The Genius Act, passed in mid-July, shook the US stubcoin sector.
The Stablecoin-focused genius law passed in mid-July puts pressure on yield programs, but experts say workarounds can keep the return alive.
According to data from Defilama, Stablecoins experienced explosive growth in 2025, with its current market capitalization of $297 billion, up nearly 50% from the start of the year’s $206 billion.
Certain Stablecoins, like PayPal’s PYUSD, attract users by offering rewards and returns, while others, such as Ethena Lab’s USDE, offer higher risk returns. Now that the Genius Act is in effect, these programs face close scrutiny and are forced by publishers to explore alternative ways to provide returns.
“The act of genius is about to end the game of semantics on Stablecoin yield,” says Saga CEO Rebecca Liao. “For years, businesses have called return ‘rewards’ or ‘cashback’, and regulators see it through it. If it appears to be interested, it is treated like interest. ”
Sid Sridhar, founder and CEO of BIMA Labs, said that in order to navigate the new rules, some companies route yields through partner banks or swept accounts, making Stablecoin issuers themselves not pay interest.
“Another way is to frame the reward as a payment incentive rather than a yield. This is how PayPal can continue to provide profits without calling interest, without calling profits,” Sridhar told Defiant.
For example, PayPal’s PYUSD currently offers a 3.7% APR via Paxos, which is classified as a direct payment to users rather than interest.
“Paypal’s Pyusd Rewards is a workaround for the textbook genius,” Hadley Stern, chief commercial officer at Marinade, told The Defiant. “The law stops issuers from paying yields, but PayPal is not the issuer, so Payouts frames payments as wallet ‘rewards’. ”
Stern emphasized that while this is now legal, banks are lobbying hard to close this path. “I hope they win,” he added.
Centrifugation advisor Eli Cohen argues that such an approach should not even be considered a loophole.
“Banks are permitted to partner with brokerages to provide cash deposit sweeps to money market funds with interest,” he said. “I don’t know why Stablecoin issuers can’t develop partnerships with other providers that provide Stablecoin deposit yields either.”
However, Cohen admitted that Washington’s bank lobby is strong and likely to try to block some of these passes.
Winners and losers
Incyt CEO Mike Maloney told Defiant that the Genius Act would force Stablecoin publishers to push them down a variety of paths. Circles that avoid yield programs and emphasize compliance may benefit.
“Genius is just not easy for a large, stable publisher. The circle is well positioned after years of working with regulators, but there is a risk averting to extending the rules of interest,” Maloney said.
Tether faces doubts about transparency and is registered offshore, which could narrow US market access. “This is a shame. They are the only company that has a balance sheet that rivals Paypal’s PYUSD,” Maloney said. However, things could change now that the company has officially unveiled USAT, a US-based Stablecoin.
Meanwhile, Esena is trying to fill the remaining gap terra, Maloney said. Terra was a cosmos-based blockchain that issued Terrausd (UST), a $40 billion stablecoin that collapsed in 2022.
“They meet the genius requirements and don’t rely on the boundless nature of defi,” explained Maloney. “There is a yield to this freedom, but there is a great risk from Jecena’s unregulated business. The US is stepping in to stop enjoyment on behalf of the favourite coin, cough cough and USD1.”
USD1 is a Stablecoin published by World Liberty Financial, a decentralized finance (DEFI) project with ties to President Donald Trump, and has grown to a market capitalization of $2.6 billion.
Regulated cats and mice
The Genius Act bans Stablecoin publishers from yield yields, but experts say the actual test is how regulators respond to workarounds businesses are already using.
Patrick Gerhart, president of Telcoin’s banking operations, told Defiant that the act of genius has made it clear that Stablecoins are not intended to function as a savings account, prohibiting issuers from paying yields directly. Nevertheless, some platforms have tested reward systems that are very similar to interest payments.
“Regulators will adopt a substance over-form approach. If the program simply pays users to maintain balance, even if it’s a different name, it will attract scrutiny,” Gerhart says. “Usage-based incentives, such as cashback on spending, may be more defensible than balance-based rewards that mimic traditional interests.”
Experts say this highlights the balance of difficult regulations. Regulators want to protect consumers and prevent stubcoins from becoming unregistered securities, but it is difficult to block all workarounds in a decentralized system that allows users to transfer assets offshore.
Meanwhile, Maple CEO Sid Powell called the new framework “health.”
“We hope that, rather than shutting down innovation, regulators will guide Stubbrecoin as an asset like money to handle the yields that partners or complementary products have built on top,” Powell said.
He added that players like Coinbase have chosen to offer rewards to USDC users. This is possible because it is not the publisher. He also explained that Maple’s Syrupusdc is an example of this type of product because it provides yields for Stablecoin issued by Circle.
“This shift will actually expand the market by making Stablecoin safer and more predictable for both retail and institutional owners,” Powell said.
Divided Market
The genius act could also deepen the gap between regulated and offshore stub coins, experts said. Cohen explained that many Stablecoin publishers will decide not to follow this path, as was the case with the MICA Stablecoin rules in Europe last year.
He explained that Circle will work towards compliance, similar to EU regulations, but Tether will likely remain outside the boundaries of the regulations.
“The world of branched stubcoins with RWAs and regulated stubcoins offering permitted products such as RWAs and unregulated stubcoins used for remittances and unregulated stubcoins will become increasingly seen as an alternative to the US dollar in jurisdiction with currency control,” Cohen said.
Ultimately, genius acts redefine a stable landscape, experts say, and while it is not the end of a yield, it is probably the end of an unregulated acquisition program. “The bottom line means that stubcoins can modernize payments, but rather than being burned into the coins themselves, yields are fought to get yields at regulated banks and fund wrappers,” concluded Gerhardt.