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The Congressional Research Service released a policy brief on March 6, 2026, exposing a potential loophole in the GENIUS Act’s prohibition on stablecoin yield: cryptocurrency exchanges can distribute stablecoin issuer profits to users in ways that resemble interest payments.
The report threatens to reignite debate over the law passed by Congress in July 2025, with banks arguing for stricter enforcement and crypto companies claiming restrictions protect banks rather than consumers.
Stablecoins are cryptocurrencies designed to maintain a stable value relative to the U.S. dollar. They are widely used in digital payments, crypto trading, and cross-border transfers.
But as adoption grows, policymakers increasingly see them as potential competitors to traditional bank deposits, especially if they begin offering yield.
The GENIUS Act attempts to prevent that outcome by prohibiting stablecoin issuers from paying interest or rewards simply for holding the asset.
Yet the new congressional analysis suggests that restriction may be harder to enforce than lawmakers initially expected.
Section 4 of the GENIUS Act states that no permitted stablecoin issuer may pay interest or yield to a holder.
However, the modern crypto market rarely involves a simple issuer-to-investor relationship.
Instead, most stablecoins operate through a three-party model involving the issuer, a cryptocurrency exchange, and the retail investor.
Under this structure, issuers distribute coins to exchanges, which hold them in custody for users. The issuer may then share part of the interest earned on reserve assets with the exchange.
Exchanges can subsequently distribute rewards or incentives to users.
A notable example involves the USD Coin issued by Circle Internet Financial. Regulatory filings show that Circle shares reserve income with Coinbase based on the volume of USDC held on its platform.
Those funds can be used by exchanges to provide incentives that resemble yield.
“While issuers may not pay investors directly, the economic effect can be similar through exchanges.”
Because the GENIUS Act does not clearly define who qualifies as a “holder,” regulators may eventually have to decide whether exchanges themselves count as holders.
If they do, the current arrangement could violate the law. If they do not, the so-called “loophole” may remain open.
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Figure 1. Two Ways Stablecoin Yield Can Be Paid |
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Source: CRS |
Behind the technical debate lies a deeper economic rivalry between crypto firms and traditional financial institutions.
Banks strongly support strict limits on stablecoin yield because they fear the digital assets could siphon deposits away from the banking system.
According to research cited in the congressional report, roughly $6.6 trillion in U.S. transactional deposits could theoretically face competition from stablecoins.
While the market currently holds around $281 billion, projections from Citigroup suggest stablecoins could reach $500 billion to $3.7 trillion by 2030.
That expansion could displace $182 billion to $908 billion in bank deposits.
Deposits serve as a key funding source for bank lending, meaning a shift toward stablecoins could increase borrowing costs across the economy.
Some estimates suggest stablecoin adoption could reduce bank lending by $65 billion to $1.26 trillion.
Crypto companies, however, argue that banning stablecoin yield amounts to regulatory protection for banks rather than consumer protection.
“If banks can pay interest on deposits, why should stablecoins be barred from sharing yield generated by their reserves?”
From the crypto industry’s perspective, preventing yield allows issuers to retain profits that would otherwise go to users.
The yield dispute has already begun to disrupt broader crypto legislation in Washington.
Earlier this year, the Senate Banking Committee circulated a draft market-structure bill that would have strengthened the GENIUS Act restriction by prohibiting exchanges from paying yield on stablecoin holdings.
The proposal triggered immediate backlash from the crypto industry.
On January 14, Coinbase withdrew its support for the bill, and the committee postponed its markup indefinitely.
Meanwhile, the House-passed bill, Digital Asset Market Structure Clarity Act, does not address stablecoin yield at all.
The standoff illustrates how unresolved tensions between crypto firms and banks continue to shape the direction of U.S. digital asset policy.
The debate over stablecoin yield is ultimately about more than interest payments.
It reflects a broader struggle over how blockchain-based money will coexist with the traditional banking system.
If yield restrictions remain strict, stablecoins will likely grow slowly and remain primarily tools for payments and trading. This outcome would protect bank funding structures but may limit innovation in digital finance.
If yield becomes widely permitted—especially through exchanges—stablecoins could evolve into a new form of digital savings instrument, potentially reshaping global dollar liquidity.
The GENIUS Act was intended to provide regulatory clarity.
Instead, the yield debate shows that the most difficult policy questions surrounding digital dollars are still unresolved.
For lawmakers, the real challenge may not be regulating stablecoins themselves—but determining how much disruption the U.S. financial system is willing to tolerate in the process.
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