Stablecoin Regulatory Clarity and Market Opportunity Under the GENIUS Act: The Battle Over Indirect Rewards

The U.S. crypto landscape is at a pivotal juncture as the GENIUS Act-aimed at curbing the systemic risks of stablecoins-navigates the murky waters of regulatory interpretation. Central to this debate is the question of indirect rewards, a term that has become a lightning rod for conflict between traditional banking interests and crypto-native platforms. For investors, the stakes are clear: how regulators define and enforce these provisions will directly shape the profitability and competitive positioning of crypto exchanges in the coming years.

Direct vs. Indirect Rewards: The Ambiguity That Could Reshape Markets

The GENIUS Act explicitly prohibits stablecoin issuers from offering direct interest or rewards on stablecoin balances, a move designed to prevent stablecoins from competing with traditional bank deposits. However, the law's silence on indirect rewards-such as yield-generating programs offered by affiliated crypto exchanges-has created a regulatory gray zone. For example, platforms like Coinbase have leveraged stablecoins to offer users returns through staking, lending, or loyalty programs, often exceeding the yields available at traditional banks.

Banking industry groups argue that this loophole undermines the Act's intent. By allowing stablecoins to function as interest-bearing substitutes for deposits, they contend, crypto platforms siphon liquidity away from banks, reducing their capacity to fund loans and destabilizing the broader financial system. Conversely, crypto advocates assert that the Act's language is narrow and should not extend to intermediaries. This divergence in interpretation has left exchanges in a precarious position, forced to balance innovation with compliance risks.

Global Regulatory Landscapes: A Framework for Comparative Advantage

While the U.S. grapples with legislative ambiguity, other jurisdictions have taken a more definitive approach. The European Union's Markets in Crypto-Assets (MiCA) regulation, effective since December 2024, mandates full reserve coverage for stablecoins and imposes strict transparency requirements. Additionally, the EU's "Travel Rule" compels exchanges to collect sender and recipient data for stablecoin transactions, a measure aimed at curbing illicit activity. These rules, though stringent, provide a clear framework for compliance, enabling European exchanges to operate with greater predictability.

In Asia, Hong Kong and Singapore have emerged as regulatory innovators. Hong Kong's Securities and Futures Commission introduced crypto staking guidelines in 2025, while Singapore finalized a stablecoin licensing framework in 2023. These measures reflect a strategic effort to attract crypto businesses while mitigating risks. For U.S. exchanges, the contrast is stark: without similar clarity, they risk losing market share to global competitors who operate under more defined rules.

Profitability and Competitive Positioning: The Indirect Rewards Dilemma

The profitability of crypto exchanges hinges on their ability to monetize stablecoin activity. According to a report by the Financial Stability Board (FSB), only five jurisdictions have finalized stablecoin regulatory frameworks by late 2025, highlighting a global gap in oversight. For U.S. exchanges, this lack of clarity creates operational uncertainty. If regulators adopt a broad interpretation of the GENIUS Act to include indirect rewards, exchanges may be forced to dismantle lucrative yield programs, eroding their revenue streams.

Conversely, a narrow interpretation could preserve their business models while reinforcing the U.S.'s role as a hub for crypto innovation. This scenario would likely benefit exchanges with diversified revenue sources, such as Coinbase and Binance, which could pivot to fee-based models or expand into international markets with clearer regulations. However, smaller exchanges with limited resources may struggle to adapt, accelerating industry consolidation.

Market Opportunities in Regulatory Uncertainty

Despite the risks, regulatory ambiguity also presents opportunities. Exchanges that proactively engage with policymakers-such as those advocating for a narrow reading of the GENIUS Act-could shape the regulatory landscape in their favor. Additionally, the push for global consistency, as emphasized by the FSB, may create openings for U.S. firms to collaborate with international regulators and establish best practices.

Investors should also consider the long-term implications of stablecoin regulation. As the FSB notes, stablecoins are increasingly seen as systemic risks, necessitating tailored frameworks. Exchanges that align with these evolving standards-whether through compliance technology or reserve transparency-will likely outperform peers in the long run.

Conclusion: Navigating the Crossroads of Regulation and Innovation

The GENIUS Act's treatment of indirect rewards is more than a legal technicality; it is a defining issue for the future of crypto exchanges. For investors, the key takeaway is that regulatory clarity-or the lack thereof-will directly influence market dynamics. While the U.S. lags behind global peers in providing definitive rules, the competitive positioning of exchanges will ultimately depend on their ability to navigate this ambiguity. Those that strike a balance between compliance and innovation will not only survive but thrive in the next phase of the crypto market's evolution.