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Coinbase has urged federal regulators not to overreach when implementing the new stablecoin law, warning that restrictions on interest payments should not extend to third-party rewards programs or loyalty incentives.
In a 30-page comment letter to the U.S. Treasury, the exchange argued that broadly interpreting the Genius Act’s interest ban could “harm consumers” by eliminating market-based incentives that reduce payment costs and drive merchant adoption.
The submission comes as Treasury prepares formal regulations for the law, which establishes federal oversight of stablecoin issuers for the first time.
“The Genius Act makes the U.S. the undisputed global leader in crypto and stablecoins,” said Faryar Shirzad, Chief Policy Officer at Coinbase. “To make that happen, the implementing regulations must stick to the clear intent of the bill text and ensure that U.S.-issued stablecoins remain versatile.”
A key focus of Coinbase’s feedback is preventing misinterpretation of the Genius Act’s interest prohibition clause. The company cautioned that the Treasury must not extend the ban on paying yield or interest beyond approved payment stablecoin issuers (PPSIs).
According to the exchange, the restriction only applies to direct issuer payments, not to third-party benefits or loyalty rewards programs offered through intermediaries. Misclassifying such incentives as “interest,” Coinbase warned, could distort the law’s intent and stifle innovation.
“Treating loyalty schemes or third-party benefits as forbidden interest would go against the text and intent of the Act,” Coinbase stated in its letter. “It would also eliminate market-based incentives that reduce payment costs and encourage merchant adoption ultimately harming consumers.”
The firm’s position underscores growing concern that overly restrictive Genius Act implementation could undercut the Act’s goal of mainstreaming stablecoin use for retail payments and trade.
Coinbase reiterated that a robust Genius Act implementation framework could accelerate stablecoin adoption across both domestic and international markets. The company believes the Act’s emphasis on 100% reserve backing and federal oversight gives U.S.-issued stablecoins a structural advantage over unregulated competitors.
In its submission, Coinbase also urged the Treasury to work with other financial regulators to avoid fragmented rulemaking. “Regulatory overlap must be minimized,” the company noted.
“The Treasury should coordinate with agencies like the Securities and Exchange Commission (SEC) and the Commodities Futures Trading Commission (CFTC) to prevent conflicting guidance.”
Analysts agree that the Genius Act could serve as a blueprint for other jurisdictions seeking to regulate stablecoins transparently.
“If the U.S. gets this right, it could set the global benchmark for how stablecoins coexist with traditional finance,” said Dr. Jennifer Wallace, policy analyst at the Brookings Institution.
The U.S. Treasury Department has invited industry feedback as part of its rulemaking process and is expected to issue formal regulatory proposals in early 2026.
Coinbase’s comments also focus heavily on tax clarity under the Genius Act implementation. The firm recommended that payment stablecoins be recognized as cash equivalents for accounting and taxation purposes rather than as debt instruments.
“Payment stablecoins mimic the functionality and stability of fiat money,” Coinbase argued. “Tax treatment should reflect that economic reality.”
The firm also urged the Internal Revenue Service (IRS) to issue clear guidance preventing stablecoins from being classified as debt, which could otherwise complicate compliance and discourage adoption.
The company referenced IRS guidelines requiring brokers to file Form 1099-DA to report digital asset transactions, effective January 2025. Coinbase believes that applying simplified, wallet-based reporting standards will help ensure transparency while minimizing administrative burden.
According to Coinbase, “Tax policy is one of the most underestimated factors influencing the ultimate acceptance of digital asset innovation.” The firm called on the Treasury to ensure that tax and accounting frameworks evolve in tandem with the Genius Act’s objectives.
For Coinbase and many industry observers, the Genius Act implementation represents a pivotal test of America’s ability to regulate innovation without suppressing it.
The exchange’s submission reflects a broader consensus that precision in regulatory design will determine whether the Act achieves its intended balance between innovation, consumer protection, and systemic stability.
“The U.S. must seize this opportunity to lead, not lag,” said Dr. Wallace. “Effective Genius Act implementation could transform stablecoins from a niche crypto product into a cornerstone of digital commerce.”
As Treasury regulators review feedback from Coinbase and other stakeholders, the debate underscores a defining moment for the country’s financial future as one in which digital dollars, properly supervised, could become as trusted as their physical counterparts.
