Coinbase CEO Armstrong: USDC Rewards Are Not Interest
Coinbase CEO Brian Armstrong stated on the Money Rehab podcast that users holding USDC on the platform receive rewards rather than interest, intentionally using this term to differentiate from bank deposit interest.
He mentioned that the underlying dollars are invested in short-term U.S. Treasury bonds, yielding about 3.5% to 4%, with part of the earnings returned to users, resembling a loyalty program. Bank interest comes from a fraction of reserves: banks lend out customer funds and bear credit and liquidity risks. Coinbase also describes USDC Rewards as a loyalty program funded by the company, clarifying that the balance is not a bank deposit account.
In response to banks demanding that crypto platforms adhere to the same capital, liquidity, and federal deposit insurance rules, Armstrong stated that the GENIUS Act requires stablecoins to have 100% reserves and be held in short-term U.S. Treasury bonds, eliminating any fractional reserve gaps and preventing bank-like runs. Banks are heavily regulated due to higher risks, while the structure of stablecoins is different.
GENIUS prohibits issuers from paying interest or returns to holders, but does not equally prohibit trading platforms from offering rewards. USDC is issued by Circle, and Coinbase has exited the role of issuer in 2023. Armstrong reiterated the same points at the 2025 earnings conference: "We are not the issuer; what we pay is not interest but rewards," stating this is the main reason customers keep their funds on Coinbase.
This statement comes after the Senate's progress on the Clarity Act has stalled. Armstrong asserted that whether through congressional legislation or rules from the SEC and CFTC, clarity in U.S. crypto regulation will eventually arrive. He also criticized some large banks for lobbying to limit competition, harming consumers, and stated that the company is helping community banks and large banks access stablecoin technology.
Funds are being repriced between bank deposits, short-term Treasury bonds, and USDC balances on the platform. Buyers are exchanges that want to retain stablecoin deposits and share part of the Treasury bond interest with users, while sellers are banks concerned about deposit migration, demanding that rewards be redefined as insured interest. Beneficiaries are platforms that can attract deposits with rewards and are not bound by the prohibition on interest payments to issuers, while pressured are banks that rely on low-cost deposits and view stablecoin rewards as deposit substitutes.
Source: Public Information
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Armstrong publicly called for legislation to allow stablecoins to pay interest in April 2025, then changed his stance after GENIUS was implemented to state "issuers cannot pay, but platforms can offer rewards," and has consistently used this terminology since the August 2025 earnings call and this podcast. Coinbase and Circle jointly developed USDC, and after exiting the issuance role in 2023, they retained the distribution and rewards layer. The company has previously stated that if rewards were banned, it would actually be more profitable because they would have to issue large amounts to users; however, they still want to maintain this customer acquisition hook. The Treasury's borrowing advisory committee estimated that up to about $6.6 trillion in deposits could migrate to stablecoins, prompting banks to demand silence on the issue.
The capital path involves redistributing Treasury bond interest. Reserves buy short-term bonds, with part of the interest remaining in the issuance and distribution chain, and part returning to the platform balance as rewards. Coinbase also lends out some USDC through on-chain lending agreements, achieving a reward rate higher than simple Treasury bonds. The motivation is not to become a bank, but to maintain the right to share in Circle's reserve earnings through the distribution layer after GENIUS prohibited issuers from paying interest, and to prevent deposits from flowing back to traditional accounts.
This is in contrast to PayPal's approach to rewards for its own stablecoin and higher USDC rewards from platforms like Kraken. The banking industry views this same structure as a loss of deposits for community banks. The industry is currently in a legislative gap period: GENIUS regulates issuance, Clarity is stalled in the Senate, and the definition of rewards remains the only open product valve. The phase is not about expanding issuance scale, but controlling "who has the right to distribute Treasury bond earnings to users."
The structural change is a struggle over regulatory classification. Fractional reserves correspond to capital, liquidity, and deposit insurance; full short-term bond reserves correspond to redemption and reserve audits. The mechanism is that terminology determines licensing: if written as interest, it falls under banking law; if written as rewards, it remains in the gaps of payment and commodity contracts. Whoever first solidifies this terminology will decide whether trillion-dollar cash management migrates out of or back into bank ledgers.