tl;dr
The GENIUS Act legalizes approved stablecoins in the U.S. but prohibits issuers from offering interest or passive yields on them. Despite this, companies like Coinbase and PayPal are offering yield rewards between 3% and 5% on stablecoin holdings, arguing that these rewards are not interest and thus...
During the months-long debate over stablecoin legislation this spring, crypto industry leaders attempted but failed to get lawmakers to approve interest-bearing stablecoins. The GENIUS Act, signed into law last month, formally legalizes approved stablecoins in the U.S. but prohibits issuers from offering users passive yields, typically between 3% and 5%, on staked or deposited balances. Republican congressional leaders argued that stablecoins should be recognized as payment currencies, not investment products, leading to this restriction.
However, American payment giants like Coinbase and PayPal have moved forward with plans to reward stablecoin holders with yields in the 3% to 5% range despite the GENIUS Act's prohibitions. In recent earnings calls, both companies assured shareholders they remain committed to offering attractive "rewards programs" to stablecoin users. Coinbase CEO Brian Armstrong emphasized that they are not issuers of stablecoins and thus are not violating the law by paying rewards, as opposed to interest, which he described as a major competitive advantage for the platform.
Coinbase currently offers U.S. holders of the USDC stablecoin a 4.1% annual yield. USDC is issued by Circle, not Coinbase, though the two companies co-developed USDC before Coinbase exited as an issuer in 2023. A Senate staffer explained the GENIUS Act targets issuers specifically to clarify that stablecoins are not to be treated like traditional bank deposit products, leaving secondary market activities like Coinbase's rewards outside the bill’s scope.
Rewards programs are not limited to crypto-native firms. Earlier this year, PayPal introduced a 3.7% annual return on its stablecoin PYUSD for users on PayPal and Venmo platforms. PayPal CEO James Alexander Chriss highlighted the program as a key feature to attract new customers in earnings comments last week. Although PYUSD is branded by PayPal, it is issued by third-party Paxos. Notably, the Trump administration ended a 15-month SEC investigation into PYUSD in April, removing a regulatory cloud from the program.