Stablecoin PYUSD to yield 3.7% interest through PayPal's proposed reward scheme, according to recent reports
The US stablecoin market is gearing up for a significant shift, as regulatory clarity around stablecoin issuance and interest-bearing options becomes more apparent. The GENIUS Act, signed into law in July 2025, prohibits stablecoin issuers from directly paying interest or yield to holders of payment stablecoins.
This legislation establishes a federal regulatory framework for payment stablecoin issuers, limiting who can issue these tokens and imposing supervisory requirements. The ban on yield payments aims to prevent stablecoin issuers from functioning like banks and to avoid risks to the credit system stemming from funds shifting from traditional bank deposits into stablecoins.
The banking industry strongly supports this restriction, as allowing stablecoins to offer returns could lead to significant "deposit flight," reducing credit availability and increasing economic risks.
Despite the ban, the stablecoin market, though currently smaller than the overall US money supply, is projected to grow substantially, prompting Congressional action to regulate and preempt risks. The prohibition on issuing payment stablecoins (under conditions set by the Act) will take effect around November 2026, allowing regulators time to issue implementing rules and reports.
However, this doesn't fully eliminate the possibility of indirect yield via separate investment or custody arrangements. For instance, Coinbase, though not the issuer of USDC, may still be able to pay interest on the stablecoin due to receiving interest on the underlying assets. Similarly, Paxos will pay most of the interest on the reserves to PayPal, which plans to offer a 3.7% return on its PYUSD stablecoin held in PayPal or Venmo wallets.
Interestingly, holders of the USDC stablecoin on Coinbase can currently earn a 4.1% return in the United States. This offering is set to roll out this summer. Rewards will accrue daily and be paid out monthly.
As the stablecoin market evolves, it's likely that legislators may need to apply the ban on interest more broadly, potentially including any party that receives payment from the issuer in connection with the stablecoin. In some jurisdictions, stablecoins are considered e-money and are not allowed to earn interest.
Given the desire to get stablecoin legislation passed soon, regulatory clarity probably isn't far off. It's worth noting that a figure showing the potential for interest-bearing stablecoins was released earlier this year, indicating a growing interest in this area.
In summary, under current US stablecoin legislation (the GENIUS Act), stablecoin issuers are forbidden from paying interest or yield directly to holders, reflecting concerns about financial stability and protecting the traditional banking sector. However, indirect yield via separate investment or custody arrangements remains a possibility.
- The GENIUS Act, enacted in July 2025, prohibits stablecoin issuers from directly paying interest or yield to holders, aiming to prevent stablecoins from functioning like banks.
- Despite the ban on yield payments, Coinbase can still offer returns on USDC due to receiving interest on the underlying assets, while Paxos will pay interest on reserves to PayPal for its interest-bearing stablecoin.
- As the stablecoin market continues to grow, legislators may need to broaden the ban on interest to parties receiving payments from issuers in connection with the stablecoin.
- With a growing interest in interest-bearing stablecoins, regulatory clarity on this area is likely to be addressed soon, as legislators aim to get stablecoin legislation passed in the near future.
