Regulators vs. Innovation: The Battle Over Stablecoin Rewards

Stablecoins Enter New Phase: These 3 Factors Will Reshape Global Markets

The stablecoin market is undergoing a transformative period, marked by the emergence of yield-bearing stablecoins and the regulatory frameworks being crafted to govern them. As these digital assets evolve, they are reshaping global financial systems and challenging traditional banking models. In mid-2025, the supply of yield-bearing stablecoins surged from approximately $1.5 billion in early 2024 to over $11 billion, representing roughly 4.5% of the stablecoin market. This growth is driven by the desire to offer returns on assets that traditionally generate zero interest, such as USDT, USDC, and DAI [1].

Yield-bearing stablecoins operate through various mechanisms to generate returns for holders. These include tokenized treasuries and money market funds, DeFi savings wrappers, and synthetic yield models. Tokenized treasuries and money market funds are backed by assets such as short-term U.S. Treasuries or bank deposits, offering returns similar to traditional treasury yields, typically around 4–5% in 2025 [1]. DeFi savings wrappers, like sDAI, enable users to lock stablecoins into savings modules, growing their balances automatically based on protocol governance. Synthetic yield models, while less common, leverage derivatives strategies and staking rewards, potentially offering higher returns but with increased volatility and market risk [1].

The U.S. and EU regulatory landscapes significantly influence access to yield-bearing stablecoins. The recently enacted GENIUS Act in the United States mandates that stablecoin issuers fully back their tokens with cash or short-term Treasury bonds and prohibits them from offering interest. However, the law does not extend to crypto exchanges, which can still offer rewards on stablecoin holdings. This distinction is crucial, as platforms like Coinbase now offer rewards on USDC holdings, attracting users with annual returns of up to 5.5% [3]. In the EU, the Markets in Crypto-Assets (MiCA) regulation is more restrictive, blocking crypto service providers from offering interest on stablecoins [5].

Despite these regulatory constraints, stablecoins continue to attract significant investment. J.P. Morgan Global Research forecasts the stablecoin market could reach $500–750 billion in the coming years, driven by the sector's growth and potential adoption as a cash alternative. The U.S. dollar-denominated stablecoin market, which constitutes 99% of the global stablecoin market, has already grown to $225 billion. This growth is underpinned by the increasing use of stablecoins for cross-border transactions and retail applications [2].

However, the rise of stablecoins also poses risks to financial stability. The potential for "run risks"—sudden large-scale redemptions of stablecoin holdings—was highlighted by the collapse of TerraUSD in May 2022. Additionally, the Bank for International Settlements (BIS) has noted that stablecoins may not meet key tests for money, including singleness, elasticity, and integrity, particularly in secondary markets [2]. These challenges are further exacerbated by the lack of FDIC insurance for stablecoin holders, unlike traditional bank deposits.

The regulatory divide between the U.S. and EU has also led to strategic moves by banks and financial institutions. Citigroup and Bank of America have signaled their intent to issue their own stablecoins, while PNC Bank and JPMorganChase have formed partnerships with crypto exchanges. JPMorgan is piloting a "deposit token" system, leveraging similar technology to stablecoins but with different reserve requirements, potentially offering a competitive edge in the evolving market [3].

Looking ahead, the CLARITY Act in the U.S. may further shape the regulatory landscape for stablecoins. This proposed legislation aims to create a framework for blockchain-based financial products and platforms, potentially addressing lingering regulatory uncertainties. As the CLARITY Act moves through Congress, it may redefine the parameters for stablecoin rewards and further impact the competitive dynamics between banks and crypto exchanges [3].

In Europe, ECB President Christine Lagarde has called for addressing regulatory gaps for non-EU stablecoins, emphasizing the importance of robust equivalence regimes to protect EU investors and prevent potential outflows. The ECB is also exploring the development of a euro stablecoin, recognizing the strategic importance of maintaining the euro's role in international transactions amid growing competition from U.S. dollar stablecoins [6].

The stablecoin market is poised for further evolution as regulatory frameworks mature and technological innovations emerge. While challenges remain, the potential for stablecoins to reshape global financial systems is undeniable. As stakeholders navigate this dynamic landscape, the balance between innovation and regulation will be crucial in determining the future trajectory of stablecoins and their broader impact on the global economy.

Source:

[1] Yield-Bearing Stablecoins: Risks, Returns, and Access (https://beincrypto.com/learn/yield-bearing-stablecoins/)

[2] What to Know About Stablecoins (https://www.jpmorgan.com/insights/global-research/currencies/stablecoins)

[3] The Loophole Turning Stablecoins Into a Trillion-Dollar Fight (https://www.wired.com/story/genius-act-loophole-stablecoins-banks/)

[4] GENIUS Act Stablecoin Regulation: Federal vs. State Divide (https://www.morganlewis.com/pubs/2025/09/the-genius-acts-stablecoin-regulatory-scheme-promotes-uniformity-but-may-fall-short)

[5] The EU's MiCA stablecoin regulation prevents... (https://www.ledgerinsights.com/the-eus-mica-stablecoin-regulation-prevents-remuneration-or-does-it/)

[6] Europe Needs a Euro Stablecoin (https://www.project-syndicate.org/commentary/europe-needs-a-euro-stablecoin-backed-by-ecb-liquidity-support-by-lucrezia-reichlin-2025-09)

[7] ECB President Calls To Address Risks From Non-EU... (https://cointelegraph.com/news/ecb-president-risks-non-eu-stablecoins)