of strict requirements for emitters and the exception on rewards created a dynamic that neither banks nor crypt expected fully.

The Lagoon of Rewards in Exchanges

Although the issuance cannot pay interest, exchanges can offer incentives to their customers. In practice, these “rewards” work similar to a savings rate.

For example, Wired reports that Coinbase customers can earn an annual reward of 4.1% if they keep USDC on the platform. Other houses promote even greater rates.

Kraken, cited by Wired, announces up to 5.5% of “rewards” on USDC. Many platforms have returns close to 4.25% annual, comparable to high -performance bench accounts.

For consumers, the difference between a “reward” and an “interest” is technical. In practice, users receive performance for leaving their assets in custody of an exchange.

The crypto industry, according to voices collected by Wired, defended the language of the law as a commitment that maintained an open window for these offers.

Risks for deposits, economy and banks

The stablecoins do not have Insurance Fdic. That means that, if a bankruptcy issuer or platform, the reimbursement of the funds is not guaranteed by the US government.

Researchers from the International Payment Bank, cited by Wired, indicate that even the “less volatile” stablocins are rarely exchanged for the dollar. That friction questions its reliability as a means of payment.

In addition, Kansas City’s Fed warned about macroeconomic effects. Stefan Jacewitz, an assistant vice president, said that if the stablcoins displace deposits out of bank accounts, less funds will be available for loans.

In practical terms, less deposits implies potential increases in the cost of credit for consumers and companies, according to analysis cited by WIRED and banking groups.

The Treasury Department, according to the same report, estimated that up to USD $ 6,600,000,000 could migrate from deposits to Stablecoins as a result of regulatory changes.

Crypto and Banking Industry Response

The reactions are divided. Banking groups call the situation a dangerous lagoon. They argue that exchanges, less regulated than banks, could attract deposits with competitive rewards.

On the other hand, Defensores Cripto argue that the rewards encourage competition and could force banks to improve rates to retain customers. Dante Tiggte, from Circle, said that the latest generation of Stablecoins increased deposits in dollars globally.

Former representative Patrick Mchenry, cited by Wired, described the dispute as a huge fight and said that banks have protected that land with historical zeal.

Among the companies, Coinbase defended the ability to offer yields, and commissioned a study that projects a maximum bank deposit drop of 6.1% in its scenarios.

In addition, banks such as Citigroup and Bank of America have pointed out interest in issuing their own stable, while PNC and JPMorgan established alliances with Coinbase, according to Wired.

The second legislative round and next steps

Clarity Law seeks to create a broader framework for markets and platforms in blockchain. The initiative has already passed in the camera and is expected to advance in the Senate.

The Senate version editors found whether the legislation should limit or prohibit systems such as Stablecoins rewards, according to Wired’s coverage.

Groups such as Independent Community Bankers of America have promised to insist that a loophole is not created that allows interests equivalent to interests outside the traditional banking system.

Meanwhile, banks explore alternatives. JPMorgan proves a “deposit token” that uses technology similar to Stablcoins without demanding reserves 1: 1, a formula that would seek to maintain its deposit base.

In sum, the exception of rewards in the Genius Act opened a front that the next legislation and competition between banks and exchanges will try to solve. Wired concludes that bets are high and dispute will probably continue in the next legislative round.

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