The GENIUS Act bans stablecoin issuers from paying yield — so why are you still earning on USDC?

In July 2025 the United States passed its first federal stablecoin law — the GENIUS Act. Buried inside it is a rule that sounds like it should end most of what this site tracks: a stablecoin issuer cannot pay you any interest or yield for holding its stablecoin. And yet US platforms still pay yield on USDC — Coinbase pays its Coinbase One subscribers around 3.5% (free users were cut to 0% in December 2025). Both things are true. Understanding why is the key to understanding where US stablecoin yield is heading.

What the GENIUS Act is

GENIUS — Guiding and Establishing National Innovation for U.S. Stablecoins — was signed into law on July 18, 2025. It is the first comprehensive US federal framework for "payment stablecoins": dollar-pegged tokens meant to be used like money. It sets who can issue them, what must back them, and what they cannot do.

The timeline matters. Regulators must finish the detailed rules by July 2026; issuers must comply by roughly January 2027; and exchanges and custodians have until July 2028 to stop handling non-compliant stablecoins. So this is not a future hypothetical — the deadlines are already on the calendar.

The reserve and transparency rules — quietly good news for safety

For anyone whose goal is a safe place to earn, the backing rules are the best part of the law. A compliant stablecoin must be fully backed 1:1 by a tight list of genuinely safe assets: US dollar cash, deposits at the Federal Reserve, short-dated Treasury bills (93 days or less), and overnight repo against them. Explicitly banned from reserves: commercial paper, corporate bonds, long-dated Treasuries, foreign government debt, and other crypto.

On top of that: monthly public disclosure of the reserve composition, AML/BSA obligations (KYC, sanctions screening), and issuance limited to licensed issuers — banks, OCC-approved non-banks, or state-regulated issuers under $10 billion.

This is the boring-but-decisive part. It makes a compliant stablecoin far less likely to become the next msUSD — the depeg caused by thin reserves, no disclosure, and a "trust me" that nobody could verify. GENIUS turns "trust me" into "here are the audited Treasuries, published monthly."

The part that hits yield: no issuer-paid interest

Now the rule that surprises people. Section 4(a)(11) states that a permitted issuer "shall not pay the holder...any form of interest or yield...solely in connection with the holding, use, or retention" of the stablecoin.

The logic: a payment stablecoin is legally treated as money, not a deposit or an investment. If it paid interest, it would start to look like an unregulated bank account or a security — exactly what the law is trying to avoid. So Circle (which issues USDC) and Tether legally cannot pay you for simply holding their tokens.

Read literally, that should zero out stablecoin yield in the US. It hasn't. Here is why.

So why does Coinbase still pay ~4% on USDC?

The ban applies to the issuer — not to third parties. Coinbase is not Circle. So Coinbase can pay you "rewards" on USDC out of its own pocket, and that is, today, perfectly legal. (Note how the model is already tightening: since December 15, 2025 those USDC rewards are a Coinbase One subscriber perk — free users earn nothing. The loophole is real, but it is a business decision that can be narrowed at any time — and it already has been.)

Where does the money come from? Circle pays Coinbase enormous distribution fees for pushing USDC to its users — reportedly around $908 million in 2024 alone. Those fees are ultimately funded by the interest Circle earns on its reserve of Treasuries. So the yield still reaches you — it is just routed through the exchange instead of paid directly by the issuer. Same economic source, different legal plumbing.

It is a loophole, and the regulator knows it. In March 2026 the OCC proposed treating issuer-to-affiliate yield arrangements as presumptively violating the ban — with a deliberately broad definition of "related third party." If that rule lands as written, the Coinbase- and PayPal-style rewards model gets squeezed hard. As of mid-2026 it is still legal — but it is living on borrowed time, and today's 4% USDC reward should not be assumed permanent.

USDC vs USDT under GENIUS

The two biggest stablecoins are on very different paths.

USDC (Circle) is effectively already compliant: roughly 99% of its reserve sits in short-term US Treasuries and cash equivalents, custodied at BNY Mellon, with monthly attestations. It mainly needs the formal approval stamp. Unsurprisingly, USDC grew sharply through 2025 as the "regulation-ready" choice.

USDT (Tether) is structurally non-compliant — Tether is not a US-licensed issuer. Its answer is a split product: global USDT keeps operating outside US rules, while for the American market Tether launched USAT in January 2026, issued through Anchorage Digital, a federally-chartered bank, with separate reserves. After the deadlines, US exchanges will have to wind down plain USDT — the same fate it already met in the EU under MiCA at the end of 2024.

GENIUS vs MiCA: two walls, one direction

The US and EU now agree on the headline: issuers cannot pay stablecoin yield (GENIUS Section 4(a)(11); MiCA Article 50). But their reserve rules are incompatible — GENIUS wants US Treasuries, MiCA wants a large share in EU bank deposits. One reserve pool cannot satisfy both, which is pushing issuers toward separate US and EU products. The era of a single global stablecoin under one set of rules is ending — and if you read our MiCA deadline piece, you have already seen the European half of this story.

Update, July 2026: the actual rulebook lands July 18

The law set the framework; the details live in agency rules — and those are due now. Six federal agencies (Treasury, OCC, FDIC, FinCEN, OFAC and the NCUA) must finalize the GENIUS implementing rules by July 18, 2026. Public comment on the draft rules closed on June 9.

What is in the drafts that matters to a yield-seeker:

• Minimum issuer capital of $5 million — a low bar for Circle or Tether, a real bar for the long tail of small stablecoins your exchange might list.
• A 10% same-day liquidity requirement — issuers must be able to meet a tenth of outstanding redemptions in a single day. That is a direct answer to the "can I actually get my dollars out in a panic?" question this site keeps asking.
• Full enforcement of the act arrives no later than January 18, 2027, and can start earlier once the rules are out.

If the rules ship on schedule, expect two things: a wave of "GENIUS-compliant" marketing from issuers (treat it as a floor, not an endorsement), and renewed pressure on the third-party rewards loophole described above.

What it means for you

• The stablecoin yield you earn in the US increasingly comes from a platform, not the coin itself — so the platform's safety matters as much as ever. A reward is only as good as the exchange paying it.
• That routed yield is under active regulatory pressure. Don't treat a 4% USDC reward as a fixed feature of the asset; it is a business decision that a rule change could shrink.
• Compliance is becoming a genuine safety signal. A GENIUS-compliant stablecoin (USDC, USAT) means audited, disclosed, Treasury-backed reserves — a real edge over an opaque token promising more.
• If you hold plain USDT on a US platform, watch the 2027–2028 deadlines: access will narrow, and you may be nudged toward USAT or USDC.

A quick checklist for stablecoin yield in this new era

GENIUS doesn't make the choice for you — it changes which questions are the smart ones. Before you park stablecoins for yield, run through this:

• Is the stablecoin compliant, or clearly heading there? USDC and USAT have transparent, Treasury-backed, audited reserves. An opaque token promising a higher number is taking on exactly the risk GENIUS was written to remove.
• Who is actually paying the yield — and out of what? If it is the platform routing reserve income to you (Coinbase-style), the rate rests on a business arrangement a rule change can shrink. If you can't explain the source at all, treat the number as a warning, not a feature.
• How healthy is the platform paying it? After GENIUS the issuer is de-risked, but the distributor is not. The exchange holding your coins still needs the same scrutiny as any venue — solvency, track record, disclosures.
• Are you on the right side of the deadlines? US access to plain USDT narrows through 2027–2028. If that is where your stablecoins sit, plan the move before it is forced on you.

None of this is a reason to avoid stablecoin yield. It is the difference between earning it with your eyes open and chasing a number that a regulator, an issuer, or a platform can quietly take back.

Bottom line

The GENIUS Act didn't kill stablecoin yield — it moved it. The issuer can't pay you; the platform can, for now, through a loophole regulators are actively trying to close. The more lasting effect is on safety: stablecoins are being forced toward transparent, Treasury-backed, audited reserves. The yield you chase still matters — but under GENIUS, which stablecoin and which platform matter more than ever.

Compare stablecoin earn rates next to an A–F safety grade on YieldScope. For the EU's parallel crackdown, read what MiCA's July 1 deadline means, and for what happens when reserves aren't there, see the msUSD depeg.

Not financial advice. Regulations and product availability are changing fast — verify current rules and a platform's status before depositing.