GENIUS Act Cracks Down on Stablecoin Yield, Triggering Workarounds in a Booming Market
Passed in mid-July, the GENIUS Act has jolted the U.S. stablecoin industry, tightening the screws on yield and rewards programs while prompting a wave of creative structuring to keep returns alive. The law’s stablecoin-specific rules are already reshaping product design, compliance strategies, and market positioning across issuers and platforms.
The timing coincides with a boom in demand. Stablecoins have surged in 2025, with total market capitalization at $297 billion—nearly 50% higher than the $206 billion recorded at the year’s start, according to DeFiLlama. That growth has been fueled by differing value propositions: some tokens, like PayPal’s PYUSD, draw users with rewards-like benefits; others, such as Ethena Lab’s USDe, have pursued higher-risk strategies to deliver elevated returns. With the GENIUS Act now on the books, these models are under heavier scrutiny, and firms are quickly experimenting with structures that can deliver benefits without violating the statute.
“The GENIUS Act is trying to end the game of semantics around stablecoin yield,” said Rebecca Liao, CEO of Saga. “For years, companies have called returns ‘rewards’ or ‘cashback,’ but regulators see through that – if it looks like interest, it will be treated like interest.”
To adapt, some issuers and distributors are distancing themselves from direct payments. Sid Sridhar, founder and CEO of BIMA Labs, said companies are moving yield through partner banks or sweep mechanisms so the issuer doesn’t pay interest directly. “Another way is to frame rewards as payment incentives rather than yield, which is how PayPal can plausibly keep offering returns without calling it interest,” he told The Defiant. Today, PayPal’s PYUSD offers a 3.7% APR via Paxos; the benefit is treated as a direct payment to users, not as interest.
“PayPal’s PYUSD rewards are a textbook GENIUS Act workaround,” said Hadley Stern, Chief Commercial Officer at Marinade. “The law stops issuers from paying yield, but PayPal isn’t the issuer—so it frames payouts as wallet ‘rewards’.” Stern cautioned that the window may narrow: “I expect [the banks] to win,” he added, referring to lobbying efforts to curb such approaches.
Eli Cohen, general counsel at Centrifuge, countered that these structures aren’t loopholes but extensions of established financial practices. “Banks are allowed to partner with brokerage firms to offer sweeps of cash deposits into interest-bearing money market funds,” he said. “I don’t see why stablecoin issuers should not also be able to develop partnerships with other providers offering yield for stablecoin deposits.” Even so, Cohen acknowledged the strength of the Washington banking lobby and the likelihood of targeted pushback.
Winners and losers are already emerging. Mike Maloney, CEO of Incyt, told The Defiant that the GENIUS Act will force issuers to pick lanes. Circle, which has long emphasized compliance and avoided direct yield programs, could be rewarded for its conservatism. “Genius isn’t exactly a no-brainer for the big stable issuers; Circle is well-positioned after years of working with regulators, but is too risk-averse to stretch interest rules,” he said. Tether—which has faced persistent questions about transparency and is domiciled offshore—may find U.S. market access tightening, though the company has announced USAT, a U.S.-based stablecoin, potentially signaling a strategic pivot. “This is unfortunate, as they are the only company with a balance sheet that could rival PayPal’s PYUSD,” Maloney added.
Meanwhile, Ethena is seeking to occupy the high-yield niche left vacant after Terra’s collapse. Terra, a Cosmos-based chain that issued the $40 billion TerraUSD (UST), imploded in 2022. “They don’t attempt to meet GENIUS requirements and rely upon DeFi’s borderless nature,” Maloney said of Ethena. “With this freedom comes yield, but there is significant risk; from Ethena’s unregulated business, and the U.S. stepping in to stop the fun on behalf of a favored coin, cough cough, USD1.” USD1, issued by World Liberty Financial—a DeFi project with ties to President Donald Trump—
