Stablecoin Banks: The Flow War for Deposits and Yield

The prize is massive, but the battlefield is still small. The total stablecoin market is valued at about $300 billion in circulation, a massive expansion from under $30 billion in 2020. Yet, the core payment use case remains a sliver. Actual stablecoin payments volume was just $390 billion in 2025, representing a mere 0.02% of global payments. This gap between market size and real-world utility is fueling an aggressive war for deposits.

Major players are deploying heavy financial firepower to capture liquidity. PayPal is leading with a direct yield incentive, offering a one-year program with 4.5% yield on up to $1 billion in customer deposits. This is a classic deposit-gathering tactic, using yield to attract capital into its PYUSD stablecoin. The move is strategic, linking the stablecoin to high-growth AI infrastructure financing, but the core mechanism is a straightforward bid for user funds.

The competitive landscape is heating up beyond PayPal. Fintechs and stablecoin issuers are making announcements to boost profiles, while banks are taking note. Forty-seven percent of banks report clients asking for general crypto information, showing rising institutional interest. This sets the stage for a flow war where the prize is not just market share, but the critical liquidity needed to build the next generation of financial infrastructure.

The Yield War: Regulatory Barriers vs. Market Incentives

The new U.S. GENIUS Act creates a clear regulatory wall: it prohibits stablecoin issuers from engaging in the practice of offering users passive yield on deposits. The law's architects aimed to keep stablecoins as payment tools, not investment products, by barring issuers from paying interest. Yet, major commercial players are moving forward with plans to offer yields anyway, framing their programs as "rewards."

PayPal and Coinbase are leading the charge, committing to high-yield programs despite the law. PayPal is offering a one-year program with 4.5% yield on up to $1 billion in customer deposits for its PYUSD stablecoin. Coinbase CEO Brian Armstrong has explicitly stated the company plans to continue to pay rewards to its customers, citing its 4.1% annual yield on USDC as a key competitive differentiator. Both companies argue they are not the issuers of the underlying stablecoins (Paxos for PYUSD, Circle for USDC) and therefore fall outside the law's direct scope.

This creates a massive financial incentive to find workarounds. Analysts estimate that stablecoin revenue, which made up about 19% of Coinbase's total revenue last year, could expand anywhere from two to seven times under the GENIUS Act if payment adoption accelerates. The company's $1.35 billion in stablecoin revenue last year is a major profit driver, and the ability to offer rewards is central to its growth strategy. The conflict is now a legislative battle, with industry and banking lobbyists meeting to find a compromise that could extend restrictions to exchanges like Coinbase.

The Flow Impact: What This Means for Funding and Payments

The battle for stablecoin deposits is already shifting the financial landscape. Stablecoin transaction volumes have now surpassed Visa's, with over 30% quarter-over-quarter growth in Q1 2025. This isn't just a niche trend; it signals a fundamental shift where programmable, on-chain rails are outpacing legacy card networks in raw throughput. The infrastructure is being built by Circle, PayPal, and even Visa itself, forcing the entire payments ecosystem to adapt.

This growth poses a direct threat to traditional bank funding models. The core of a bank's business is low-cost deposits, which fund loans and generate net interest income. If stablecoin programs successfully attract deposits away from banks, it could alter banks' liability structures, liquidity risk profile, and cost of capital. The concern is not just about losing deposits, but about losing the cheapest, most stable form of funding. This is why bank lobbyists are pushing to extend the GENIUS Act's restrictions to exchanges like Coinbase, fearing a destabilizing outflow of capital.

The key watchpoint is whether yield programs can be structured to comply with the law while still attracting liquidity. PayPal and Coinbase are already moving forward, framing their offers as "rewards" rather than "interest" to avoid the issuer prohibition. Coinbase's CEO has stated the company plans to continue to pay rewards to its customers, citing a 4.1% annual yield on USDC as a key differentiator. The industry's lobbying efforts will determine if these workarounds hold, or if the law is tightened to include exchanges. The outcome will dictate how much of the $1.35 billion in stablecoin revenue Coinbase earned last year can be reinvested into customer incentives.