Companies like Coinbase and Paypal are taking advantage of the loopholes present in the stablecoin-focused GENIUS Act to offer “rewards” to depositors, even though it explicitly forbids issuers from distributing any form of interest or yield to holders.
Stablecoin Companies Harness Loopholes in the GENIUS Act to Offer 'Rewards'
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GENIUS Act Circumvented? Paypal, Coinbase Offering ‘Rewards’ to Stablecoin Holders
Crypto companies are finding ways to circumvent the established restrictions in the Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act regarding offering yield to stablecoin holders.
Even though the GENIUS Act forbids stablecoin issuers from offering yield to holders, effectively thwarting the ability of these companies to directly issue yield-bearing stablecoins, companies like Paypal and Coinbase are using the loopholes in the act to be able to offer “rewards” to their customers.
As reported by Jevgenijs Kazanins, in its Q2 2025 earnings call, Paypal stated:
This quarter, we added the ability to earn rewards for our stablecoin on PayPal and Venmo and announced the expanded availability of PYUSD on Stellar and Arbitrum blockchains.
Kazanins stated that technically, the issuer for PYUSD was Paxos, enabling Paypal to engage in delivering “rewards” to its customers through earn programs.
Coinbase is also currently offering a program that allows USDC holders to earn 4.1% in rewards by simply holding these tokens in their Coinbase accounts.
Brian Armstrong, CEO of the exchange, has defended the legality of this program, highlighting that Coinbase is not the issuer of USDC and that they did not pay yield, but offer rewards to their “very competitive” customers.
This means that any company would be allowed to offer yield for in-house designed stablecoins, having to rely on a third-party institution as an issuer of their instrument.
Fintech writer Alex Johson criticized this, explaining that Paxos was serving as a BaaS (Bank as a Service), enabling Paypal’s rewards program.
He stressed:
Imagine if the Durbin Amendment had prohibited banks under $10B from offering interest on deposit accounts, but they got around it by entering into BaaS arrangements with fintech companies that offered interest to customers instead. That’s basically what’s happening here.
Read more: Trump Signs Landmark GENIUS Act, First US Stablecoin Law
