Allowing stablecoin interest payments would benefit the U.S. and the global economy.

Written by: Brian Armstrong

Translated by: Luffy, Foresight News

TL;DR: U.S. stablecoin legislation should allow consumers to earn interest on stablecoins. The government should not favor one industry over another; both banks and crypto companies should be allowed to share interest with consumers, aligning with the principles of a free market.

Stablecoins have achieved product-market fit by digitizing the dollar and other fiat currencies. However, for the general public and the U.S. economy, we have yet to unlock a key component to reap the full benefits, which is: on-chain interest.

First, a quick background: Stablecoins like USDC are backed 1:1 by the dollar. Issuers of stablecoins typically invest their dollar reserves in low-risk projects, such as short-term U.S. Treasury bonds. The interest earned from these investments is usually retained by the issuer. "On-chain interest" refers to the ability of stablecoins to serve as a payment form and directly deliver the interest earned from reserve assets to stablecoin holders, effectively functioning like an interest-bearing checking account.

I believe releasing on-chain interest from stablecoins is a win-win situation:

U.S. consumers benefit. They would gain the most from on-chain interest, as they have been losing out without it. In 2024, the average federal funds rate/market yield is projected to be 4.75%, while the average consumer savings account yield is only 0.41% (often just 0.01%). Last year's inflation rate was about 3%, meaning consumers lost 2.5% of their actual purchasing power due to intermediaries. There is now a clear solution: on-chain interest democratizes access to market rate returns, giving ordinary people a fair chance to preserve and grow their wealth. Consumers would no longer have a savings account yielding just 0.01%, but could directly earn over 4% through stablecoins.

Billions globally benefit. They would have access to interest-bearing dollars. Billions around the world still face underbanking issues, and their savings are constantly devalued due to local currency fluctuations. They cannot access dollars, let alone interest-bearing dollars. Interest-bearing dollar stablecoins could connect them to an instant, transparent, and global financial system, requiring only a simple internet connection. No need to visit a bank branch, and no excessive overdraft or remittance fees. This is supported by the cryptocurrency system, allowing everyone equal access to financial services.

The U.S. economy benefits. Stablecoins are already one of the largest holders of U.S. Treasury bonds, holding more than most countries, and are likely to become the largest holder of U.S. Treasuries in a few years. They are rapidly connecting global users to the dollar system, bringing funds back to the U.S. Treasury market, and expanding the dollar's dominance in an increasingly digital global economy. More earnings in consumers' hands mean more spending, saving, and investing, driving growth in local economies where stablecoins are held. If we do not release on-chain interest, the U.S. will miss out on billions of dollar users and trillions of dollars in potential cash flow.

So, why are we not acting now? The technology is ready, but the law has not kept pace. Unlike interest-bearing checking and savings accounts, stablecoins currently cannot obtain exemptions from securities laws that allow issuers to pay interest to users. Stablecoins should be able to pay interest like regular savings accounts without the cumbersome disclosure requirements and tax implications mandated by securities laws.

Today, we face a tremendous opportunity, as a supportive government executive branch and Congress are actively working on new stablecoin legislation. We can choose to create a fair competitive environment, ensuring these laws pave the way for all regulated stablecoins to pay interest directly to consumers, just like savings or checking accounts.

Otherwise, we are protecting an outdated system that only pays ordinary people 0.01% interest while leaving most of the interest to intermediaries.

Consumers deserve a larger piece of the pie. Opening the door to on-chain interest will ultimately benefit consumers and keep the innovation of cryptocurrency domestic.

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