Coinbase CEO Brian Armstrong says Congress should allow stablecoin companies to pay users interest

Stablecoins like Tether (USDT) or USD Coin (USDC) are backed 1-to-1 by the U.S. dollar and their issuers typically hold reserve assets in cash and short-term Treasury securities. Historically these types of assets have acted as a bridge for traders between traditional financial rails and crypto systems, and crypto investors watch them closely for evidence of demand, liquidity and activity in the market.
In recent years, stablecoins have also become popular for their ability to pay users interest for simply holding them – however, that interest payment is typically an incentive offered by exchanges like Coinbase or Kraken or wallet operators rather than the stablecoin issuer itself.
Coinbase has an agreement with the stablecoin issuer Circle – the company behind USDC, which filed Tuesday evening for an initial public offering with the SEC – to share 50% of the revenue of USDC. A section of the company's prospectus echoed Armstrong's concern:
"Absent federal regulations, there is a possibility that Circle stablecoins may be classified as 'securities,'" the filing said. "Any classification of Circle stablecoins as a 'security' would subject us to additional regulation and could materially impact the operation of our business."
The Securities and Exchange Commission typically views assets as securities if they constitute an investment of money with the expectation of profit from others' efforts. Security status often implies being subject to greater regulatory scrutiny and compliance obligations that are very expensive for companies.
Ben Kurland, CEO at crypto research platform DYOR, said allowing issuers to pay users interest would also mark a big shift in who holds profits in crypto.
"Right now, exchanges and platforms capture the yield from stablecoins by investing user deposits and keeping most of the return," he said. "If stablecoin issuers start paying interest directly to users, it flips that model: users benefit more, middlemen get squeezed, and stablecoins become a lot more attractive to hold."