Stablecoin PYUSD to yield 3.7% return through PayPal's upcoming interest program, according to recent reports.
The US Congress passed a significant piece of legislation earlier this year, known as the GENIUS Act. This act, which came into effect in mid-2025, has brought about a ban on stablecoin issuers from paying any form of interest or yield to holders of payment stablecoins [1][3][4][5]. This prohibition applies to interest paid in cash, tokens, or any other form solely for holding, using, or retaining the stablecoin.
The intention behind this ban is to clearly distinguish stablecoins from bank deposits and prevent erosion of bank deposit bases. However, interpretations suggest that the ban may have legal limits, leaving room for some arrangements outside a strict interest-on-holding definition [2].
At present, there is no evidence indicating that the STABLE Act has enacted similar or contrasting provisions related to interest bans for stablecoins. The focus and enforcement details in the most recent laws primarily come from the GENIUS Act.
This regulatory change is seen as a key measure to bring consumer protection and clarify stablecoin status. However, it raises concerns about liquidity constraints and competitive disadvantages compared to traditional bank deposits [1][4][5]. If legislators want to prevent interest on stablecoins, they may need to apply the ban more broadly to parties that receive payment from the issuer.
In some jurisdictions, such as Europe, stablecoins are considered e-money and are not allowed to earn interest. Draft legislation for stablecoins, such as the STABLE Act and the GENIUS Act, currently being debated in the House and Senate, includes clauses banning the payment of interest or yield by the issuer to stablecoin holders.
One notable development is PayPal's plan to offer a 3.7% return on its PYUSD stablecoin held in PayPal or Venmo wallets. Despite PYUSD being issued by Paxos, PayPal may still be able to pay interest on it. Paxos will pay most of the interest on the reserves to PayPal, with the offering set to roll out this summer in the United States. The goal of the offering is to encourage adoption of the stablecoin on the PayPal network.
Interestingly, Coinbase is not the issuer of USDC, but holders of the USDC stablecoin on Coinbase can currently earn a 4.1% return in the United States. Circle, which issued USDC, earns more interest on the stablecoin's assets than Coinbase, according to Circle's IPO filing.
Regulatory clarity on stablecoins is likely to be achieved soon due to the desire to pass legislation quickly. It is still possible to register an asset as a security with the SEC, which might look like a stablecoin but will be allowed to pay interest. This suggests that the regulatory landscape for stablecoins is complex and evolving.
In conclusion, the GENIUS Act's prohibition on the payment of interest or yield by stablecoin issuers to holders is a significant development in the regulation of stablecoins in the US. However, the interpretation of this ban and its impact on the industry are still subjects of debate and ongoing evolution.
- The GENIUS Act, which bans stablecoin issuers from paying interest or yield, aims to differentiate stablecoins from bank deposits and secure bank deposit bases.
- Stablecoins, like PYUSD issued by Paxos, may still be able to pay interest despite the GENIUS Act, as seen in PayPal's plan to offer a return on PYUSD held in its wallets.
- Coinbase, which doesn't issue USDC, enables holders of this stablecoin to earn interest, while Circle, the issuer, earns more interest on the stablecoin's assets.
- Regulatory clarity on stablecoins is imminent due to the rapid legislative process, but the landscape remains complex, with options for assets to be registered as securities, which could pay interest.
