Coinbase Warns US Treasury Against GENIUS Act Overreach
Coinbase warns the US Treasury to proceed carefully as it prepares new regulations under the GENIUS Act, marking another decisive moment in the ongoing crypto regulation debate. The leading American exchange believes that excessive government overreach could harm innovation, limit competition, and drive blockchain development abroad.
In this blog, we’ll explore why Coinbase has issued this warning, what the GENIUS Act aims to achieve, and how the Treasury’s approach could shape the future of stablecoins both in the United States and across the global digital economy.
Understanding the GENIUS Act
The GENIUS Act, officially introduced in 2025, is the first federal framework aimed at regulating payment stablecoins— digital assets designed to maintain a one-to-one peg with the US dollar or similar fiat currencies.
Its goals are clear:
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To bring stability and transparency to the fast-growing stablecoin sector.
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To ensure every token is fully backed by safe, liquid assets.
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To give the Treasury authority to oversee compliance and protect consumers.
Under the Act, stablecoin issuers must maintain clear reserves, undergo audits, and operate under specific disclosure requirements. It also defines how foreign stablecoins can interact with the US financial system.
While the Act represents progress towards mainstream regulatory clarity, Coinbase is warning that how the Treasury interprets it will determine whether the legislation supports innovation or stifles it entirely.
Coinbase’s Main Concern: Overreach
Coinbase’s submission to the US Treasury highlights several areas where overreach could become a serious problem. The company believes the Treasury must implement the GENIUS Act exactly as Congress intended, avoiding the temptation to expand its scope unnecessarily.
1. Keep Rules Focused on Issuers
Coinbase argues that the GENIUS Act was written to regulate issuers — companies directly responsible for creating and managing stablecoins — not the entire blockchain ecosystem. The exchange fears that if the Treasury extends oversight to include developers, validators, or open-source projects, it would place unrealistic compliance burdens on actors who have no control over stablecoin reserves.
Such a move, Coinbase warns, could deter new startups, stifle open-source collaboration, and drive innovation away from US soil.
2. Avoid Misclassifying Rewards as “Interest”
The Act prohibits stablecoin issuers from offering interest on their tokens to avoid confusion with bank-like products. Coinbase supports this, but it has asked the Treasury not to stretch that rule too far.
If ordinary reward schemes — such as loyalty points or cashback programmes — are mistakenly treated as “interest,” it could cause widespread confusion. Coinbase believes that would rewrite congressional intent and create unnecessary hurdles for crypto exchanges and fintech firms trying to stay compliant.
3. Recognise Stablecoins as Cash Equivalents
One of Coinbase’s most notable proposals is to classify payment stablecoins as cash equivalents for tax and accounting purposes. The reasoning is simple: stablecoins like USDC are designed to mirror the dollar and are backed by liquid reserves. Treating them differently for tax purposes, Coinbase argues, makes little sense and only complicates adoption.
This change would also encourage businesses and investors to use stablecoins more freely, boosting innovation while keeping compliance straightforward.
4. Safeguard US Competitiveness
Finally, Coinbase insists that America must not fall behind other global markets that are already creating clearer stablecoin frameworks — including the UK and the European Union.
The company stresses that stablecoins strengthen the dollar’s international dominance. Most users of dollar-pegged stablecoins are based outside the United States, often in emerging markets where access to US banking is limited.
Coinbase believes that heavy-handed regulation could harm the US economy, restrict growth, and hand the competitive advantage to other countries.
The Stakes: Why It Matters
The Treasury’s rulemaking process under the GENIUS Act isn’t just a technical exercise — it could define the direction of the entire crypto sector.
Innovation on the Line
Overregulation could discourage developers and small businesses from building blockchain solutions in the US. The fear of being unintentionally classified as “financial entities” would drive many to relocate to friendlier jurisdictions.
By contrast, a clear and proportionate approach could foster innovation, attract institutional investors, and encourage the responsible growth of stablecoins as payment tools.
Consumer Protection and Market Confidence
Regulation should, of course, protect users. The GENIUS Act’s provisions for audits, reserves, and transparency are vital for ensuring stablecoins maintain trust.
However, Coinbase warns that too many restrictions could produce the opposite effect — pushing users toward unregulated or offshore alternatives with far fewer safeguards.
Global Influence
The GENIUS Act is being closely watched by international regulators. If the US gets this right, it could set a global precedent for balanced, forward-thinking crypto policy. If it gets it wrong, the world’s largest economy risks losing leadership in digital finance to faster-moving rivals.
What Coinbase Wants the Treasury to Do
Coinbase’s message is clear: implement the GENIUS Act precisely as written. No more, no less.
In its response, the company outlined three guiding principles for the Treasury:
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Stay within Congressional intent — regulate issuers, not developers.
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Provide practical tax clarity — treat payment stablecoins as cash equivalents.
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Maintain competitiveness — allow the US stablecoin market to thrive globally.
Coinbase argues that this approach would protect consumers, preserve financial stability, and ensure that the US dollar remains the world’s leading settlement currency in digital markets.
The Bigger Picture: Regulation vs. Innovation
The crypto sector has long faced tension between innovation and compliance. Regulators often prioritise control, while innovators push for flexibility. Coinbase’s warning reflects this broader conflict.
For regulators, the challenge is to ensure safety without stifling creativity. For businesses like Coinbase, the goal is to operate within clear, fair, and predictable rules that encourage growth.
As the Treasury finalises its rulemaking, the balance it strikes could determine whether the US remains a leader in blockchain innovation or watches progress shift overseas.
What Happens Next
The Treasury will now draft the formal GENIUS Act regulations, followed by a consultation period for feedback from industry participants. It’s likely to face pressure from both sides — those demanding strict oversight and those urging a lighter touch.
Coinbase’s submission has already sparked broader discussion across the industry. Other major players, including Circle and Paxos, are expected to release their own responses soon.
In the months ahead, all eyes will be on Washington. The Treasury’s interpretation of the Act could either unlock a new era of financial innovation — or unintentionally build barriers that halt it.
Final Thoughts
Coinbase’s warning to the US Treasury is more than a policy comment; it’s a pivotal statement about the future of digital money.
By urging regulators to avoid overreach, Coinbase is championing a balanced approach that protects consumers without punishing innovators. Its recommendations — narrow definitions, sensible tax treatment, and a focus on issuers — could help shape a sustainable framework for years to come.
If the Treasury listens, the GENIUS Act could mark a turning point in crypto regulation, promoting growth, stability, and trust. But if the rules go too far, they may do exactly what Coinbase fears most: drive innovation away from the United States.
