In a significant development for the U.S. stablecoin market, the GENIUS Act, which was enacted in mid-July, has introduced new challenges for yield programs associated with these digital assets. While the act aims to impose stricter regulations on stablecoin yields, industry experts suggest that innovative strategies may continue to facilitate returns for investors.
The stablecoin sector has seen remarkable growth in 2025, with its total market capitalization rising to $297 billion—an increase of nearly 50% from $206 billion at the beginning of the year, as reported by DeFiLlama. New entrants like PayPal’s PYUSD are enticing users with yield offerings, while alternatives such as Ethena Lab’s USDe are providing higher-risk return profiles to compete in this burgeoning space.
Rebecca Liao, CEO of Saga, commented on the act’s implications, stating, “The GENIUS Act is working to clarify and eliminate the semantic games surrounding stablecoin yields.” This remark underscores the regulator’s intent to scrutinize returns that could be deceptively presented as user rewards or cashback, thereby subjecting them to the same regulatory oversight as interest payments.
In response to these heightened regulations, some companies are exploring creative methods to sustain their yield offerings. Sid Sridhar, founder and CEO of BIMA Labs, highlighted that some entities are routing yields through partnerships with banks or utilizing sweep accounts. This way, they can avoid direct payouts of interest from stablecoin issuers themselves, which keeps them in compliance with the act.
Furthermore, companies are beginning to frame their rewards in ways that do not explicitly categorize them as interest. For example, PayPal offers a 3.7% annual percentage rate (APR) on its PYUSD through Paxos, presenting this as a payment incentive rather than a traditional yield. Hadley Stern, Chief Commercial Officer at Marinade, remarked that “PayPal’s PYUSD rewards are a textbook GENIUS Act workaround,” because while the act restricts issuers from providing yield, PayPal’s structure allows it to frame payouts as wallet rewards instead.
While current strategies seem permissible, industry insiders warn that the banking lobby is aggressively efforts to tighten these exceptions. “I anticipate that they may succeed in their campaign,” Stern noted. Eli Cohen, general counsel at Centrifuge, argued against the notion that these strategies should be labeled as loopholes, pointing out that banks already collaborate with brokerage firms to bolster cash deposit yields. “Stablecoin issuers should be afforded similar opportunities,” Cohen asserted.
The GENIUS Act’s impact is likely to create a bifurcated market, according to Mike Maloney, CEO of Incyt. Established companies like Circle, which has prioritized compliance and steered clear of yield programs, may benefit as they remain adaptable to the regulatory landscape. “While buoyed by its regulatory partnerships, Circle has opted for a conservative approach regarding interest guidelines,” he commented.
Conversely, Tether, which has faced scrutiny over its transparency and operates offshore, may experience reduced access to the U.S. market as the environment becomes more regulated. “This raises concerns as Tether possesses a balance sheet capable of rivaling PayPal’s PYUSD,” Maloney observed, although the recent announcement of Tether’s U.S.-based stablecoin, USAT, could modify its trajectory.
On the other hand, Ethena appears to leverage the absence of stringent regulatory frameworks like the one implemented by the GENIUS Act. Maloney highlights how Ethena is aiming to capture market share left vacant by the collapse of Terra’s USD, a substantial player until its dramatic downfall in 2022. However, the path of lower regulation is fraught with risks, especially as the U.S. is poised to intervene against operations favoring select digital currencies.
As the regulatory landscape continues evolving, stakeholders in the stablecoin sector must remain vigilant and adaptable in order to thrive amid these changes.
