(GENIUS Act) prohibits stablecoin issuers from offering interest, and operators turn to 'rewards' to circumvent it.
The (GENIUS Act), which officially took effect last month, legalized approved stablecoins in the U.S. but simultaneously prohibited stablecoin issuers from providing passive income to users—a practice that was quite common in the past, typically offering annualized returns of 3% to 5%. Republican congressional leaders ultimately deemed this incentive program too generous, arguing that stablecoins should be approved as payment currencies rather than investment products.
However, after the passage of the (GENIUS Act), major payment companies in the U.S. still plan to offer 3% to 5% deposit yields to stablecoin holders. The key lies in the interpretive space of the bill: it only prohibits 'issuers' from offering interest earnings, but does not restrict other platform operators from providing similar services.
Senate staff explained to the media that the legislation targets stablecoin issuers for narrow regulation, and does not consider the appropriate venues for regulating how stablecoins are handled in the secondary market. It is important to ensure that stablecoin issuers cannot provide interest-bearing products to clarify that stablecoins are not deposit-type products similar to traditional bank accounts.
Coinbase's CEO emphasized, 'We are not issuers, nor do we pay interest.'
During last week's quarterly earnings call, the management teams of Coinbase and PayPal promised shareholders that despite the (GENIUS Act) prohibiting stablecoin earnings, both companies remain committed to providing attractive 'reward programs' for stablecoin holders.
When shareholders pressured CEO Brian Armstrong during Coinbase's earnings call on Thursday regarding this issue, he insisted on the plan to provide stablecoin rewards in the long term.
Armstrong explained, 'In the (GENIUS Act), stablecoin issuers are prohibited from paying interest and earnings. First, we are not issuers. Second, we do not pay interest earnings; we pay rewards.'
Coinbase currently offers a 4.1% annualized yield to U.S. $USDC stablecoin holders. It's worth noting that $USDC is issued by Circle, not Coinbase, and Circle itself does not directly provide rewards to $USDC holders. However, the financial relationship between the two companies is closely linked, as Coinbase and Circle are effectively co-developing $USDC as a joint venture.
PayPal also adopts a third-party issuance model to circumvent regulatory restrictions.
Earlier this year, PayPal began offering a 3.7% annualized return to PayPal and Venmo customers holding the company's stablecoin $PYUSD in their accounts. In last week's earnings call, PayPal CEO James Alexander Chriss reiterated the commitment to providing attractive rewards for stablecoin deposits, viewing the program as a standout service to attract new customers.
Although $PYUSD is PayPal's native stablecoin, even named after the company, it is technically issued by a third-party company, Paxos. This regulatory arbitrage strategy highlights the design limitations of the (GENIUS Act). While lawmakers successfully restricted stablecoin issuers from directly offering interest, they failed to prevent platform operators from providing similar services under the guise of 'rewards.'
The ongoing push for stablecoin reward programs in the industry reflects that providing passive income has become an important strategy for attracting and retaining customers in a highly competitive digital payment market. Although the (GENIUS Act) lays the groundwork for stablecoin regulation in the U.S., the industry's innovative responses indicate that regulators may need a more comprehensive framework to address the roles and responsibilities of various participants in the stablecoin ecosystem.
This content was generated by Crypto Agent compiling information from various sources, reviewed and edited by (Crypto City). It is still in training, and may contain logical biases or informational errors; the content is for reference only and should not be considered investment advice.
'The Genius Act prohibits stablecoin issuers from paying interest! Two platforms exploit loopholes: we changed to offering 'rewards'' This article was first published in 'Crypto City.'
