Stablecoin “Interchange” — And Why It Doesn’t Work

Congress is on the precipice of a generational win for the American financial system with its work on crypto market structure. But as negotiations move into the fine print, alarmist yet misinformed cries from the bank lobby have begun to contort a once-wise policy draft with an economically incoherent suggestion: to leverage market structure legislation as a chance to re-write what was already agreed upon in the GENIUS Act last year, further limiting stablecoin rewards to only merchant-facing transactions and excluding stablecoins held for safekeeping from reward eligibility.

The logic behind the proposal is a classic Washington mistake: trying to force a 21st-century technology into a 20th-century regulatory bucket. In this case, some lawmakers want to treat stablecoins (and their rewards) like credit cards.

This is fundamentally misguided. And if it makes it into the final text, it won’t just stifle the explosion of innovation fostered by the GENIUS Act’s enactment six months ago—the hundreds of American companies, from startups, to fintechs, to big box retailers who are building with stablecoins—it will effectively tax every American who holds a digital dollar.

This would be a government-mandated windfall for financial intermediaries at the expense of individual Americans.

The Debit Reality vs. The Credit Myth

To understand why a transaction-based regime fails, you have to look at the underlying mechanics.

Traditional payment rewards (like Amex points) are funded primarily by interchange fees. When you buy a coffee, the merchant pays a 2-3% fee (called interchange), and the bank returns a portion of that to you in the form of rewards points. In this model, the bank only makes money when you spend. Every transaction is an extension of credit, where the behavioral incentive is designed to enhance the velocity of money through the system. This stems from the genesis of credit card networks as loose consortiums of banks in the late ‘50s looking to increase customer retail spend and therefore loan volume.

Stablecoins work fundamentally differently. They are debit products, not credit products. The revenue that funds the ecosystem doesn't come from merchant “swipes”; it comes from the yield on the reserve assets (like U.S. Treasuries) backing the tokens.

This revenue is generated every second a token is held, regardless of whether it’s ever spent at a cash register. In a stablecoin model, value is a function of AUM (Assets Under Management), not transaction frequency.

A "Holding Tax" on Consumers

By mandating that reward payments can only be triggered by a purchase, Congress would be creating a “Holding Tax” on individuals.

Under the current GENIUS Act framework, an affiliate (like an exchange, or payment app like Venmo) can share the revenue generated by those Treasury reserves back with the tokenholder in the form of rewards. It’s a fair exchange: the user provides the liquidity, and they receive a share of the economics. (And it’s a simple revenue sharing deal between issuer and corporate partner, like any other B2B relationship.)

But if you restrict rewards to retail transactions, you are legally requiring the provider to pocket 100% of that yield unless the user buys something at a store.

Consider the math:

• The “Hold” Scenario: A user holds $10,000 in USDC. At a 4.5% Treasury yield, that balance generates $450 a year in value for the issuer. In a competitive market, an affiliate might pass most of that back to the user.
• The “Transaction-Only” Scenario: That same user receives $0 for holding. To get that same $450 back via a "2% retail reward," they would have to spend $22,500 at, say, grocery stores and gas stations annually.

For the vast majority of users (especially those using stablecoins for B2B payments, remittances, or as a long-term store of value) this isn't consumer protection. This is forcing users to subsidize middlemen. Incumbents win, and the American consumer loses.

Killing American Stablecoin Use Before It Starts

Beyond the math, this proposal ignores how people actually use crypto.

Stablecoins are becoming the backbone of global B2B settlement and supply chain logistics. A small business holding $500,000 in a digital dollar to pay overseas suppliers shouldn't be barred from earning rewards on that capital just because they aren't buying eggs with it.

If we tell businesses and builders that they can only participate in the economics of the digital dollar if they use it like a 1990s debit card, they will simply leave the U.S. ecosystem. They will move to offshore, unregulated tokens that don't have these arbitrary restrictions, taking billions in liquidity and U.S. Treasury demand with them.

Bottom Line

Policy should follow the physics of the underlying technology. Stablecoins generate value by existing, not just by moving.

Limiting rewards to customer transactions is a legacy-brain solution to a problem that doesn't exist. If Congress wants a competitive, U.S.-led stablecoin market, it must allow the economics to flow where the value is actually created: the holding of the asset itself.

The GENIUS Act was the most consequential financial regulatory upgrade in a generation: it was the first financial regulatory law passed with fostering innovation as its core motivation, rather than the typical crisis-response model.

Let’s not turn the GENIUS Act into a mandate for a less efficient, more expensive version of the past.