GENIUS Act Targets Stablecoin Yield, But Workarounds Could Keep Returns Alive

The stablecoin-focused GENIUS Act, passed in mid-July, places pressure on yield programs, but experts say workarounds could keep returns alive.

Stablecoins have experienced explosive growth in 2025, with their total market capitalization currently standing at $297 billion, up nearly 50% from $206 billion at the start of the year, according to data from DeFiLlama.

Certain stablecoins, like PayPal’s PYUSD, attract users by offering rewards or yield, while others, such as Ethena Lab’s USDe, provide higher-risk returns to compete. Now that the GENIUS Act is in effect, these programs face closer scrutiny, and issuers are being forced to explore alternative ways to provide returns.

“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 navigate the new rules, some companies are routing yield through partner banks or sweep accounts so the stablecoin issuer itself doesn’t pay interest, according to Sid Sridhar, founder and CEO of BIMA Labs.

“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,” Sridhar told The Defiant.

For instance, PayPal’s PYUSD currently offers a 3.7% APR via Paxos – but that’s categorized as a direct payment to users, not interest.

“PayPal’s PYUSD rewards are a textbook GENIUS Act workaround,” Hadley Stern, Chief Commercial Officer at Marinade, told The Defiant. “The law stops issuers from paying yield, but PayPal isn’t the issuer—so it frames payouts as wallet ‘rewards’.”

Stern emphasized that, while this is currently legal, banks are lobbying hard to close this avenue. “I expect them to win,” he added.

Eli Cohen, general counsel at Centrifuge, argues that such approaches should not even be considered loopholes.

“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.”

However, Cohen did acknowledge that Washington’s banking lobby is strong and will likely attempt to block some of these paths.

Winners and Losers

Mike Maloney, CEO of Incyt, told The Defiant that the GENIUS Act will force stablecoin issuers down divergent paths. Circle, which avoided yield programs and emphasized compliance, may benefit.

“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,” Maloney said.

Tether, which has faced questions over transparency and is registered offshore, could see U.S. market access narrow. “This is unfortunate, as they are the only company with a balance sheet that could rival PayPal’s PYUSD,” Maloney said. However, things may shift now that the company has officially announced USAT, a U.S.-based stablecoin.

Meanwhile, Ethena is trying to fill the gap Terra left behind, Maloney said. Terra was a Cosmos-based blockchain that issued TerraUSD (UST), a $40 billion stablecoin that collapsed in 2022.

“They don’t attempt to meet GENIUS requirements and rely upon DeFi’s borderless nature,” Maloney explained. “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 is a stablecoin issued by World Liberty Financial, a decentralized finance (DeFi) project with ties to President Donald Trump, which has grown to a market capitalization of $2.6 billion.

Regulatory Cat-and-Mouse

While the GENIUS Act bans stablecoin issuers from paying yield, experts say the real test will be how regulators respond to the workarounds companies are already using.

Patrick Gerhart, President of Banking Operations at Telcoin, told The Defiant that the GENIUS Act makes it clear stablecoins aren’t meant to function as savings accounts, prohibiting issuers from paying yield directly. Despite this, some platforms are testing reward systems that closely resemble interest payments.

“Regulators will take a substance-over-form approach—if a program pays users simply for holding a balance, even under another name, it will attract scrutiny,” Gerhart said. “Usage-based incentives, like cashback on spending, may be more defensible than balance-based rewards that mimic traditional interest.”

Experts say this highlights a tricky regulatory balance: regulators want to protect consumers and prevent stablecoins from becoming unregistered securities, but it’s challenging to block all workarounds in a decentralized system where users can transfer assets offshore.

Meanwhile, Sid Powell, CEO of Maple, called the new framework “healthy” because it forces clarity around payments and yield.

“Rather than shutting innovation down, I expect regulators to steer stablecoins toward serving as money-like assets, with yield handled by partners or complementary products built on top,” Powell said.

He added that players like Coinbase have opted to provide USDC users with rewards, which is possible since they are not the issuer. He also explained that Maple’s syrupUSDC is an example of this type of product because it provides yield on the stablecoin issued by Circle.

“That shift can actually expand the market by making stablecoin use safer and more predictable for both retail and institutional holders,” Powell said.

Split Market

The GENIUS Act could also deepen the divide between regulated and offshore stablecoins, experts said. Cohen explained that many stablecoin issuers will decide not to follow this path, as was the case with Europe’s MiCA stablecoin rules last year.

He explained that while Circle will work toward compliance, as it did with the EU rules, Tether will likely remain outside the regulatory perimeter.

“We will increasingly see a bifurcated stablecoin world with regulated stablecoins serving traditional finance and permissioned products like RWA and unregulated stablecoins used for remittances and as a substitute for USD in jurisdictions with currency controls,” Cohen said.

Ultimately, the GENIUS Act is redefining the stablecoin landscape, experts say, and while it’s not the end of yield, it’s likely the end of unregulated earn programs. “The bottom line is that stablecoins can modernize payments, but yield will be fought to be held in regulated banks or fund wrappers rather than baked into the coins themselves,” Gerhart concluded.