Coinbase under threat from stablecoin regulation

Proposed rules could ban yield on stablecoins such as USD Coin ($USDC), although analysts believe the exchange will be able to adapt.

If lawmakers ultimately ban stablecoin rewards under the proposed CLARITY Act, Coinbase (COIN) could lose one of its tools for attracting users to hold digital dollars on its platform. At the same time, analysts note that the impact on the exchange’s business may be limited.

As lawmakers in Washington debate the future of stablecoin regulation, one unresolved issue within the CLARITY Act could significantly affect the business model of Coinbase and other stablecoin partners: whether companies will be allowed to pay yield to stablecoin holders.

The bill, which has been stalled in Congress since January, aims to establish a regulatory framework for stablecoins — digital tokens typically pegged to the U.S. dollar. The key point of contention is whether crypto companies should be allowed to pass on yield generated from the assets backing these tokens to holders. Banks and some lawmakers insist on banning interest payments, while crypto companies, including Coinbase, argue that restricting rewards would undermine the utility and competitiveness of stablecoins.

However, there were signs of hope from Washington this week. According to Senator Cynthia Lummis on Wednesday, a possible solution could involve stablecoin issuers and their partners changing the wording of their offerings so that they do not resemble bank deposits.

Nevertheless, this issue is important for Coinbase, as stablecoins — especially USD Coin ($USDC) — have become a significant source of revenue and user engagement.

Under the current version of the CLARITY Act, stablecoin issuers would be prohibited from directly paying interest to holders. However, according to an industry source familiar with the bill who requested anonymity, the wording leaves room for alternative schemes that would still allow rewards to reach users.

“There are so many loopholes in the CLARITY Act regarding stablecoin yields that the genie is already somewhat out of the bottle,” the source said.

While the bill prohibits issuers from paying interest, it does not explicitly prohibit exchanges or platforms from distributing incentives — such as discounts, bonuses, or other rewards.

The line between “interest” and “rewards” is blurred, the source added. Marketing campaigns or loyalty programs may effectively replicate the economic effect of yield while formally remaining compliant. This echoes similar debates around provisions in the GENIUS Act, where it is also unclear where the boundary lies between restricting yield and regulating its distribution through partners.

Another provision of the bill may complicate its enforcement. The law includes a clause for activity-based payments: meaning yield could potentially be distributed if the stablecoin is used in transactions, lending, or other financial activities. In practice, this could enable schemes in which stablecoins are used in decentralized finance protocols to generate yield before those rewards are passed on to users.

Even partnerships between issuers and exchanges could potentially achieve similar outcomes. For example, an issuer could earn yield from treasury reserves, share part of that yield with an exchange partner, and the exchange could distribute rewards to users. Such a scheme, regulators warn, could be seen as circumvention, but it is not explicitly prohibited in the current version of the bill.

“It seems even an average marketer could come up with several creative compliant schemes,” the source noted.

Not an existential threat

Wall Street analysts believe the debate matters for Coinbase, but is unlikely to threaten the company’s overall business model.

Owen Lau, an analyst at Clear Street, noted that the ability to share stablecoin yield is just one of many ways to attract users to the platform.

“It matters, but it’s far from critical,” Lau said.

Coinbase already earns revenue from trading, derivatives, and its Base blockchain ecosystem, and many users come to the platform for services beyond stablecoin rewards.

In 2025, the exchange’s primary revenue source was transaction revenue, although stablecoin revenues grew significantly compared to the previous year: in 2025 they reached $1.35 billion versus $910 million in 2024, becoming the second-largest revenue driver, according to recent reports.

Coinbase revenue in 2025 (Coinbase)

At the same time, Coinbase views the debate somewhat differently.

“Ironically, if a ban on crypto rewards goes into effect, it will make us more profitable, since we pay significant rewards to customers holding $USDC,” wrote Coinbase CEO Brian Armstrong in a post on X in February. “But we don’t want that to happen: it’s better for customers to receive rewards and for the U.S. to remain competitive in regulated stablecoins globally.”

Stablecoin rewards play a strategic role.

Lau of Clear Street noted that Coinbase benefits when customers hold $USDC on its platform, as the company can capture the full share of yield generated by the reserves backing the token. If users move those assets to external wallets or decentralized platforms, Coinbase may receive only part of that income.

“If the company cannot offer sufficient incentives, customers may withdraw $USDC from Coinbase wallets,” Lau said, which could reduce the company’s share of stablecoin-related revenue.

At the same time, the short-term financial impact may be limited. Lau noted that Coinbase largely passes stablecoin yield on to users, meaning revenue is often offset by costs.

“From a profit standpoint, it doesn’t change much,” he said, adding that the more important question is whether restrictions could slow long-term growth in $USDC adoption.

If final rules allow activity-based rewards or loyalty-style incentives, Lau believes Coinbase could use these programs to encourage customers to hold and use $USDC on its platform, potentially increasing the stablecoin’s market capitalization and boosting the revenue Coinbase shares with Circle.

For now, the outcome remains uncertain as lawmakers continue to refine the bill’s language.

But even if strict yield restrictions remain, analysts and industry participants believe crypto companies will likely adapt, ensuring that stablecoins remain a competitive component of the digital payments ecosystem.

Coinbase shares have fallen by about 12% since the beginning of the year, while Bitcoin has declined by 19%.

See also: "Crypto exchange Gemini cuts 30% of staff amid AI growth and $585M annual losses"

#Coinbase #Stablecoins #CLARITY Act

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