Coinbase CEO Brian Armstrong Pushes for Legislative Changes to Enable Onchain Interest for Stablecoin Holders

Coinbase CEO Brian Armstrong is advocating for legislative changes in the United States to allow stablecoin holders to earn “onchain interest” on their holdings (interest paid directly through blockchain technology). His idea is part of a larger push aiming to increase demand for decentralized financial services and a broader regulatory debate surrounding cryptocurrencies and digital assets. Armstrong argues that enabling interest on stablecoins will enhance financial inclusion, innovation, and competitiveness within the U.S. financial system.

The proposal comes at a time when there’s a lot of uncertainty around how cryptocurrencies like stablecoins should be regulated. Many other countries are already making clear rules about digital money, and Armstrong warns that the U.S. could fall behind if it doesn’t keep up. On March 31, Armstrong also posted on X, saying that cryptocurrency companies should be treated like banks and given clear rules to help them offer services like interest-bearing accounts for stablecoins.

https://t.co/Y7JDtkRK1R

— Brian Armstrong (@brian_armstrong) March 31, 2025

The Role of Stablecoins in the Digital Economy

Stablecoins are digital assets linked to traditional fiat currencies, such as the U.S. dollar, and have become integral to the cryptocurrency ecosystem. Their utility spans remittances, decentralized finance (DeFi), payments, and serves as a store of value for traders looking to hedge against cryptocurrency volatility. According to a report by the Bank for International Settlements (BIS), stablecoins now facilitate a significant portion of transactions in the digital economy, surpassing billions of dollars in daily volume.

Despite their growing use, stablecoin holders in the U.S. are restricted from earning yield on their holdings through DeFi platforms due to regulatory concerns. Currently, major cryptocurrency firms, including Coinbase, have faced scrutiny over offering yield-bearing products. The U.S. Securities and Exchange Commission (SEC) has argued that such products may constitute unregistered securities, leading to enforcement actions against companies attempting to provide interest-bearing stablecoin services.

Regulatory Uncertainty and Legal Challenges

In 2021, the SEC blocked Coinbase’s planned “Lend” program, which aimed to offer stablecoin holders a way to earn interest. SEC Chair Gary Gensler has maintained that many crypto lending products operate as securities and should be registered under existing laws. Coinbase, alongside other firms like BlockFi and Celsius, faced regulatory hurdles over interest-bearing accounts, with BlockFi settling for a $100 million penalty with the SEC.

This regulatory stance has led to confusion and has driven many DeFi and crypto-yield products offshore. Platforms like Binance and Nexo, operating under different jurisdictions, continue to offer yield on stablecoins outside the U.S. Meanwhile, countries like Singapore and Switzerland have introduced clear guidelines, allowing their crypto markets to thrive.

Armstrong’s Proposal

Brian Armstrong believes that U.S. policymakers should introduce clear regulations that allow stablecoin holders to earn interest in a compliant manner. He argues that such changes would not only benefit individual investors but also position the U.S. as a leader in financial innovation.

Key aspects of Armstrong’s proposal include:

• Regulatory Clarity: Distinguishing between stablecoin interest accounts and traditional securities. Clear legal definitions would ensure that yield-bearing stablecoin products do not automatically fall under SEC jurisdiction.
• Consumer Protection: Implementing safeguards to ensure that investors’ funds are protected from fraudulent schemes or high-risk lending practices, similar to the regulatory frameworks applied to money market funds.
• Global Competitiveness: Encouraging blockchain-based financial services to operate within the U.S. rather than being driven offshore due to restrictive regulations. Armstrong warns that without such changes, the U.S. risks losing technological leadership in digital finance.

The Case for Onchain Interest

The ability to earn interest on stablecoins would provide a more attractive alternative to traditional banking for many users. Interest-bearing stablecoins could serve as decentralized savings accounts, where users earn yield directly through blockchain-based protocols rather than relying on traditional financial intermediaries.

Blockchain lending platforms like Aave, Compound, and MakerDAO currently provide decentralized interest rates on stablecoins in non-U.S. jurisdictions. If regulatory frameworks permitted similar offerings in the U.S., stablecoin holders could see annual percentage yields (APYs) ranging from 3% to 8%, often much higher than traditional bank savings accounts, which typically offer less than 1% APY.

Potential Impact

Economic and Financial Implications

If Armstrong’s vision is realized, the following key outcomes could emerge:

1. Enhanced Adoption of Stablecoins – With the ability to earn yield, stablecoins would become a more attractive financial tool for both retail and institutional investors. This could further integrate cryptocurrencies into mainstream finance.
2. Strengthening the U.S. Dollar in the Digital Economy – Many stablecoins, including USDC (issued by Circle), are backed by U.S. dollars. If more investors hold USD-backed stablecoins, it could reinforce the dollar’s dominance in global trade and finance.
3. Alternative Savings and Investment Options – Interest-bearing stablecoins would provide an alternative for savers seeking higher yields outside traditional banks, particularly in an era of inflation.

Risks and Regulatory Concerns

While the benefits are clear, regulators have raised concerns about the systemic risks of widespread stablecoin lending and interest-bearing accounts. The Financial Stability Oversight Council (FSOC) has warned that large-scale stablecoin adoption without proper oversight could pose risks to financial stability.

Key risks include:

• Unregulated Lending Practices: Without sufficient regulation, some platforms could engage in risky lending practices that may lead to insolvencies, as seen in the collapse of Terra’s UST stablecoin in 2022.
• Liquidity Risks: If stablecoin issuers fail to maintain sufficient reserves, large withdrawals could lead to market disruptions.
• Illicit Activities: Regulators fear that interest-bearing stablecoins could be misused for money laundering and unregistered securities offerings if proper safeguards are not in place.

What Do Experts Think?

Supporters of Stablecoin Interest Legislation

Supporters of Armstrong’s idea believe that creating rules that encourage innovation will help the U.S. stay a leader in digital assets. Key figures in the industry, like Circle CEO Jeremy Allaire, have backed rules that let stablecoins earn interest, as long as they follow the law.

Additionally, Senators Cynthia Lummis and Kirsten Gillibrand have introduced a bill that aims to create rules for stablecoins that promote both new ideas and safety. The bill suggests clear requirements for stablecoin reserves and transparency, while allowing interest-bearing accounts under proper regulation.

Critics and Regulatory Resistance

On the other hand, some people in the government remain skeptical. SEC Chair Gary Gensler believes that most crypto yield products resemble securities and should be regulated accordingly. The Federal Reserve also has concerns that stablecoins could hurt the traditional banking system, as people might stop using banks and turn to crypto for savings.

The Path to Regulatory Clarity

Brian Armstrong’s call for legislative changes highlights a growing demand for regulatory modernization in the U.S. crypto industry. While enabling stablecoin interest could drive financial innovation and enhance economic opportunities, concerns around stability, liquidity, and investor protection remain key regulatory challenges.

As lawmakers continue to debate digital asset policies, the outcome of this proposal could shape the future of stablecoin utility and financial inclusion in the U.S. The balance between fostering innovation and ensuring financial stability will be crucial in determining whether stablecoin holders in the U.S. will be allowed to earn onchain interest.