The US Department of the Treasury is caught in the middle of a growing dispute between the cryptocurrency industry and traditional banks over how to enforce the newly passed GENIUS Act, the federal law designed to regulate stablecoin payments. The latest round of public feedback, which closed on Tuesday, revealed sharp divisions on whether the government should allow or ban interest payments on stablecoins.

Coinbase Pushes to Protect Stablecoin Yields

Crypto exchange Coinbase has urged the Treasury to respect Congress’s original intent and limit the ban on stablecoin interest payments only to issuers. In its formal letter to regulators, Coinbase argued that the GENIUS Act does not prohibit non-issuers such as exchanges or custodians from offering yields on stablecoin deposits.

The company said that allowing non-issuers to provide stablecoin yields would help foster innovation and expand digital payment systems without compromising financial stability. Coinbase stressed that its reading of the law aligns with the way Congress framed the legislation when it was passed earlier this year.

“Congress went no further,” the exchange wrote in its letter. “It declined to include non-issuer third parties within that prohibition because banning all interest on stablecoins would have inhibited innovation and growth in this emerging market.” Coinbase also added that the Treasury has “no authority to second-guess Congress’s work.”

Banking Groups Call for a Blanket Ban

Traditional financial institutions are taking the opposite view. Several major banking associations, led by the Bank Policy Institute (BPI), have called on the Treasury to extend the ban on stablecoin interest payments to cover all entities, including exchanges and affiliates.

In a statement issued Tuesday, BPI said the Treasury should ensure that “the GENIUS Act’s prohibition on the payment of interest or yield on payment stablecoins applies whether paid directly by an issuer or indirectly through affiliates or partners.”

The banking industry’s concern is rooted in the fear that interest-bearing stablecoins could lead to a mass migration of deposits out of traditional banks. In an earlier filing from August, BPI warned that the rise of stablecoin yields could cause as much as 6.6 trillion dollars to flow out of the banking system, potentially destabilizing the broader economy.

Treasury Navigates Conflicting Advice

The Treasury launched its second round of consultations through an advance notice of proposed rulemaking (ANPRM), seeking public feedback before drafting formal regulations for the GENIUS Act. The deadline for comments ended on Tuesday, and the department now faces the difficult task of balancing innovation with financial oversight.

While crypto companies argue that stablecoin yields are vital for competitiveness and adoption, banking groups warn that interest-bearing tokens could become shadow bank accounts outside federal supervision. The Treasury’s final interpretation of the law will play a major role in shaping how digital dollar ecosystems operate in the coming years.

Coinbase Expands its Case Beyond Yields

In addition to its argument for allowing stablecoin interest, Coinbase’s letter recommended that Treasury exempt non-financial software developers, blockchain validators and open-source protocol operators from the GENIUS Act’s oversight. The exchange said that these entities play technical roles in maintaining blockchain networks and should not be treated as financial intermediaries.

Coinbase also asked regulators to recognize payment stablecoins as “cash equivalents” for both tax and accounting purposes, a move that could simplify reporting and compliance for companies holding digital assets.

The company maintains that the GENIUS Act should be implemented in a way that encourages responsible growth while avoiding unnecessary restrictions that could push innovation offshore.

What Comes Next for the GENIUS Act

The GENIUS Act, signed into law in July, establishes a regulatory structure for payment stablecoins in the United States. It seeks to ensure that issuers maintain full backing, protect consumers and maintain transparency over reserves. However, the finer details — such as rules on interest payments and the scope of regulated entities — are left to federal agencies to define.

The law is expected to take effect either 18 months after enactment or 120 days after regulators issue their final rules. Based on the current timeline, that means the framework could be fully in place by late 2026 or early 2027.

Until then, the Treasury must weigh the competing demands of innovation and financial safety. Crypto firms like Coinbase see stablecoin yields as an essential feature for attracting mainstream users, while banks view them as a potential threat to the traditional deposit base.

As the regulatory process moves forward, the final version of the GENIUS Act’s rules will determine whether the United States takes a more open or restrictive stance on stablecoin innovation. Whatever the outcome, it will likely set a precedent for how digital assets coexist with the established banking system.