Briefing
The US Treasury, in implementing the newly enacted GENIUS Act, faces immediate political pressure from lawmakers and the banking sector to close a critical loophole that allows digital asset exchanges and their affiliates to offer yield on payment stablecoins, circumventing the Act’s prohibition on issuers doing so. This targeted push fundamentally threatens the current stablecoin business model for non-issuing entities and signals a regulatory intent to classify stablecoins purely as non-interest-bearing payment instruments. The strategic window for industry comment on the Treasury’s Advance Notice of Proposed Rulemaking (ANPRM) closes on November 4, 2025, defining the immediate engagement deadline for stakeholders.
Context
Prior to the GENIUS Act, the regulatory status of stablecoins was fragmented, relying on a patchwork of state-level money transmission licenses and ambiguous federal guidance, creating systemic uncertainty around reserve standards and consumer protection. The Act itself established a comprehensive federal framework, but its narrow language prohibited only issuers from paying interest, leaving a clear legal gap that allowed exchanges and brokers to structure yield products through affiliate programs, thereby maintaining a high-risk, interest-bearing layer atop the intended payment rail.
Analysis
This regulatory challenge requires digital asset exchanges to immediately model the operational impact of a potential yield prohibition expansion, necessitating a complete overhaul of product structuring and customer reward programs. The expansion of the ban would force compliance teams to dismantle existing affiliate-based yield mechanisms, impacting revenue streams and requiring a fundamental re-categorization of stablecoin holdings from investment products to pure payment assets. The legislative intent is to enforce a systemic shift in how stablecoins are utilized, demanding that compliance frameworks treat them exclusively as non-interest-bearing digital cash equivalents, similar to traditional e-money regulations. This update is critical because it forces a pivot in the core value proposition of stablecoin products for retail users.
Parameters
- Legislative Mandate → The GENIUS Act (Guiding and Establishing National Innovation for U.S. Stablecoins Act).
- Regulatory Body → U.S. Department of the Treasury (implementing the Act).
- Comment Deadline → November 4, 2025 (Deadline for public comments on the ANPRM).
- Industry Yield Rate → 4.10% (Example yield offered by a major exchange on USDC holdings).
Outlook
The immediate outlook involves a high-stakes lobbying and comment period as the banking industry seeks to eliminate the competitive advantage held by non-bank crypto exchanges offering yield. Should the Treasury Department or Congress expand the prohibition, it would set a powerful precedent globally, aligning the US framework with the most restrictive aspects of e-money regulation and potentially stifling a significant source of revenue for the digital asset industry. The next phase is the Treasury’s final rulemaking, which will determine if the legislative intent or the literal loophole language prevails.
Verdict
The systemic push to prohibit stablecoin yield represents the most significant regulatory threat to the current digital asset business model since the initial classification of digital assets as securities.
