Stablecoin yield debate dominates GENIUS rule comments

• Key insight: Banks and crypto firms at loggerheads over whether Congress intended to block consumers receiving any value for storing their stablecoins on platforms, or whether the GENIUS Act’s prohibition was intended to be a narrow, nominal prohibition. 
• Expert Quote: “We do not see a middle ground that would satisfy the banks and the major crypto platforms as we believe some crypto platforms want the ability to keep paying yield to encourage retail investors to keep their liquidity in their crypto wallets … a nonstarter for the banks.” Jaret Seiberg, TD Cowen analyst.
• Forward look: The Office of the Comptroller of the Currency’s final rule could determine whether third-party rewards are allowed if further legislation remains stalled. 

Banks and crypto firms are talking past each other on whether consumers should earn yield on stablecoins, highlighting a rift between the industries that has kept the two sides at loggerheads on crypto market legislation for months. 

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In comment letters responding to the Office of the Comptroller of the Currency’s proposed rule implementing the GENIUS Act, the first comprehensive federal regulatory framework for stablecoins, crypto and banking firms offered fundamentally different views of what counts as “yield.” In their comments, banks pushed the OCC to treat any economic benefit tied to custody as prohibited interest, while crypto firms argued the law only bars issuers themselves from paying yield but leaves room for third parties to offer their own incentives. 

The OCC’s proposed rule implementing the GENIUS Act technically bars platforms from paying yield on stablecoins held in custody, but it introduces a flexible “rebuttable” standard that lets issuers challenge the ban if they can show their third-party arrangements don’t violate the law.

Comments on the proposed rule come as negotiations over a broader crypto market structure bill remain ongoing. Lead negotiators Sens. Thom Tillis, R-N.C., and Angela Alsobrooks, D-Md., released compromise language late last week that would prevent crypto firms from issuing rewards for stablecoin balances that, in effect, are “economically or functionally equivalent” to bank deposits. 

The banking industry balked at the legislative proposal, saying it could still allow yield-like arrangements that would allow stablecoins to mimic interest-bearing deposits and ultimately drain deposits from the traditional banking system. Tillis and Alsobrooks countered with a statement saying they will have to “agree to disagree” on the utility of the compromise, raising questions about whether banks’ objections will stall a markup of the bill.

With the legislative process uncertain, the question of yield increasingly looks like it could be solved at the regulatory level, according to Jaret Seiberg, policy analyst at TD Cowen.

“We do not see a middle ground that would satisfy the banks and the major crypto platforms as we believe some crypto platforms want the ability to keep paying yield to encourage retail investors to keep their liquidity in their crypto wallets … a nonstarter for the banks,” Seiberg wrote in a note. “Though we expect litigation, relying on [the OCC’s] rule may be the fallback for the banks if the CLARITY Act is not enacted.”

Calls for more time to review the proposed rule highlight its increasingly apparent centrality to settling the debate. In addition to their comments on the substance of the rule, Banking groups — including the American Bankers Association, Consumer Bankers Association, Bank Policy Institute and the Independent Community Bankers of America — in a separate letter asked the OCC for an additional 60-day comment period extension to review the nearly 400-page proposal.

Crypto firms and fintech groups focused much of their comments on a narrow interpretation of the scope of the prohibition on paying yield. Coinbase in its letter urged the OCC to take a minimalist stance toward banning stablecoin yield, applying only the law’s narrow ban on issuers directly paying consumers yield.

“The OCC should not broaden the issuer-yield prohibition to cover ‘direct or indirect’ yield or recast ordinary commercial arrangements as ‘indirect interest,'” Coinbase wrote. “Instead, the OCC should preserve the issuer-only compromise in GENIUS and confirm that profit-sharing and other third party rewards remain permissible where the issuer is not paying yield ‘solely for holding’ the stablecoin.”

Coinbase, which has been one of the loudest proponents of permitting consumers to receive certain rewards for their stablecoins argued that incentives are central to competition in payments, 

Coinbase also challenged the policy rationale for a ban, citing a White House analysis that argues the downsides of banning yield would outweigh the benefits for banks. 

“In April 2026, the Council of Economic Advisers published an analysis finding that a full prohibition on stablecoin yield would increase aggregate bank lending by just $2.1 billion — a 0.02% change — while imposing a net welfare cost of $800 million annually,” Coinbase wrote. “As the CEA summarized, ‘a yield prohibition would do very little to protect bank lending, while forgoing the consumer benefits of competitive returns on stablecoin holdings.'”

The American Fintech Council similarly pressed for clearer boundaries that distinguish passive returns on stablecoins from other kinds of payments, which they call “ordinary course commercial activity,” so that “legitimate commercial arrangements are not improperly characterized as yield.”

“Clear guidance regarding affiliate relationships and third-party incentive arrangements would be essential to avoid inadvertently capturing ordinary course commercial activity within the scope of prohibited yield or interest,” AFC wrote in its letter. “The framework should distinguish between passive return paid to end users and compensation paid to commercial counterparties for bona fide services such as liquidity provision, market making, technical integration, and operational support”

Banks, by contrast, argue the proposal does not go far enough and leaves too many avenues for what they view as “synthetic yield.” 

A joint letter from major trade groups, including the The Bank Policy Institute, Consumer Bankers Association and Financial Services Forum supports the OCC’s broad reading but calls for an explicit ban on any economic benefit tied to holding stablecoins. 

“Any arrangement in which a [payment stablecoin issuer] makes — directly or indirectly — payments on, or otherwise provides economic benefits to a payment stablecoin holder in relation to, instruments that are designed not to be interest- or yield-bearing would be inconsistent with the text and purpose of the GENIUS Act, and could have a significant adverse economic impact that Congress sought to prevent,” the groups wrote. “The most effective way to implement the prohibition … would be to prohibit expressly any [issuer] from providing any economic benefit to a payment stablecoin holder, whether directly or indirectly, including through any affiliate or any other person that acts on behalf of, in coordination with or using funds derived from, [an issuer].”

Community banks frame the issue in more existential terms. The ICBA argued in its letter that even without yield, stablecoins will pull deposits from banks; allowing rewards would accelerate the shift dramatically. Estimating a market for stablecoins of $1.2 trillion — which they say is consistent with a world where yield is completely prohibited — community banks would still suffer.

“The key policy question is not whether credit creation will decline, but by how much and how those costs are distributed across the banking system,” they wrote. “ICBA estimates lending at community banks would [if the yield prohibition is enforced,] fall by at $141 billion, or four percent.”

If stablecoin issuers are allowed to circumvent the yield prohibition through third-party arrangements or other methods, the ICBA estimates the stablecoin market would grow far larger and place severe stress on bank deposits. 

“Community bank lending [could] fall by $850 billion,” ICBA wrote. “Equivalent to placing at risk roughly one in five dollars currently lent by community banks to farms, small businesses, and other borrowers.”

The ICBA also pushed back on a recent study from the White House Council of Economic Advisers on the effect of stablecoin yield on bank deposits, saying it relied on faulty assumptions and calculated the effects of stablecoins using the current “immature” stablecoin market, which they see growing substantially even absent yield arrangements. 

“In a fully mature payment stablecoin market, deposit loss, and accordingly, lending loss, would be significant [and] CEA’s analysis assumes that stablecoin-linked deposits as a share of total bank deposits will remain 1.7% … the CEA has not examined the realistic scenario where the stablecoin market is mature,” ICBA wrote. “Small banks compete with large banks by offering local pricing, local knowledge, and community ties…the exact thing at stake in the yield question; the CEA paper ignores the impact that shifting community bank deposits to large banks would have on the types of credit community banks support.”

The Conference of State Banking Supervisors, which represents state-level banking regulators, approved of the OCC’s language prohibiting yield, but called for the agency to broaden that standard to capture a range of setups in which issuers could pass value to stablecoin owners through workarounds. 

“The definition should cover profit-sharing arrangements between the issuer and the holder, in addition to arrangements in which a third party contractually agrees to redeem an issuer’s stablecoins for holders, effectively serving as the issuer’s agent,” CSBS wrote in its letter. “These structures can transfer value from the issuer to holders in a manner functionally equivalent to yield and present the same risks that [the law’s ban] is intended to address.”