Coinbase and PayPal Offer Stablecoin Yields Amid New Federal Ban

Coinbase and PayPal are proceeding with stablecoin yield programs in the United States, despite a new federal law, the GENIUS Act, which prohibits stablecoin issuers from offering interest or yield to users. The legislation, signed into law recently, seeks to treat stablecoins primarily as payment instruments rather than investment vehicles. However, both firms argue that they are not bound by the law since they are not direct issuers of the stablecoins they offer rewards on [1].

Coinbase, one of the largest cryptocurrency platforms, currently provides a 4.1% annual percentage yield (APY) to users holding USDC on its platform, which it frames as a “rewards program.” Although Coinbase previously co-developed USDC with Circle, it no longer serves as a formal issuer, a legal distinction that allows the company to continue its rewards structure. Coinbase CEO Brian Armstrong emphasized this during a recent shareholder meeting, clarifying that the company “doesn’t pay interest or yield, we pay rewards.” Coinbase’s stablecoin-related revenue has increased by 44% year-to-date despite reductions in interest rates [1].

PayPal is also offering stablecoin rewards, providing a 3.7% annual return on PYUSD holdings through both its PayPal and Venmo platforms. While PYUSD is branded under PayPal, it is technically issued by Paxos, a third-party financial institution. This legal separation is central to PayPal’s argument that it does not violate the GENIUS Act. PayPal CEO James Alexander Chriss highlighted the importance of these rewards for driving user growth during an earnings call. Additionally, the SEC recently concluded a long-running investigation into PYUSD’s classification, further clearing the way for PayPal’s continued stablecoin operations [1].

The move by these two major crypto-linked firms highlights the existence of a legal gray zone where platforms can offer incentives on stablecoins without being classified as issuers themselves. This strategy has drawn scrutiny from regulators and lawmakers, including Senator Elizabeth Warren, who has raised concerns about the systemic risks and privacy issues associated with privately issued stablecoins. She warned that such ventures could lead to financial instability and ultimately require government bailouts [1].

Despite these concerns, the appeal of stablecoins remains strong due to their cost-efficiency compared to traditional remittance systems. The global average remittance fee remains around 6.6%, well above the United Nations’ 3% target. This has led to growing corporate interest in stablecoins, with global firms such as Amazon, Walmart, and Chinese financial platforms like JD.com and Alipay exploring their potential.

Western Union, for example, is pursuing digital transformation through stablecoin integration. Its CEO, Devin McGranahan, has outlined how stablecoins could simplify cross-border payments, improve currency conversion in underdeveloped markets, and offer financial tools for users in regions with unstable local currencies. The company is currently testing stablecoin-based solutions in South America and Africa [1].

Industry leaders are optimistic about the future of stablecoins. Ripple CEO Brad Garlinghouse has predicted the sector could grow from its current market cap of $250 billion to as much as $2 trillion in the near future. He believes the trajectory is inevitable and that companies positioned in the space will benefit from this expansion [1].

Sources:

[1] Cryptonews, [https://cryptonews.com/news/coinbase-and-paypal-exploit-legal-gray-zone-to-offer-stablecoin-yields-despite-federal-ban/](https://cryptonews.com/news/coinbase-and-paypal-exploit-legal-gray-zone-to-offer-stablecoin-yields-despite-federal-ban/)