Written by: Brian Armstrong
Translated by: Luffy, Foresight News
TL;DR: US stablecoin legislation should allow consumers to earn interest from stablecoins. The government should not favor one industry over another, and both banks and crypto companies should be allowed to share interest with consumers, which aligns with free market principles.
Stablecoins have already achieved product-market fit by digitizing the US dollar and other fiat currencies. However, for ordinary people and the US economy, we have not yet unlocked a key element to obtain full benefits, which is: on-chain interest.
Let's quickly review the background: Stablecoins like USDC are backed by US dollars at a 1:1 ratio. Stablecoin issuers typically invest dollar reserve assets in low-risk projects, such as short-term US Treasury bonds. The interest earned from these investments is usually retained by the issuer. "On-chain interest" refers to stablecoins being able to serve as a payment form and directly transfer the interest earned from reserve assets to stablecoin holders, which is essentially equivalent to an interest-bearing checking account.
I believe releasing stablecoin on-chain interest is a win-win move:
US consumers benefit. They will gain the most from on-chain interest, as they are currently at a loss without it. In 2024, the average federal funds rate/market yield is 4.75%, while ordinary consumer savings account yields are only 0.41% (typically just 0.01%). Last year's inflation rate was around 3%, meaning consumers' actual purchasing power was lost by 2.5% due to intermediaries. Now there's a clear solution: on-chain interest democratizes the opportunity to earn market rate returns, giving ordinary people a fair chance to preserve and grow their wealth. Consumers are no longer stuck with a savings account earning 0.01% interest but can directly earn over 4% through stablecoins.
Billions of people globally benefit. They can access interest-bearing US dollars. Billions of people still face inadequate financial services and see their savings continuously devalued due to local currency fluctuations. They cannot access US dollars, let alone interest-bearing ones. Interest-bearing US dollar stablecoins can connect them to an instant, transparent, and global financial system, requiring only a simple internet connection. No need to visit bank branches or face excessive overdraft or remittance fees. Supported by the cryptocurrency system, this allows everyone equal access to financial services.
The US economy benefits. Stablecoins are already one of the largest holders of US Treasury bonds, holding more than most countries and likely to become the largest holder within a few years. They are rapidly connecting global users to the US dollar system, bringing funds back to the US Treasury bond market and expanding the dollar's dominance in an increasingly digital global economy. More consumer earnings mean more consumption, savings, and investment, driving economic growth in all regions holding stablecoins. If we do not release on-chain interest, the US will miss out on billions of dollar users and potentially trillions in cash flow.
So why aren't we acting now? The technology is ready, but the law has not caught up. Unlike interest-bearing checking and savings accounts, stablecoins currently cannot obtain exemptions from securities laws that would allow issuers to pay interest to users. Stablecoins should be able to pay interest like regular savings accounts without the burdensome disclosure requirements and tax implications specified in securities laws.
Today, we face a tremendous opportunity with a crypto-friendly government executive branch and Congress actively developing new stablecoin legislation. We can choose to create a level playing field, ensuring these laws pave the way for all regulated stablecoins to directly pay interest to consumers, just like savings or checking accounts.
Otherwise, we are protecting an outdated system that only pays ordinary people 0.01% interest while keeping most of the interest for intermediaries.
Consumers deserve a larger slice of the pie. Opening the door to on-chain interest will ultimately benefit consumers and keep crypto innovation within the country.
