The GENIUS Act reshaped the U.S. stablecoin landscape by banning issuers from directly paying interest while allowing third parties to offer rewards. BlockAI reports that the GENIUS Act creates a regulatory divide between issuers, exchanges, and banks, and the debate over yield payments has accelerated lobbying from financial institutions and crypto advocates. Who benefits and how the GENIUS Act affects exchanges and banks is the immediate question for investors.
Key players and Coinbase
Will Beeson, former head of tokenization at Standard Chartered and now CEO of Multiliquid, has publicly argued that stablecoins must offer competitive returns to survive. Exchanges like Coinbase and issuers such as Circle have practical workarounds: third-party incentive programs let exchange platforms pass yields from Circle to retail holders without violating the GENIUS Act. Crypto groups and trade associations are lobbying to preserve or clarify those routes while banks flag risks the GENIUS Act may leave unaddressed.
Why yield payments matter
Yield payments attract capital and give stablecoins a product-market fit beyond simple payments and settlements. Proponents argue that restrictions in the GENIUS Act that keep stablecoins from offering competitive rewards will push users to platforms that can layer yields via incentives. Supporters say yield payments drive liquidity, DeFi activity, and broader adoption; opponents say those same yields could weaken traditional deposits and financial stability under the GENIUS Act framework.
Third-party incentives explained
The GENIUS Act prohibits direct issuer payouts, but allows third-party incentives such as exchange rewards, staking programs, or custodial interest. That means exchange platforms can offer interest-like returns without the issuer formally paying them. Coinbase’s model with Circle USDC is often cited: Circle issues USDC while platforms provide yield programs, effectively blurring lines created by the GENIUS Act.
Exchange platforms’ role
Exchange platforms act as intermediaries in the close call between innovation and regulation. Coinbase and similar firms route Circle balances into lending, yield strategies, or custodial programs and then credit users—mechanisms critics say undermine the intent of the GENIUS Act. Regulators and industry lawyers are watching whether exchange platforms are sidestepping rules or offering competitive products within legal boundaries.
U.S. banking system risks
Banks and trade groups warn that broad adoption of yield-bearing stablecoins could pull money out of traditional deposits and strain the U.S. banking system. They argue the GENIUS Act’s current allowance for third-party incentives could still result in trillion-dollar shifts that threaten liquidity and deposit insurance models. Lawmakers sympathetic to banks are pushing to tighten language or close loopholes left by the GENIUS Act to protect system stability.
Crypto regulation debate outlook
The crypto regulation debate centers on balancing innovation with systemic safety. Proponents of the GENIUS Act’s third-party approach say it preserves market dynamism while protecting depositors; opponents call for stricter controls to stop indirect yield payments. Political gridlock and intense lobbying suggest changes to the GENIUS Act could be slow, leaving firms to navigate gray areas through product design and legal counsel.
Frequently asked questions about GENIUS Act (FAQ)
What does the GENIUS Act ban?
The GENIUS Act bans stablecoin issuers from directly paying interest to holders but permits third parties to offer incentives.
How do exchanges like Coinbase work around the GENIUS Act?
Exchange platforms can offer yield programs or rewards using custody, lending, or staking strategies, effectively passing returns tied to assets issued by Circle without the issuer making direct payments.
Could stablecoin yields threaten bank deposits?
Banks argue that large-scale yield-bearing stablecoin adoption could siphon deposits and pressure the U.S. banking system, a core concern in debates around the GENIUS Act.
Will the GENIUS Act change soon?
Change is possible but uncertain; lobbying is intense on both sides and political gridlock makes near-term amendments to the GENIUS Act unlikely without broad consensus.
Why do crypto advocates support yield options?
Advocates say yield options drive adoption, liquidity, and innovation, helping stablecoins compete globally and support DeFi ecosystems.
Journalist: BlockAI — covering the financial, social, and technical angles of crypto regulation, market behavior, and product design.
