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Passed in mid-July, the GENIUS Act has shaken up the U.S. stablecoin sector.<\/p>\n
The stablecoin-focused GENIUS Act<\/a>, passed in mid-July, places pressure on yield programs, but experts say workarounds could keep returns alive.<\/p>\n Stablecoins<\/a> have experienced explosive growth in 2025, with their total market capitalization currently standing at $297 billion, up nearly 50% from $206 billion at the start of the year, according to data from DeFiLlama. <\/p>\n Certain stablecoins, like PayPal\u2019s PYUSD<\/a>, attract users by offering rewards or yield, while others, such as Ethena Lab\u2019s USDe<\/a>, provide higher-risk returns to compete. Now that the GENIUS Act is in effect, these programs face closer scrutiny, and issuers are being forced to explore alternative ways to provide returns.<\/p>\n \u201cThe GENIUS Act is trying to end the game of semantics around stablecoin yield,\u201d said Rebecca Liao, CEO of Saga. \u201cFor years, companies have called returns \u2018rewards\u2019 or \u2018cashback,\u2019 but regulators see through that \u2013 if it looks like interest, it will be treated like interest.\u201d <\/p>\n To navigate the new rules, some companies are routing yield through partner banks or sweep accounts so the stablecoin issuer itself doesn\u2019t pay interest, according to Sid Sridhar, founder and CEO of BIMA Labs.<\/p>\n \u201cAnother way is to frame rewards as payment incentives rather than yield, which is how PayPal can plausibly keep offering returns without calling it interest,\u201d Sridhar told The Defiant. <\/p>\n For instance, PayPal\u2019s PYUSD currently offers a 3.7% APR via Paxos \u2013 but that\u2019s categorized as a direct payment to users, not interest. <\/p>\n \u201cPayPal\u2019s PYUSD rewards are a textbook GENIUS Act workaround,\u201d Hadley Stern, Chief Commercial Officer at Marinade, told The Defiant. \u201cThe law stops issuers from paying yield, but PayPal isn\u2019t the issuer\u2014so it frames payouts as wallet \u2018rewards\u2019.\u201d <\/p>\n Stern emphasized that, while this is currently legal, banks are lobbying hard to close this avenue. \u201cI expect them to win,” he added. <\/p>\n Eli Cohen, general counsel at Centrifuge<\/a>, argues that such approaches should not even be considered loopholes.<\/p>\n \u201cBanks are allowed to partner with brokerage firms to offer sweeps of cash deposits into interest-bearing money market funds,\u201d he said. \u201cI don’t see why stablecoin issuers should not also be able to develop partnerships with other providers offering yield for stablecoin deposits.\u201d<\/p>\n However, Cohen did acknowledge that Washington\u2019s banking lobby is strong and will likely attempt to block some of these paths. <\/p>\n Mike Maloney, CEO of Incyt, told The Defiant that the GENIUS Act will force stablecoin issuers down divergent paths. Circle, which avoided yield programs and emphasized compliance, may benefit. <\/p>\n \u201cGenius isn\u2019t exactly a no-brainer for the big stable issuers; Circle is well-positioned after years of working with regulators, but is too risk-averse to stretch interest rules,\u201d Maloney said. <\/p>\n Tether, which has faced questions over transparency and is registered offshore, could see U.S. market access narrow. \u201cThis is unfortunate, as they are the only company with a balance sheet that could rival PayPal\u2019s PYUSD,\u201d Maloney said. However, things may shift now that the company has officially announced USAT, a U.S.-based stablecoin<\/a>.<\/p>\n Meanwhile, Ethena is trying to fill the gap Terra left behind, Maloney said. Terra was a Cosmos-based blockchain that issued TerraUSD (UST), a $40 billion stablecoin that collapsed in 2022. <\/p>\n \u201cThey don\u2019t attempt to meet GENIUS requirements and rely upon DeFi\u2019s borderless nature,\u201d Maloney explained. \u201cWith this freedom comes yield, but there is significant risk; from Ethena\u2019s unregulated business, and the U.S. stepping in to stop the fun on behalf of a favored coin, cough cough, USD1.\u201d<\/p>\nWinners and Losers <\/h2>\n