Crypto exchanges can keep paying interest-like rewards, federal regulators say
Cryptocurrency companies can continue to pay interest-like rewards to customers, federal regulators said Wednesday, despite warnings from banks that such programs could drain trillions of dollars in deposits from the banking system. The new rules are part of the implementation of the GENIUS Act, which was signed into law last year and was meant to codify the rules and regulations around issuers…
Federal regulators have approved cryptocurrency exchanges' ability to offer interest-like rewards to customers, despite banks' concerns that such programs could lead to trillions of dollars leaving the banking system. The rules, part of the GENIUS Act signed last year, primarily affect stablecoin issuers like Circle, which cannot pay interest on the coins they issue.
However, exchanges like Coinbase and Robinhood are permitted to pass along earnings from stablecoins to customers as interest-like rewards. Stablecoins, designed to maintain a steady value around $1 per coin, back cryptocurrencies with bank deposits and U.S. Treasuries, which generate interest. Crypto companies aim to provide customers a return on holding stablecoins by converting this interest into a yield.
The OCC rules allow exchanges to do this "case-by-case" basis, contradicting banks' calls for stricter restrictions. Banks argue that this could lead to deposit flight, with traditional bank customers moving their savings to crypto due to higher yields. This could result in banks having less capacity to lend, potentially causing some banks to close or fail.
Despite the banking industry's opposition, consumer groups have supported the OCC's decision, as the cryptocurrency world lacks deposit insurance like the FDIC.
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