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Yield Outlawed. The GENIUS Act’s Prohibition on Yield-Bearing Stablecoins.
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Yield Outlawed. The GENIUS Act’s Prohibition on Yield-Bearing Stablecoins.

Ola Fiutowska

Ola Fiutowska

6 min readJune 25, 2025
The GENIUS Act, passed by the Senate on June 17, 2025, prohibits permitted payment stablecoin issuers from offering interest, excluding yield-bearing stablecoins (YBS) from the payment framework and placing them under securities or other financial regulation. While intended to safeguard stability, some argue it may constrain innovation and shift opportunity offshore.

As the GENIUS Act advances towards becoming law, having passed the Senate on June 17, 2025 with a 68 to 30 vote and now awaiting House action, Section 4(a)(11) of the Act defines the regulatory perimeter for digital assets. Permitted payment stablecoins are banned from offering interest, reinforcing the regulatory intent of treating stablecoins like cash, not deposits, and supporting the Act’s role in establishing national innovation. YBS are excluded from the regime and left to navigate securities laws, as seen in the SEC'’s approval of Figure Markets'’ YLDS earlier this year, which highlights how the regulatory framework distinguishes between different types of digital assets. 

Regulators' rationale for interest ban. Regulators' rationale for interest ban on payment stablecoin issuers.

Section 4(a)(11) of the GENIUS Act bans permitted payment stablecoin issuers from offering yield or interest, excluding YBS from the payment framework and pushing them under securities or other financial regulation. The rationale appears to be preserving stablecoins as payment instruments, akin to digital cash in their function, rather than allowing them to function as bank deposit alternatives. However, payment stablecoins are not considered legal tender and must not be marketed as such under federal laws, ensuring they are not misrepresented as government-backed or recognized currency. The GENIUS Act also amends the Exchange Act and Investment Company Act to clarify the regulatory status of payment stablecoins, providing specific carveouts and regulatory classifications for certain issuers. This approach reflects broader international regulatory thinking - similarly, the EU'’s MiCA Regulation prohibits interest-bearing e-money tokens under Article 45. The treatment of YBS suggests a concern that they could function as deposit alternatives and divert funds from traditional banks. 

Impact on innovation.

Impact of federal regulatory framework on innovation.

With stablecoins confined to payment instruments, YBS models are excluded by design regardless of their structure, reserves, or risk profile. Projects like Ethena or Ondo, which offer yield through either synthetic strategies or tokenized Treasuries, have developed dedicated instruments for US investors, typically offered to accredited users. YBS models often generate yield by allocating reserves to money market funds and treasury bills, which are used for creating liquidity and ensuring regulatory compliance. This shows that yield is accessible, but only outside the payment stablecoins framework; and not because they can'’t meet transparency or redemption standards, but solely because they offer interest. However, it is crucial for stablecoin holders that issuers provide clear and conspicuous procedures for redemption, ensuring timely redemption and full disclosure of any associated fees. Yet the YBS market continues to grow, the numbers speak for themselves. YBS TVL has surged from $3.43B in June 2024, to almost $12.5B by mid-2025. 

Effect on users. Effect on users and consumer protection.

As of June 20, 2025, the FDIC reports an average US personal savings rate of 0.42%, while Treasury yields remain around 4.5%, far below the 5-12% returns offered by leading YBS. These higher yields offered by YBS come with risk, and for retail users, especially those less sophisticated, that risk may be poorly understood. This highlights the importance of consumer protection, including clear disclosures about whether stablecoins are covered by deposit insurance and how their monetary value is maintained and redeemed. Still, the ban removes a potential path to access yield also through the products that are structured, transparent and lower-risk. 

Some market participants argue the GENIUS Act permits external reward programs if the payment token itself carries no legal right to yield. However, the Act'’s broad language likely captures the affiliated products as well, depending on whether they are effectively controlled or funded by the permitted issuer. Independent or unaffiliated products may fall outside the scope, unless the regulator views them as effectively acting on behalf of the stablecoin issuer.  The GENIUS Act also emphasizes the importance of anti-money laundering measures to prevent illicit activities involving stablecoins.

Competitiveness concerns.

Competitiveness concerns for payment stablecoin issuers.

Under Section 4(a)(11), payment stablecoin issuers such as Tether or Circle are prohibited 

from passing through any interest or yield to users, essentially allowing the issuer to retain the full income generated from reserve assets. In 2024 alone, Tether is estimated to have earned about $13 billion in profit (largely from interest on US Treasuries), more than BlackRock or some banksReserve management strategies for these issuers may include holding federal reserve notes and utilizing repurchase agreements to ensure liquidity and meet regulatory requirements. In 2024 alone, Tether is estimated to have earned about $13 billion in profit (largely from interest on US Treasuries), more than BlackRock or some banks. For issuers with a consolidated total outstanding issuance exceeding $50 billion, the GENIUS Act imposes additional reporting and auditing obligations to ensure transparency and proper reserve backing. This structure benefits both payment stablecoins issuers and banks. Issuers earn interest on user-backed reserves. Banks face no pressure to raise deposit rates, since stablecoins can'’t compete on the yield field. US consumers and investors provide the underlying capital by purchasing stablecoins, effectively providing the dollars that issuers then hold in interest-earning assets. Under the GENIUS Act, none of that yield earned will be passed on to users of permitted payment stablecoins.

What comes next? 

GENIUS Act creates much needed clarity for payment stablecoins. But by banning yield-bearing products within that framework, it also creates a divided system: with cash-like payment stablecoins on one side and YBS on the other, with the latter possibly operating off-shore or constrained to comply with securities laws. Whether this distinction protects the US investors or limits them remains to be seen. What's clear is that the market for YBS isn't hypothetical, and its growth suggests the demand remains strong. 

The structure of issuers and banks is also shaped by regulatory definitions. Payment stablecoin issuers are classified as financial institutions and may include depository institutions and insured depository institutions under the GENIUS Act, which subjects them to federal oversight and compliance standards.

What comes next? 

GENIUS Act creates much needed clarity for payment stablecoins. The Act establishes a federal regulatory framework and sets criteria for state level regulatory regimes to demonstrate substantial similarity to federal standards. But by banning yield-bearing products within that framework, it also creates a divided system: with cash-like payment stablecoins on one side and YBS on the other, with the latter possibly operating off-shore or constrained to comply with securities laws. In this divided system, state regulators must submit an initial certification to show their state level regulatory regime is substantially similar to the federal framework, with the stablecoin certification review committee overseeing and approving compliance. Whether this distinction protects the US investors or limits them remains to be seen. What’s clear is that the market for YBS isn’t hypothetical, and its growth suggests the demand remains strong. Federal regulators and state payment stablecoin regulators will continue to play a key role in ensuring ongoing market oversight.

Sources: 

  • How the Senate Stablecoin Bill Enriches Corporations at the Expense of Consumers, Unchained, May 2025.

https://unchainedcrypto.com/how-the-senate-stablecoin-bill-enriches-corporations-at-the-expense-of-consumers 

  • Yield-Bearing Stablecoin Market Grows 13x, BeInCrypto, June 2025.

https://beincrypto.com/yield-bearing-stablecoin-market-grows-13x 

  • GENIUS Stablecoin Bill Advances in U.S. Senate, Unchained, June 2025.

https://unchainedcrypto.com/genius-stablecoin-bill-advances-in-u-s-senate 

  • S.1582 The GENIUS Act (2025), Full Bill Text, Congress.gov

https://www.congress.gov/bill/119th-congress/senate-bill/1582/text 

  • Why a U.S. Ban on Yield-Bearing Stablecoins Would Help Too-Big-To-Fail Banks, Unchained, May 2025.

https://unchainedcrypto.com/why-a-u-s-ban-on-yield-bearing-stablecoins-would-help-too-big-to-fail-banks 

  • SEC Approves First Yield-Bearing Stablecoin, Cointelegraph, June 2025.

https://cointelegraph.com/news/sec-approves-first-yield-bearing-stablecoin 

  • https://x.com/samkazemian/status/1935441908328968663