Coinbase GENIUS Act Rules & Stablecoin Regulation Explained
Introduction
In November 2025, Coinbase Global submitted a public comment to the U.S. Treasury, calling for a cautious and narrow interpretation of the newly enacted GENIUS Act — a landmark piece of legislation designed to regulate payment stablecoins. Coinbase warns that overly aggressive rules could undermine innovation, distort the law’s original purpose, and weaken America’s leadership in the digital assets arena. In this article, we’ll dig deep into Coinbase’s arguments, the core points of the GENIUS Act, and what’s at stake for the stablecoin market.
Table of Contents
What Is the GENIUS Act?
Origins and Purpose
The GENIUS Act, or Guiding and Establishing National Innovation for U.S. Stablecoins Act, was signed into law on July 18, 2025. (Wikipédia)
Its goal? To establish a clear, federal regulatory framework for payment stablecoins (cryptos that are pegged to the U.S. dollar).
Key Provisions of the Legislation
Some of the core regulations introduced by the GENIUS Act include:
1:1 backing: All permitted stablecoins must be fully collateralized by U.S. dollars or similarly liquid assets (like short-term Treasuries) to prevent de-pegging risk.
Full reserve requirement: Issuers must maintain sufficient reserves at all times. (KPMG)
Transparency & reporting: Issuers face monthly reserve disclosures, redemption policy transparency, and audited financials. (CoinDCX)
Regulated issuers only: Only certain types of institutions—such as insured bank subsidiaries or state-supervised entities—are allowed to operate as payment-stablecoin issuers. (KPMG)
Interest-payment prohibition: The Act prohibits issuers of payment stablecoins from paying “interest,” though the law’s interpretation of that term is contested. (The Block)
Coinbase’s Concerns: Why the Rules Matter
Coinbase’s policy team, led by Chief Policy Officer Faryar Shirzad, insists that how the Treasury interprets and implements the law will significantly impact future innovation.
Risk of Regulatory Overreach
Coinbase warns that the Treasury must not impose extra requirements that exceed what Congress explicitly wrote into the GENIUS Act. (The Block)
According to Coinbase, overly broad rules could stifle innovation in stablecoins and weaken the U.S. position as a global crypto leader. (Journal du Coin)
Exclusion of Non-Financial Actors
Coinbase argues for a narrow interpretation of the Act to exclude non-financial software developers, blockchain validators, and open-source protocols, emphasizing that they should not be regulated under the stablecoin issuer framework. (The Block)
The logic: These actors play critical roles in the broader crypto ecosystem but do not issue stablecoins themselves. Adding them under the GENIUS Act’s strict regime may discourage open-source innovation. (Journal du Coin)
Rewards vs. Interest – A Key Semantic Battleground
A big part of what Coinbase is pushing: the interest-payment prohibition in the GENIUS Act should only apply to stablecoin issuers, not to exchanges or platforms offering rewards. (The Block)
Specifically, Coinbase warns against regulators treating third-party loyalty or reward programs (e.g., its “Coinbase One Rewards”) as “interest.” Doing so, it argues, would misread the statute and distort Congress’s intent. (Journal du Coin)
They contend that labeling these rewards as forbidden “interest” would rewrite the carefully drawn boundaries Congress established. (The Block)
Tax and Accounting Treatment of Stablecoins
Coinbase suggests that payment stablecoins should be treated as cash equivalents for tax and accounting purposes, reflecting their design and use-case. (The Block)
According to Coinbase, applying overly burdensome tax rules would undermine stablecoins’ role as practical instruments for payment and settlement. (The Block)
They urge the Treasury and IRS to adopt a “pragmatic, low-burden approach” to stablecoin taxation. (The Block)
Why Coinbase Is So Invested
Strategic Stakes for Coinbase
Coinbase is a major distributor of USDC, one of the world’s most widely used stablecoins. (Coinbase)
The way the GENIUS Act rules are written could significantly affect Coinbase’s business model, especially in how it structures rewards.
By pushing for favorable interpretations, Coinbase is working to protect innovation and user incentives, ensuring that products like cashback rewards remain viable.
Broader Implications for the Stablecoin Market
Coinbase’s feedback is not just about corporate self-interest. It carries implications for the entire stablecoin ecosystem:
If the Treasury adopts a narrow reading, non-issuer platforms (like exchanges) might continue offering reward-like programs, preserving flexibility.
Conversely, if regulators interpret “interest” broadly, many stablecoin reward programs could be curtailed, reducing incentives for retail users.
The tax treatment Coinbase advocates could make stablecoins more usable as everyday payment tools, not just speculative assets.
What Do Other Stakeholders Think?
Banking Industry Pushback
Some banking groups are calling for a blanket prohibition on stablecoin interest, not just for issuers. (Finance Magnates)
These traditional finance players argue that allowing exchanges to offer interest-like rewards could threaten bank deposits by driving capital toward crypto.
Regulatory Ambiguity
The fact that Coinbase is publicly pushing back suggests there’s significant uncertainty over how rigid or flexible the Treasury’s final rules will be.
As regulators write the implementing regulations, industry comment will likely shape how strict or expansive the regime becomes.
Innovation vs. Safety Trade-Off
Coinbase frames its proposal as a matter of protecting innovation, but critics could argue that looser rules may risk consumer protection or systemic stability.
Finding the right balance will be critical: too strict, and innovation suffers; too lenient, and regulatory risks emerge.
Timeline for Implementation
GENIUS Act Signed: July 18, 2025. (Wikipédia)
Rulemaking Period: Treasury is now drafting rules to implement the law.
Effective Date Window: The Act takes effect either 18 months after enactment or 120 days following final regulations from primary regulators.
Industry Feedback: Coinbase’s submission is one of several — regulators must weigh competing views as they refine rules.
Risks and Opportunities
Risks if Treasury Overreaches
Innovation could be stifled, especially among non-issuer actors.
Reward programs could be severely limited or banned, reducing user incentives.
Stablecoins might be less competitive globally if tax burdens inflate costs.
Opportunities with a Narrow Interpretation
Exchanges like Coinbase could continue offering rewards, boosting user engagement.
Stablecoins could be treated more like digital cash, supporting payments and settlement use cases.
Users would gain clarity and stability, helping drive adoption.
Coinbase’s Vision for the Future
At its core, Coinbase is pushing for a future where stablecoins remain a vibrant, flexible part of the financial system—not just tightly regulated financial products. By advocating for:
Regulatory clarity,
Exclusions for non-financial actors, and
Common-sense tax treatment,
Coinbase hopes to preserve innovation and maintain strong incentives for users, while ensuring risk-based regulation stays focused on true financial issuers.
Why This Matters for the Crypto Industry & Users
User Incentives: Whether or not exchanges can offer reward programs directly affects how attractive stablecoins are for everyday users.
Market Structure: The regulatory boundaries set by the Treasury will influence who participates in stablecoin issuance and distribution.
Global Competitiveness: Clear, pro-innovation regulation could help the U.S. retain leadership in the booming crypto payments space.
Long-Term Stability: If rules are too lax, risk could be underestimated; too strict, and adoption slows — finding balance is key.
Conclusion
Coin-base’s appeal to the Treasury is a clear signal: as the United States rolls out its first comprehensive stablecoin law, the details matter deeply. The way the GENIUS Act is interpreted — especially around who’s regulated, how “interest” is defined, and how tax rules apply — could shape the next decade of stablecoin innovation.
By urging a narrow, text-faithful reading, Coin-base is not just protecting its business model, but advocating for an environment where innovation can flourish without sacrificing regulatory clarity. The upcoming Treasury rules will be crucial, and what gets decided could very well define how stablecoins evolve in the U.S.
FAQs
What exactly is the GENIUS Act?
The GENIUS Act is U.S. federal legislation, passed in July 2025, that creates a regulatory framework specifically for payment stablecoins. (Wikipédia)
Why is Coinbase pushing back on the Treasury’s rule-making?
Coin-base argues the Treasury must implement the law narrowly, sticking to Congress’s intent. It fears overreach could stifle innovation, particularly among non-issuer actors like software developers and validators. (The Block)
What does Coin-base mean by “rewards” vs. “interest”?
Coin-base distinguishes between the “interest” prohibited by the GENIUS Act (which applies to stablecoin issuers) and “rewards” programs (e.g., loyalty or cashback) that are offered by exchanges. It argues rewards should not be treated as interest. (The Block)
How does Coin-base want stablecoins to be taxed?
Coin-base suggests that payment stablecoins be treated as cash equivalents for tax and accounting purposes, to reflect their role in payments and settlement. (The Block)
When do the GENIUS Act rules actually go into effect?
The law will take effect either 18 months after its enactment or 120 days after regulators issue final implementing rules — whichever comes first.
