The GENIUS Act Banned Yield on Stablecoins– But Banks Are Still Losing Against The Competition

The GENIUS Act includes a key rule that bars stablecoin issuers from paying interest directly to holders. While this provision was likely intended to protect banks from losing deposits, it has unintentionally created a highly profitable regulatory loophole.

The rule carves out a business opportunity for crypto exchanges and fintech distributors. They can now capture this yield and turn it into a powerful engine for innovation.

A key feature that has sparked significant debate in light of the GENIUS Act has been its ban on stablecoin issuers from paying any interest or yield directly to the person holding the stablecoin. By doing so, the Act reinforces stablecoins as a simple payment method instead of an investment or store of value that competes with bank savings accounts.

The provision was seen as a settlement feature to keep bank lobbyists content and ensure the GENIUS Act’s passage. However, stablecoin distributors have found a loophole in the legislation’s fine print and are thriving off of it. 

The law only bans the issuer from paying yield but doesn’t prohibit a third party, like a crypto exchange, from doing so. This gap enables a profitable workaround. 

The bank lobby is furious about stablecoin yield under the GENIUS Act. They're calling it a "loophole" that needs closing.

But here's what they're missing: We've seen this movie before. And it built an entire generation of fintech companies.