Why Stablecoins Can't Pay You Yield, and Who Benefits

You cannot legally earn yield on a stablecoin you hold, at least not from the company that issued it. That is not an accident of the market. It is written into US law, and right now there is a fight over how far that ban should reach. The launch of Open USD on June 30, 2026, with its model of sharing reserve income across partners, has pushed the argument back into the open and drawn a sharp response from banks.

Understanding this fight matters for any business holding stablecoins, because it decides what a stablecoin is allowed to be. The surprising part is what the fight is actually about. It looks like banks versus crypto, but underneath it is a fight over one thing, and it is not technology.

This guide explains what the law bans, the loophole everyone is arguing about, why banks care so much, and what it means for a merchant who accepts or holds stablecoins.

What the GENIUS Act actually bans

Start with the plain text of the law. The GENIUS Act, signed in 2025 to regulate payment stablecoins in the US, requires each token to be backed 1 to 1 by safe reserves and prohibits the issuer from paying any interest, yield, or reward to the people holding the token. We covered the broader rule set and the July deadline in our GENIUS Act final rules guide.

The reason for the ban is deliberate. A dollar sitting in a stablecoin is backed by reserves that earn interest, mostly short-term US Treasuries. If the issuer passed that interest back to holders, a stablecoin would start to look and behave like a bank account that pays interest, but without the rules that govern banks. Congress drew a line. You can hold a stablecoin as digital cash, but the issuer cannot pay you to hold it.

So the baseline is simple. Hold USDC, USDT, or any regulated payment stablecoin, and the issuer legally cannot send you a yield. The complication is what counts as the issuer.

The loophole everyone is fighting over

Here is where the clean rule gets messy. The law bans the issuer from paying the holder. It does not clearly stop a different company, an affiliate or a distribution partner, from doing it instead.

The clearest example already exists. Circle, which issues USDC, pays a share of the interest it earns on reserves to Coinbase, based on how much USDC sits on Coinbase's platform. Coinbase, in turn, has offered rewards to users who hold USDC there. The issuer did not pay the holder. An affiliated platform did, using money that originated from the issuer's reserves. The yield reached the holder through a side door.

Open USD sharpened the question. Its whole design returns most of the reserve income to the partners who distribute the token, rather than keeping it at one issuer. That is the feature that threatened Circle's business, which we explained in our Open USD guide. But it is also the exact structure the yield ban was meant to prevent, just routed through partners instead of paid to holders directly. When a consortium of the largest payment firms launched a token built around sharing reserve income, the loophole stopped being theoretical.

Why does stablecoin yield terrify banks?

To see why banks are fighting this so hard, you have to understand where a bank gets its cheapest money. It is deposits.

When you keep money in a checking account, the bank pays you little or nothing, then lends that money out or invests it at a higher rate. The gap is the core of banking. Deposits are the cheapest funding a bank has, and the whole model depends on people leaving money in accounts that pay almost nothing.

Now imagine a stablecoin, or its affiliated platform, paying you a competitive return to hold dollars instead. Money would move out of low-paying bank deposits and into the token. That is not a small technical concern for a bank. It is a threat to its cheapest source of funding. This is why the fight is really about deposits, not about technology or consumer protection. Banks are protecting the thing that makes banking profitable.

The numbers behind the fear are large. A Treasury Department advisory council identified the roughly $6.6 trillion market for everyday transactional bank deposits as at risk from stablecoins, against around $281 billion of stablecoins outstanding in March 2026. Citigroup has estimated that stablecoins could grow to somewhere between $0.5 trillion and $3.7 trillion by 2030, displacing between $182 billion and $908 billion of bank deposits. When banks look at those figures, a stablecoin that pays yield looks like a deposit account they do not control.

How regulators are trying to close the gap

The banking industry has lobbied to tighten the rules, and regulators have started to respond. The Office of the Comptroller of the Currency has proposed extending the yield prohibition beyond issuers to reach affiliates and third parties as well. The proposal would treat an arrangement where an issuer pays an affiliate who then routes a reward to holders as presumed to violate the ban, unless the parties can show otherwise.

In plain terms, the regulator wants to close the side door. If the effect is that a holder earns yield on a stablecoin, the proposal treats it as banned no matter how many companies the money passes through on the way. That directly targets both the Circle and Coinbase arrangement and the Open USD partner-sharing model.

If that rule is finalized as proposed, the reserve-sharing designs that make Open USD attractive to its partners would face real legal pressure. This is a live regulatory risk sitting under the newest and loudest stablecoin launch of the year.

The twist that keeps the fight alive

Here is the part that keeps the fight from ending. The government's own research undercuts the banks' central argument.

A White House analysis published in April 2026 modeled what would happen to bank lending if the yield prohibition were removed. It found the effect was tiny. Removing the ban would increase bank lending by only about $2.1 billion, a 0.02 percent change. Even under extreme and unlikely assumptions, the additional lending topped out around $531 billion, a 4.4 percent increase that required the stablecoin market to grow sixfold and the Federal Reserve to abandon current policy. The analysis concluded that a yield prohibition "would do very little to protect bank lending, while forgoing the consumer benefits of competitive returns on stablecoin holdings."

So the banks say yield-bearing stablecoins would gut deposits and lending. The government's own model says the protection from banning yield is close to nothing. That gap is why this is a genuine fight rather than a settled rule, and why merchants should expect the boundary to keep moving.

Bank deposit, yield stablecoin, and compliant stablecoin compared

The table below shows why the three are treated differently, from the point of view of where your dollars sit.

Feature	Bank deposit	Yield-bearing stablecoin	GENIUS-compliant stablecoin
Pays the holder a return	Yes, set by the bank	Yes, often via an affiliate	No, banned by law
How the dollars are held	Lent out, fractionally reserved	Backed by reserves	Backed 1 to 1 by cash and Treasuries
Main regulatory status	Fully bank-regulated	Contested, being restricted	Regulated under the GENIUS Act
What it is really for	Storing and earning on money	Earning while staying in crypto	Fast, cheap payments and settlement

What this means for merchants

The practical takeaways are clearer than the politics. First, do not build a treasury strategy around earning yield on the stablecoins you hold for payments. Every path to that yield is being actively closed, and a business that plans around it is planning around something regulators are removing.

Second, judge a stablecoin on what it does for your operations, not on whether it pays. For a merchant, the value of a stablecoin is fast, low-cost settlement that clears at any hour, which is exactly what the compliant, non-yield version already delivers. Our stablecoin payments business guide covers how that settlement actually works.

Third, weigh regulatory risk when a stablecoin's main pitch is shared income. Open USD's reserve-sharing model is attractive to its partners, but it is also the model regulators are moving to restrict. A token whose economics depend on a contested loophole carries a risk that a plain settlement token does not.

Where AIO fits

The lesson underneath all of this is that a stablecoin's job for a merchant is to move money quickly and cheaply, not to pay interest. AIO is a non-custodial crypto payment gateway built around that job. It accepts stablecoin payments across multiple chains through one API, so you receive funds, confirm them on-chain, and settle on your terms, whichever compliant stablecoin you choose.

Because AIO is non-custodial, you hold your own funds rather than parking them with an issuer or exchange chasing a reward that regulators are trying to ban, which is the point of our explainer on non-custodial gateways. The pricing reflects the same priority, at 0.3 percent on pay-ins and 0 percent on payouts, with AIO covering the network gas on transactions. Whatever happens to the yield fight, the settlement value of a stablecoin is untouched, and that is the part a merchant actually needs.

Frequently asked questions

Can any stablecoin legally pay me yield?

The issuer of a regulated US payment stablecoin cannot pay interest, yield, or rewards to holders under the GENIUS Act. Some holders have earned rewards through affiliated exchanges, but regulators have proposed closing that route by extending the ban to affiliates and third parties.

Why is Open USD part of this debate?

Open USD returns most of the interest earned on its reserves to the partners who distribute the token, rather than keeping it at one issuer. That reserve-sharing model sits in the same gray area as an issuer routing yield through an affiliate, which is exactly what regulators are now moving to restrict.

Why do banks oppose yield-bearing stablecoins?

Banks rely on cheap deposits as their main source of funding. A stablecoin that pays a competitive return could pull money out of bank accounts and into tokens. Banks frame this as a stability concern, but at its core it is about protecting their cheapest funding.

Does the yield ban actually protect banks?

A White House analysis published in April 2026 found it barely does. It estimated that removing the ban would increase bank lending by only about $2.1 billion, a 0.02 percent change, and concluded the prohibition does very little to protect bank lending.

Should a merchant care about stablecoin yield at all?

Not for payments. A merchant uses a stablecoin for fast, low-cost settlement, which the compliant non-yield version already provides. Building a treasury plan around stablecoin yield is risky because every path to that yield is being restricted.

The yield fight will keep moving, but the reason a merchant uses a stablecoin does not depend on its outcome. If you want fast, low-cost settlement without betting on a reward that regulators are working to remove, a non-custodial gateway is the practical foundation.

Frequently Asked Questions

Can any stablecoin legally pay me yield?

The issuer of a regulated US payment stablecoin cannot pay interest, yield, or rewards to holders under the GENIUS Act. Some holders have earned rewards through affiliated exchanges, but regulators have proposed closing that route by extending the ban to affiliates and third parties.

Why is Open USD part of this debate?

Open USD returns most of the interest earned on its reserves to the partners who distribute the token, rather than keeping it at one issuer. That reserve-sharing model sits in the same gray area as an issuer routing yield through an affiliate, which is exactly what regulators are now moving to restrict.

Why do banks oppose yield-bearing stablecoins?

Banks rely on cheap deposits as their main source of funding. A stablecoin that pays a competitive return could pull money out of bank accounts and into tokens. Banks frame this as a stability concern, but at its core it is about protecting their cheapest funding.

Does the yield ban actually protect banks?

A White House analysis published in April 2026 found it barely does. It estimated that removing the ban would increase bank lending by only about 2.1 billion dollars, a 0.02 percent change, and concluded the prohibition does very little to protect bank lending.

Should a merchant care about stablecoin yield at all?

Not for payments. A merchant uses a stablecoin for fast, low-cost settlement, which the compliant non-yield version already provides. Building a treasury plan around stablecoin yield is risky because every path to that yield is being restricted.