Coinbase CEO urges lawmakers to enable on-chain interest for stablecoin holders

Coinbase CEO Brian Armstrong has called for legislation allowing stablecoin holders to earn interest on the digital currency. In a recent article published on X, Armstrong said allowing on-chain interest for stablecoins could have a massive impact on growing stablecoin adoption.

Under the current structure for dollar-pegged stablecoins such as USDT and USDC, the issuers of the stablecoins get all the interest earned from the reserve assets backing the stablecoin. However, Armstrong wants the holders to get a share of that as on-chain interest.

He explained:

“Onchain interest is the ability of a stablecoin to function as a form of payment and directly deliver interest earned on reserve assets to the stablecoin holder, effectively an interest-bearing checking account.”

According to Armstrong, technology exists to enable this for existing stablecoins, but most issuers cannot do so because of the law. Securities laws currently grant exemptions to checking and savings accounts that allow them to pay interest to users, but stablecoins do not have the same exemption.

Therefore, the law needs to change so that stablecoins are treated like regular savings accounts. This will allow issuers to enable on-chain interests without worrying about regulatory implications. The Coinbase CEO added that now is the best time to pass such legislation because a pro-crypto administration and Congress are working on stablecoin laws.

On-chain stablecoin interest to benefit Consumers

Meanwhile, Armstrong noted that enabling on-chain interest in stablecoins will be a big win for consumers in the US and globally. According to him, US consumers will be the biggest beneficiaries, just as they are the ones losing the most from the lack of on-chain interests.

He explained this by pointing to the average yield for savings accounts versus that of Federal Reserve funds. On average, the yield for Fed funds is 4.75%, while savings accounts have 0.41%, with most of them paying around 0.01%.

This low yield from savings accounts, Armstrong said, leaves savings account users at a disadvantage, given that the inflation rate is around 3%. Thus, implementing on-chain interest for stablecoins will allow more people to have access to a 4%  yield.

He said:

“There is a clear solution: onchain interest democratizes access to the market rate yield rate, giving regular people a fair shot at maintaining and growing their wealth.”

The CEO added that on-chain will also benefit stablecoin holders in other countries, strengthening US dollar hegemony while boosting the US economy by increasing the amount US residents can generate on their savings. All in all, he believes it will be a positive development for consumers and the US ecosystem.

Armstrong concluded, saying:

“Consumers deserve a bigger piece of the pie. Opening the door for onchain interest will force us all to up our game for the ultimate benefit of consumers, and will keep this innovation onshore.”

Unsurprisingly, the proposal has attracted positive feedback from most quarters, with many in support of it. However, some do not believe it is necessary. Crypto entrepreneur and legal expert Artem Tolkachev noted that the idea is only fair at first glance and not on closer look.

According to Tolkachev, bank accounts do not pay interest by default; that is just how it is in crypto. He pointed to several DeFi platforms where users can get yield on their capital when they take certain actions, noting this is the ideal thing and not lock-in stablecoin yields, only centralize the system and damage the broader crypto ecosystem.

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