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OCC Lets Crypto Firms Keep Paying Stablecoin Rewards
Federal regulators have confirmed that crypto exchanges are permitted to continue issuing interest-like rewards on stablecoin holdings.
The Office of the Comptroller of the Currency (OCC) released its updated regulations on Wednesday, which are part of the GENIUS Act, a law enacted last year to establish guidelines for stablecoin issuers. These new GENIUS Act rules permit exchanges, such as Coinbase and Robinhood, to continue providing interest-like rewards for stablecoin balances, even amid concerns from financial institutions regarding potential deposit outflows.
Under the OCC's framework, stablecoin issuers, including entities like Circle, are still prohibited from directly paying interest to the individuals who hold their respective coins. However, exchanges that trade and hold these stablecoins, such as Coinbase and Robinhood, possess the ability to distribute earnings derived from the reserves supporting the coins, provided this is done on a case-by-case basis, as stated by the regulators. Banking organizations and consumer advocacy groups have voiced disapproval of this ruling, cautioning about the risk of deposit flight and the absence of adequate consumer safeguards.
Stablecoins, which are digital tokens engineered to maintain a consistent value, typically pegged at $1 per unit, are underpinned by U.S. Treasuries and bank deposits, which generate interest; this interest forms the core of the dispute between crypto enterprises and banks. The industry seeks to convert the income generated by these reserves into a yield available to customers.
The banking sector has advocated for stricter limitations on these practices because crypto firms frequently offer higher returns compared to conventional savings accounts. For instance, Coinbase currently provides up to 3.5% on USDC balances, whereas the latest figures from the FDIC show the average savings account yield is 0.38%. Should stablecoins and exchanges outperform banks in terms of yield, consumers might relocate their savings into crypto, a phenomenon known as deposit flight. The financial industry asserts that this shift could diminish the capacity of banks to extend loans and, in a worst-case scenario, precipitate the failure of some institutions.
This same concern prompted considerable discussion when legislators were drafting the CLARITY Act. The American Bankers Association contended that this decision jeopardizes the capital banks utilize for lending that fuels the U.S. economy, arguing the rule maintains the current situation for crypto platforms despite Congress's evident aim to safeguard local lending. Consumer advocates have aligned with the banks on this matter, which is an uncommon occurrence, expressing apprehension that customers might perceive crypto rewards as equivalent to bank account interest, notwithstanding the fact that the crypto sphere lacks an equivalent to FDIC deposit insurance. Phillip Basil of Better Markets commented that the OCC has granted stablecoin issuers a waiver to perform banking functions without the protections that maintain the stability of the banking system.
Earlier coverage
Reported by bitcoinist.com.
