Stablecoins are debit card products, not credit card products.
Written by: Alex Grieve, Vice President of Government Affairs at Paradigm
Compiled by: Luffy, Foresight News
The US Congress is pushing forward with legislation related to cryptocurrency market structure, which is expected to be a landmark victory for the US financial system. However, as negotiations enter the detailed rule-making stage, bank lobbying groups are making alarmist but unfounded calls that are distorting the originally well-thought-out policy draft. They have proposed a suggestion that goes against economic logic: to use this opportunity of market structure legislation to rewrite the content already agreed upon in last year's GENIUS bill, further limiting stablecoin rewards to merchant-only transactions and excluding stablecoins used for asset preservation from the reward eligibility.
The logic behind this proposal commits a classic "Washington mistake": attempting to force 21st-century technology into a 20th-century regulatory framework. Specifically, some lawmakers want to regulate stablecoins like credit cards.
This line of thinking is fundamentally flawed. Once this provision is written into the final bill, its impact will not only stifle the innovation boom spurred by the GENIUS Act six months after its enactment, but will also effectively tax every American holding digital dollars.
This will be a government-backed transfer of benefits: at the expense of ordinary people, financial intermediaries will reap the profits.
The truth about debit cards and the myths about credit cards
To understand why a "trading-centric" regulatory system doesn't work, we must first analyze its underlying operational logic.
Traditional payment rewards (such as American Express points) are primarily funded by transaction fees. When you buy a cup of coffee, the merchant pays a 2%-3% transaction fee, and the bank returns a portion of that as points. In this model, the bank only profits when you make a purchase. Each transaction represents a credit injection, and the incentive mechanism is designed to increase the velocity of money within the system. This model can be traced back to the late 1950s: at that time, credit card networks were simply loose alliances of banks that launched credit cards with the initial goal of stimulating consumer retail spending and thus expanding lending.
Stablecoins operate on a completely different logic. They are debit card-like products, not credit card-like products. The revenue supporting the stablecoin ecosystem does not come from merchant "transaction fees," but from the returns generated by the reserve assets behind the stablecoins (such as US Treasury bonds).
As long as a stablecoin is held, it generates returns every second, regardless of whether it has been traded at the checkout. In the stablecoin business model, value depends on assets under management (AUM), not transaction frequency.
"Holding tax" levied on consumers
If Congress mandates that rewards can only be issued when a consumer transaction occurs, it would be tantamount to imposing a "ownership tax" on the public.
Under the current GENIUS Act, partner institutions (such as cryptocurrency exchanges and payment applications like Venmo) can return the profits generated from government bond reserves to stablecoin holders as rewards. This is a fair transaction: users provide liquidity and share in the profits. Essentially, it's a B2B revenue-sharing agreement between the issuer and its business partners, no different from similar partnerships in other industries.
However, limiting rewards to retail transactions would legally require issuers to appropriate all revenue generated from reserve assets unless users make purchases in stores.
We can understand this intuitively through a set of data:
- Holding Scenario: A user holds $10,000 worth of USDC stablecoins. Based on a 4.5% yield on US Treasury bonds, this asset could generate $450 in annual revenue for the issuer. In a highly competitive market, the partner institution is likely to return the majority of the returns to the user.
- For trading purposes only: Users holding $10,000 USDC will not receive any rewards during the holding period. To earn back $450 through the "2% Retail Trading Rewards," users would need to spend a cumulative total of $22,500 annually at grocery stores, gas stations, and similar locations.
For the vast majority of users (especially those who use stablecoins for B2B payments, cross-border remittances, or long-term value preservation), this is not a consumer protection policy, but rather forces users to subsidize intermediaries. The end result is that established institutions reap huge profits, while American consumers become the victims.
Stifling the nascent application of stablecoins in the United States
Putting aside the data, this proposal completely ignores the real-world use cases of cryptocurrencies.
Stablecoins are gradually becoming a core infrastructure for global B2B settlements and supply chain logistics. A small business holding 500,000 digital dollars to pay overseas suppliers should not be disqualified from receiving rewards simply because the funds were not used to buy eggs.
If we send the message that businesses and developers can only enjoy the economic benefits of digital dollars by spending them like debit cards from the 1990s, they will simply choose to leave the US market ecosystem. They will turn to unregulated overseas stablecoins that are not subject to such arbitrary restrictions, resulting in the loss of billions of dollars in liquidity and a huge demand for US Treasury bonds.
Conclusion
Regulatory policies should be formulated in accordance with the operating principles of the underlying technologies. The value creation of stablecoins stems from their holding attributes, rather than simply their circulation attributes.
Limiting reward mechanisms to consumer transactions is using outdated thinking to solve a problem that doesn't even exist. If Congress wants to create a competitive, US-led stablecoin market, it must direct economic benefits towards where value is truly created: the holding of assets themselves.
The GENIUS Act is the most significant financial regulatory reform bill in recent decades. It is the first financial regulatory legislation with the core objective of promoting innovation, rather than following the old path of "crisis-driven regulation".
We must not allow the GENIUS Act to become a regressive bill, giving rise to an even less efficient and more costly rehash of the old era.
