Can Stablecoins Pay Interest or Yield?
Brian Cubellis | Chief Strategy Officer
Stablecoin issuers cannot pay interest or yield directly. The GENIUS Act, signed in July 2025, banned it. The unresolved question is what exchanges and affiliated platforms can pay users for holding stablecoins, and the answer the CLARITY Act compromise reached in May 2026 is a precise one: passive yield that is economically or functionally equivalent to bank-deposit interest is prohibited, while activity-based rewards tied to platform usage, transaction volume, or network participation are permitted. The short version is that passive yield is banned and activity-based rewards are allowed.
This article explains what GENIUS actually banned, the loophole it left open on exchanges and affiliated platforms, the Tillis-Alsobrooks compromise that defined the line in CLARITY, why the banking lobby still opposes it and the crypto industry endorses it, and why none of this changes the structural role stablecoins play as a velocity layer rather than a store of value.
What GENIUS banned
The most important fight in digital money right now is not about what stablecoins are. It is about what they are allowed to pay. That is the fight the interest question opens, and it begins with GENIUS.
The GENIUS Act established the first federal framework for payment stablecoins. It requires 1:1 dollar backing, monthly attestations, reserves held in cash or short-term US Treasuries, and OCC supervision for federally chartered issuers. Stablecoins under $10 billion in issuance can operate under state oversight; above that threshold, federal regulation takes over.
On the question of yield, GENIUS was direct and deliberately narrow. It banned stablecoin issuers from paying interest directly. An issuer cannot pay you for holding its token the way a bank pays you for holding a deposit.
The narrowness is the point. The Act addressed what the issuer can do. It did not address what exchanges and affiliated platforms could pay users for holding stablecoins on their platforms. That omission was not cosmetic. The loophole was material, and the market had already moved into it.
The loophole on exchanges and affiliated platforms
Coinbase already pays USDC holders rewards on idle balances. The mechanism sits one step removed from the issuer: the issuer does not pay interest, but the platform distributes rewards to users holding the stablecoin in their accounts. To a user, the economic experience can look a great deal like a yield-bearing deposit. To the statute as written in GENIUS, it was untouched, because the platform is not the issuer.
That gap is why the framework needed a Section 404. A federal rule that bans issuer interest but says nothing about platform rewards does not settle the question of whether stablecoins compete with bank deposits. It relocates the question. The fight over what stablecoins are allowed to pay moved from the issuer to the platform layer, and that is the fight CLARITY had to resolve.
The Tillis-Alsobrooks compromise
The CLARITY Act compromise emerged in May 2026 after four months of negotiations between Senators Thom Tillis and Angela Alsobrooks. It draws the line the GENIUS Act left undrawn.
The compromise prohibits rewards offered "in a manner that is economically or functionally equivalent to the payment of interest or yield on an interest-bearing bank deposit." That language is the operative test. It does not ask what something is called. It asks what something does. A platform reward structured to function like deposit interest is caught by the prohibition regardless of its label.
At the same time, the compromise explicitly preserves activity-based rewards tied to platform usage, transaction volume, or network participation. Rewards earned for doing something, for transacting, for using the rails, for participating in the network, remain permitted.
The distinction is the whole compromise:
Passive yield: banned. Activity-based rewards: permitted.
The dividing line is passivity. Paying a user simply for holding a balance, with no activity required, is the behavior that looks like deposit interest and is therefore prohibited. Paying a user for activity on the platform is treated as something else and is allowed.
| Dimension | Passive yield | Activity-based rewards |
|---|---|---|
| What triggers payment | Holding a balance | Platform usage, transaction volume, network participation |
| Resembles a bank deposit | Yes | No |
| Status under the CLARITY compromise | Prohibited | Permitted |
| Operative test | Economically or functionally equivalent to interest or yield on an interest-bearing bank deposit | Tied to activity rather than holding |
| Who is restricted | Issuers (under GENIUS) and platforms (under CLARITY) | Permitted at the platform layer |
The Senate Banking Committee advanced CLARITY on a 15-9 vote on May 14, 2026. The compromise is the proposed line, not yet settled law.
Why the banking lobby opposes the compromise
The banking lobby has not endorsed the compromise. The American Bankers Association, the Bank Policy Institute, the Independent Community Bankers of America, and other trade groups jointly argue that activity-based rewards remain functionally equivalent to deposit interest and risk catalyzing deposit flight from the regulated banking system.
Their objection runs to the test itself. The compromise prohibits rewards that are functionally equivalent to deposit interest, but the banks contend that the activity-based rewards the compromise preserves are precisely that. In their reading, the distinction between holding and activity is thin enough that platforms can structure activity-based rewards to deliver what is, in substance, a return on balances.
The stakes are not theoretical. US bank deposits sit at roughly $18 trillion. Standard Chartered estimates stablecoins could pull $500 billion from US banks under the compromise framework. Banks fund their lending with deposits; a structural outflow of deposit funding into stablecoin platforms is a direct challenge to that model. The banks are fighting for their deposit funding model. The crypto industry is fighting for a path to compete with it.
That is why the trade groups are aligned across the size spectrum. The American Bankers Association represents the largest institutions, the Independent Community Bankers of America represents the smallest, and the Bank Policy Institute speaks for the largest holding companies. Their shared position is that a rewards channel of any kind, even one nominally tied to activity, is the wedge that moves balances out of insured deposits and into stablecoin platforms. The dispute is not about whether the line between holding and activity exists. It is about whether the line holds in practice once platforms begin engineering rewards around it.
Why the crypto industry endorses it
Coinbase, by contrast, publicly endorsed the markup. Brian Armstrong's response was two words: "mark it up.
The asymmetry is straightforward. The compromise gives platforms a legible, federally sanctioned channel to reward stablecoin holders for activity, which is the channel that lets stablecoin platforms compete for the same balances banks currently hold as deposits. Where the banks see deposit flight, the platforms see a path to compete.
What the vote will and will not decide
The Senate floor vote is the next milestone. Polymarket assigns a 64% probability of Trump signing CLARITY by year-end. Industry observers including GSR's chief legal officer assign closer to 50% odds. The outcome will determine whether stablecoins become pure payment rails or functional deposit substitutes.
What the vote will not determine is whether stablecoins are dollar instruments. That is already decided. And whether dollars get held in banks or in stablecoin platforms is, for purposes of monetary geometry, a distinction that does not matter. The yield question decides where the dollars sit. It does not change what they are.
Yield-seeking is the velocity layer, not the base layer
This is the part that matters for an allocator rather than a trader. The entire yield fight is a fight over the velocity layer. Stablecoins are dollar-pegged tokens built for transactions, payments, settlement, and cross-border flows. They are programmable, regulated, Treasury-backed, and designed for high turnover. Whether they pay activity-based rewards or not, they remain dollar instruments, and a yield-bearing dollar instrument is still a dollar instrument. It inherits the dollar's depreciation over time.
Yield-seeking belongs to that velocity layer. Chasing a return on a balance is a velocity-layer behavior, and the rewards that the CLARITY compromise either permits or prohibits are velocity-layer mechanics. They determine how attractive it is to park dollars on a platform versus in a bank. They do not change the nature of the asset being parked.
Bitcoin sits in the other layer. It is the base layer: a digital commodity for store of value, with no issuer, fixed supply, and a bearer structure, designed to hold value across time. Bitcoin has no yield mechanism to ban precisely because it has no issuer and no platform standing between the holder and the asset. The properties that disqualify Bitcoin from the velocity layer are the same properties that make it the base layer. There is nothing to negotiate over because there is nothing in the middle.
This is the practical frame. The velocity layer is where dollar-denominated transactions settle, and the yield rules govern how those balances are rewarded. The base layer is where value is preserved. Both have a role. Only one of them holds purchasing power through the architecture itself, and it is not the one the yield wars are being fought over.
This is where custody enters. Onramp's role is in the base layer, holding Bitcoin rather than chasing yield on dollar balances. Onramp's Multi-Institution Custody secures bitcoin in a 2-of-3 multisig quorum across three independent institutions, Onramp, BitGo Trust, and CoinCover, so that no single party can move client assets unilaterally. For certain account types, Tetra Trust is available as an optional additional keyholder, though not for Bitcoin IRAs. For holders who want a single-custodian starting point, Onramp Finance provides custody with BitGo Trust and an upgrade path to Multi-Institution Custody. A non-yielding base-layer asset is exactly the kind of holding where how it is custodied matters more than anything else, because there is no issuer to stand behind it.
The bottom line
The answer to whether stablecoins can pay interest or yield is layered. Issuers cannot, under GENIUS. Platforms can pay activity-based rewards but not passive yield, under the CLARITY compromise, which bans rewards economically or functionally equivalent to deposit interest while preserving rewards tied to usage, volume, and participation. Whether that compromise becomes law is still open, with the Senate floor vote the next milestone and roughly even-to-favorable odds on a 2026 signing.
What is not open is the structural reality underneath the fight. The yield wars are a contest over the velocity layer, over where dollar balances sit and how they are rewarded. They do not touch the base layer, where Bitcoin holds value through its design rather than through a promised return. The full analysis of the two-layer architecture, the yield fight, and the dual-tier stablecoin structure is in The Stablecoin Stack research report.
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