A compliant platform stops paying USDC rewards to free users in the United States

Source: PortaldoBitcoin Original Title: Coinbase Will Stop Paying USDC Rewards to Free Users in the US Original Link: A compliant platform will cease paying USDC rewards to non-paying US users in the US, confirming that only paid subscribers of Coinbase One are entitled to earn 4% yield on their stablecoin balances. This measure does not apply to Brazil, where rewards remain unchanged.

The announcement was initially sent via email to US users, with the change taking effect on December 15th. A company spokesperson confirmed that USDC rewards have now become an exclusive benefit for paid members.

“A compliant platform allows users to earn 10 times the US average savings rate, with unlimited earnings and no minimum balance requirement,” the representative stated, adding that other benefits such as trading fee waivers are also included in the monthly fee.

How USDC Rewards Work

The USDC reward program on the compliant platform has always used a floating interest rate. For example, after legal approval, the exchange previously paid 4.1% of USDC balances. Paid subscribers have always enjoyed additional incentives, and in the same announcement, the platform announced subscribers would receive a 4.5% USDC yield.

When the platform released its Q3 earnings in October, it announced that users held $9 billion USDC on the platform, a 90% increase compared to the same period last year. The company attributed this growth to “our USDC reward program and deeper integration of USDC into our products.”

It also stated that its stablecoin yields increased by $107.1 million in Q3, “as the average USDC balance held increased, we earned most of the interest from relevant reserves.”

The platform is also promoting a “system update live broadcast” scheduled for December 17, but has not shared official details. Following leaks in November about possible integration of prediction markets and tokenized stock trading, a company representative pointed to a trailer for the broadcast.

Stablecoin Issuers and the Interest Rate Environment

Stablecoin issuers mint USDC and other digital tokens by exchanging dollars. To ensure each USDC can be exchanged for USD, issuers maintain dollar cash and equivalent reserves, such as short-term US Treasury bonds and repurchase agreements. This means the interest earned on these reserves varies with the Federal Reserve’s adjustments to the benchmark rate.

The Federal Reserve has approved a third 0.25 percentage point rate cut this year, lowering the target range to 3.5%-3.75%. Investors are concerned that the Fed’s rate cuts will directly affect the earnings from the $78.5 billion reserves held by the company.

Collaboration Between Stablecoin Issuers and the Compliant Platform

When the stablecoin issuer prepared to go public on the New York Stock Exchange earlier this year, documents submitted to regulators showed that the issuer would return 50% of the interest earned from reserves to the compliant platform. Although relevant laws prohibit stablecoin issuers from paying interest or yields on their tokens, laws do not prohibit partners (in this case, the compliant platform) from offering reward programs to promote adoption.

The platform first launched its USDC rewards program in October 2019, offering a 1.25% yield on USDC held on the platform. At that time, USDC was still managed by an alliance jointly founded by the exchange and the stablecoin issuer. The alliance was dissolved in 2023 when the platform acquired the stake of the stablecoin issuer.

In the same month the USDC rewards were introduced, the Federal Reserve’s Federal Open Market Committee conducted its third and final rate cut of 2019. The Fed unanimously approved lowering the benchmark rate to a range of 1.50%-1.75%. However, in 2020, the global COVID-19 pandemic led to five unscheduled emergency FOMC meetings, during which rates were cut to near zero.

The stablecoin issuer has adjusted its reward rates over the years, but this is the first time the program has been completely halted for free users.