Coinbase CEO Brian Armstrong, in an interview on the Money Rehab podcast on September 19, drew a sharp line between traditional banking with fractional reserve lending and fully-backed stablecoins, stating that the latter carry less risk for consumers.
Armstrong's argument is simple: banks use customer deposits to issue loans, mortgages, and other credit products, keeping only a fraction of the funds on hand. This is their business model – which is why banks need a license. "We do not engage in fractional reserve lending. That’s what a banking license is for," he said. When holding USDC, the underlying reserves are placed in short-term U.S. Treasury bonds, rather than being lent out to borrowers. The GENIUS Act, signed in July 2025, requires stablecoin issuers to maintain reserves of at least 1:1 for each token and prohibits directly paying interest to holders.
Coinbase currently offers rewards on USDC ranging from 3.75% to 4.5%. These payouts are funded through a revenue-sharing agreement with Circle – the issuer of USDC, which earns interest on short-term treasuries. Armstrong insists: these rewards are fundamentally different from bank interest. Banks pay interest from profits, partially derived from lending deposits, while Coinbase's rewards come from the yield of fully reserved assets.
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