Banks’ Secret Revenue Machine: The Fight Against Stablecoin Rewards
Banks are fighting stablecoin rewards to protect a secret revenue machine worth $360 billion. When Faryar Shirzad, Coinbase’s chief policy officer, posted a thread on Jan. 8 warning that stablecoin rewards “will continue to be discussed” as Congress passes legislation on market structure, he included figures that banking groups would prefer to keep secret. U.S. banks make $176 billion a year from about $3 trillion parked at the Federal Reserve and another $187 billion in card swipe fees, or nearly $1,400 per household.
That’s over $360 billion in revenue from payments and deposits alone, and stablecoins with competitive yields threaten both streams simultaneously. The GENIUS Act, signed in July 2025, prohibits stablecoin issuers from paying interest or yield “directly or indirectly.” Still, exchanges funnel rewards through affiliate programs, treating them as loyalty incentives rather than interest. Banking groups call this a loophole. The American Bankers Association, which is joined by 52 state banking associations, sent a letter to Congress on Jan. 6 urging lawmakers to expand the ban to “all affiliates and partners.”
Hidden Subsidy: Reserve Balances and Card Fees
Banks hold reserve balances with the Federal Reserve totaling $2.9 trillion (as of December 2025). The Fed paid $176.8 billion in interest on these reserves in 2023, gross returns to banks before their own funding costs. Before 2008, there were insignificant reserve balances. Federal Reserve Bank reserve balances rose from near zero before 2008 to $2.9 trillion by the end of 2025. The Fed’s adoption of an “adequate reserves” framework following quantitative easing created a permanent pool of interest-bearing deposits that banks can hold without credit risk.
The Fed’s decision in December 2025 to begin purchasing Treasury bonds signals that reserve balances will not shrink much further. When stablecoins offer competitive returns funded by the same treasuries that back reserves, they create a parallel system in which users can earn similar returns without funneling dollars through bank balance sheets. This does not affect banks’ lending capacity, as stablecoin issuers hold reserves in the form of Treasury bills and bank deposits, but it does shift who pockets the spread.
The $187 Billion Toll Plaza: Card Swipe Fees
In 2024, $11.9 trillion in card payments were processed in the U.S. and merchants paid $187.2 billion in acceptance and processing fees. This translates to a cost of about 1.57% per $100 spent. Nilson Research shows that the eight largest issuers account for 90.8% of purchase transactions with Visa, Mastercard and American Express. Community banks hold a small share of this revenue pool. Debit exchanges alone generated $34.1 billion in 2023, with network fees adding another $12.95 billion. Credit card exchange is significantly higher.
Stablecoins bypass this infrastructure because on-chain payments cost a fraction of card network fees. If stablecoins account for even 5% of card purchase volume, which is about $595 billion at current fee rates, that equates to $9.3 billion in annual merchant savings. For banks, it’s $9.3 billion in lost revenue, which doubles to $18.6 billion at 10%. Stablecoins, representing 5% of card purchase volume, would replace $9.4 billion in merchant fees, rising to $18.7 billion with a 10% market share.
Competitive End Game: Stablecoins vs. Traditional Banking
Stablecoins generate returns passively as issuers hold reserves in government bonds with a yield of 3% to 5%. When platforms pass on half of this yield as a reward, the payout pool scales directly with the outstanding stablecoin supply. At today’s market cap of around $307.6 billion, a premium rate of 1.5% to 2.5% represents annual user payments across the industry of $4.6 billion to $7.7 billion. If the stablecoin supply grows to $1 trillion, the same calculation works out to $15 billion to $25 billion per year.
Fed researchers note that stablecoins can “reduce, recycle, or restructure” deposits. Banks want the restructuring on their terms: banning stablecoin rewards while offering bank-issued tokenized deposits that keep balances within the regulated range. Users receive on-chain dollars. The banks keep the deposits and the spread. However, stablecoin platforms have a different theory. If the yield ban only applies to issuers, exchanges can compete through affiliate revenue, loan returns, or trading fees.
Conclusion: The Future of Stablecoins and Traditional Banking
Congress will decide whether to interpret GENIUS narrowly and apply it only to issuers or whether to broadly extend it to affiliates and platforms. The narrow interpretation preserves competition. The broad interpretation protects the margins of established companies. Banking groups describe this as a battle for deposit stability. The numbers show that there is a turnover of 360 billion US dollars at stake and whether stablecoins have a chance to compete for it. Read more about the battle between banks and stablecoins at https://cryptoslate.com/banks-are-lobbying-to-kill-stablecoin-rewards-to-protect-a-hidden-1400-tax-on-every-household/
