Washington, D.C.— As U.S. lawmakers work on stablecoin regulations, a critical issue remains unresolved: Should consumers be allowed to earn interest on their stablecoin holdings? Advocates argue that enabling onchain interest would empower consumers, promote financial inclusion, and strengthen the U.S. economy—while ensuring fair competition between banks and crypto firms.
The Case for Onchain Interest in Stablecoins
Stablecoins, such as USDC, are digitized representations of fiat currencies backed 1:1 by U.S. dollars. Issuers typically hold reserves in low-risk investments like short-term U.S. Treasuries, earning interest on these assets. However, instead of passing earnings to consumers, issuers retain the interest for themselves.
Allowing onchain interest would change this system, ensuring that stablecoin holders directly benefit from market-rate yields—much like an interest-bearing checking account. This transformation could unlock significant financial opportunities for consumers and markets worldwide.
How Consumers Benefit from Stablecoin Interest
- Fairer Interest Rates – The 2024 Federal Reserve funds rate averaged 4.75%, yet traditional savings accounts offered a mere 0.41%, with some as low as 0.01%. Inflation at 3% meant real purchasing power loss for most Americans. By enabling onchain interest, stablecoins could provide direct access to fair-market yields exceeding 4%, helping consumers grow their wealth.
- More Financial Control – Consumers wouldn’t have to depend on banks’ low rates or hidden fees. Instead, they could hold stablecoins, earn competitive interest, and transact globally without restrictions.
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Expanding Financial Inclusion with Interest-Bearing Stablecoins
- Access for the Underbanked – Billions of people worldwide lack access to traditional banking. Many cannot secure a U.S. dollar savings account, let alone one that earns interest. By allowing interest-bearing stablecoins, these individuals could store wealth in a stable currency without relying on volatile local economies.
- Lower Costs, No Middlemen – With stablecoins, users only need an internet connection—eliminating the need for branch visits, overdraft fees, or expensive remittance services.
Why the U.S. Economy Wins with Stablecoin Interest
- Stronger Treasury Demand – Stablecoin issuers already hold more U.S. Treasuries than most countries. Expanding stablecoin adoption through onchain interest would increase demand for U.S. bonds, reinforcing dollar dominance in the global economy.
- Boosting Economic Activity – Giving consumers direct access to interest income encourages spending, saving, and investing—stimulating local and global economies.
Regulatory Barriers: Why Stablecoin Holders Can’t Earn Interest Yet
Despite the technological readiness of stablecoins, outdated securities laws prevent issuers from offering interest without excessive disclosures and tax implications. Unlike banks, stablecoins do not benefit from exemptions that allow them to distribute earnings to users freely.
As Congress drafts new stablecoin regulations, lawmakers must decide whether to:
Modernize policies to benefit consumers and the economy.
Maintain outdated restrictions that keep interest earnings with financial intermediaries.
The Path Forward: Ensuring Fair Competition & Innovation
Fair competition and consumer empowerment should be top priorities in stablecoin legislation. If the U.S. allows onchain interest, it will position itself as a global leader in financial innovation, ensuring that stablecoins drive economic growth rather than serving as profit mechanisms for financial institutions.
Final Thoughts: A Call for Consumer-Centric Stablecoin Policy
The choice is clear: Embrace onchain interest and give consumers access to fair financial opportunities—or uphold a system that offers 0.01% interest while middlemen pocket the profits.
Do you believe stablecoin holders should earn interest? Join the conversation below and share your thoughts!
