Are Stablecoin Rewards the Same as Interest?
The GENIUS Act bars a permitted payment stablecoin issuer from paying interest or yield to a holder simply for holding the token, which is why Circle pays nothing on USDC and Paxos pays nothing on PYUSD. Coinbase and PayPal still run “rewards” programs on those same coins. The rates move; across 2025–2026 they have generally sat in a roughly 3% to 5% band depending on product, region, and account tier. The cash behind those programs is not a second source of return. It is the interest earned on the dollar reserves that back the tokens — mostly short-term Treasuries and cash equivalents — which the issuer keeps or shares commercially, and which the platform then pays out under a different label. A 2026 OCC proposal would treat that pass-through as the same prohibited interest.
What the GENIUS Act actually bans
Payment stablecoins such as USDC and PYUSD are dollar-denominated tokens. The issuer is obligated to redeem them at a fixed amount of monetary value, and they are designed to stay at one dollar. The GENIUS Act, signed into law on 18 July 2025 as Public Law 119-27, created a formal U.S. category for those tokens and set the rules for who may issue them. Among those rules is a direct ban. Section 4 of the Act says that no “permitted payment stablecoin issuer” shall pay the holder of any payment stablecoin any form of interest or yield, whether in cash, tokens, or other consideration, solely in connection with the holding, use, or retention of the token (summary via the Congressional Research Service).
The ban is aimed at the issuer: the firm that mints the token, holds the reserves, and redeems it for dollars. Circle is the issuer of USDC. Paxos is the issuer of PYUSD. Neither Circle nor Paxos pays anything to holders of the token, and the statute forbids them from doing so.
The statute does not, by its own words, ban a separate company with a commercial relationship to the issuer from paying its own users something marketed as a “reward” out of its own revenue. That is the structure two of the largest stablecoins still use.
How exchanges pay “rewards” without technically paying interest
The two programs work the same way in concept and a little differently in the paperwork.
Circle and Coinbase, on USDC. Circle issues USDC and invests the dollar reserves that back it, mostly in short-term U.S. Treasury bills and similar cash equivalents. Those reserves earn interest. Circle and Coinbase have a documented revenue-sharing arrangement tied to that reserve income. Coinbase, not Circle, then pays eligible USDC holders on its products a “reward” rate. The rate varies by product, region, and account tier. Coinbase has advertised rates within the range of 3% to 5% (Coinbase). Circle, the issuer, doesn’t pay USDC holders directly.
Paxos and PayPal, on PYUSD. Paxos Trust Company is the regulated issuer of PYUSD. PayPal is the consumer brand. PayPal, not Paxos, pays the reward to people holding PYUSD in a PayPal or Venmo wallet. PayPal launched the program on 23 April 2025 at an introductory 3.7% annual rate and has since advertised it around 4%. Official product pages describe the rate as variable and shown in-app. Paxos does not pay the holder (PayPal newsroom, April 2025; PayPal PYUSD product page).
In both structures the economics line up the same way. The issuer earns interest on reserves. A platform with a commercial relationship to that issuer pays users a “reward.” The statutory ban never uses that word, and it names the issuer, not the platform. On USDC, the commercial link is public: Coinbase’s cut of reserve income is disclosed in regulatory filings. On PYUSD, the public record is thinner on the exact split, but the payment itself is still made by PayPal, not by the issuer.
The regulatory gap the OCC wants to close
Regulators have started to write rules around that gap. On 25 February 2026, the Office of the Comptroller of the Currency published OCC Bulletin 2026-3, a Notice of Proposed Rulemaking that would implement the GENIUS Act for entities under OCC jurisdiction and create a new 12 CFR part 15. The Federal Register version is at 91 Fed. Reg. 10202 (OCC Bulletin 2026-3).
The proposal’s central move on yield is a rebuttable presumption at proposed § 15.10(c)(4). In substance: if a stablecoin issuer has a contract, agreement, or arrangement with an affiliate or related third party to pay interest or yield to that party, and that party (or its affiliate) then pays interest or yield to a holder solely for holding, using, or retaining the stablecoin, the OCC would presume the arrangement is a prohibited yield payment. “Rebuttable” means the issuer could try to show in writing that the arrangement is not disguised interest and is not an evasion. The starting assumption under the proposal runs the other way.
The presumption doesn’t name any company. Its wording is general. An issuer, an affiliate, or related third party, and a payment to holders for holding the coin, set out at § 15.10(c)(4) of the NPR (OCC Bulletin 2026-3). That language still has to land somewhere. The Circle/Coinbase and Paxos/PayPal structures are the arrangements that fit it most naturally: an issuer on one side of a commercial relationship, a platform paying the yield on the other.
This is only a proposed rule. It has not taken effect. Separately, the GENIUS Act itself takes effect on the earlier of 18 months after enactment (18 January 2027) or 120 days after the primary federal payment stablecoin regulators publish final implementing rules (OCC Bulletin 2026-3). That is when the statutory issuer ban binds. The OCC’s affiliate presumption applies only if the proposal is finalized in that form.
Why this matters if you’re holding stablecoins for the yield
If you hold USDC on Coinbase or PYUSD in a PayPal or Venmo wallet for the rewards, three things are worth keeping in view.
It isn’t free money. The reward is funded by interest the reserves earn on the dollars backing the tokens, then paid by a platform that wants those tokens left on its books. It is closer to a marketing spend funded by a reserve spread than a return on anything you did.
The rate is a business decision, not a right. Nothing requires Coinbase or PayPal to keep paying in the 3% to 5% range. They can lower it, change eligibility, or end the program the same way any company can change a promotional rate, because legally that is what it is.
Regulatory risk sits directly underneath it. If the OCC’s final rule adopts the presumption as proposed, the structures paying you today may have to be restructured or wound down rather than continue on the same terms. That is not a distant hypothetical. It is the arrangement the current rulemaking is written to reach.
And underneath all of that, the more basic point still holds. USDC or PYUSD sitting on an exchange or in a custodial wallet is still custodied by that platform. You are trusting Coinbase or PayPal to hold it, not holding it yourself. The reward is compensation for accepting that arrangement.
Exchange rewards vs. real yield from a protocol: what actually differs
It is easy to dump every crypto yield product into one bucket. They are not one bucket.
THORChain is a decentralized network that lets people swap crypto assets across different chains, for example Bitcoin for Ethereum, without a centralized exchange. Node operators secure that network by locking RUNE as collateral; RUNE holders who do not run a node can bond to an operator and earn a share of the fees that node earns from actual swap activity, as explained in our guide to how THORChain bond providers work.
The differences that matter here are where the money comes from and who holds it:
| Exchange stablecoin rewards | THORChain bonding (real yield) | |
|---|---|---|
| Source of the money | Interest on custodied reserves, shared by commercial agreement | Fees users actually pay to swap assets on the network |
| Who holds the funds | The exchange or wallet provider (custodial) | You — bonding is non-custodial |
| Rate stability | Set and changeable by the platform at will | Variable, driven by network usage; not promised or fixed |
| Regulatory exposure | Directly targeted by the OCC’s current rulemaking | Not a bank-style interest arrangement to begin with |
Stablecoin reward yield is not the same thing as inflation-funded staking yield, the kind you earn by staking ETH or another proof-of-stake token. That yield at least comes from the network itself, even when it dilutes every holder to pay for it. Stablecoin rewards do not work that way. The token supply does not inflate to fund them. A company’s balance sheet does, out of interest income it chooses to share.
This isn’t to say that RUNEBond’s yield is guaranteed or fixed, and no honest description of any yield product would say otherwise. Rates on RUNEBond move with real network activity and are shown live in the app. What’s structurally different is the funding source and the custody model, not the size of a number. If you’re thinking about this at all because inflation-funded yield elsewhere keeps compressing, our broader look at real yield versus inflationary yield covers the same distinction across other networks.
If a stablecoin reward you are counting on depends on a regulatory gap that a federal banking regulator is actively working to close, that’s a reasonable moment to look at where else your crypto can earn, and on what terms. You can compare current THORChain node operators and see live yield on RUNEBond before moving anything.
FAQ
Are stablecoin issuers allowed to pay interest?
No. The GENIUS Act (Public Law 119-27, enacted 18 July 2025) bans a permitted payment stablecoin issuer from paying interest or yield to holders solely for holding, using, or retaining the token. The ban applies to the issuer: the company that mints and redeems the coin.
Why do Coinbase and PayPal pay rewards on stablecoins if issuers can’t pay interest?
In both cases the issuer is not the payer. Circle issues USDC; Coinbase, a separate company with a revenue-sharing agreement with Circle, pays the reward to its own users. Paxos is the regulated issuer of PYUSD; PayPal, not Paxos, pays the reward to PYUSD holders in its wallets. The platforms do this to keep balances, and the branded coin, on their products. The GENIUS Act’s text targets the issuer. It does not yet clearly reach an affiliate or partner platform paying out of its own pocket.
Is earning rewards on USDC or PYUSD legal?
Today, yes. No regulator has ordered these programs to stop. The legal ground is moving. In February 2026 the OCC proposed a rule that would presume this exact pattern, an issuer with a commercial relationship to a platform that then pays holders, is a prohibited yield arrangement even if the issuer never writes the check.
What is the OCC proposing to change about stablecoin rewards?
OCC Bulletin 2026-3 (25 February 2026) would add a rebuttable presumption at proposed § 15.10(c)(4): if a stablecoin issuer has an arrangement with an affiliate or related third party, and that party pays interest or yield to holders solely because they hold the stablecoin, the arrangement is presumed prohibited unless the issuer can show otherwise. The presumption names no company. Its general language covers arrangements like Circle/Coinbase on USDC and Paxos/PayPal on PYUSD.
Where does the money for stablecoin rewards actually come from?
From reserve interest. Issuers hold reserves in cash, short-term Treasuries, and similar instruments. That portfolio earns interest. On USDC, filings show Circle sharing reserve income with Coinbase; Coinbase then pays users a reward. On PYUSD, PayPal pays the reward. In both cases the economic source is reserve interest, relabeled and rerouted, not a separate engine of return.
Is stablecoin reward yield the same as real yield from a protocol?
No. Reward yield is a cut of interest earned on custodied reserves, paid at a rate a company sets and can change or cancel, and it depends on a regulatory reading that the OCC is trying to close. Protocol yield on a network such as THORChain comes from fees users pay to use the network, paid to the people who bond capital to secure it. Different funding source. No custodian holding your funds in between.
What happens to stablecoin rewards if regulators close the loophole?
If the OCC’s final rule adopts the presumption as proposed, platforms would likely have to restructure or wind down these programs rather than keep paying a rate regulators treat as disguised interest. That outcome depends on the final rule, not on the GENIUS Act’s effective date alone. The Act takes effect on the earlier of 18 January 2027 or 120 days after regulators publish their final implementing rule.