Coinbase and PayPal Are Dodging U.S. Stablecoin Law — And Still Paying You Yield

New law says “No interest on stablecoins.” Coinbase and PayPal say: “Cool, we’ll call it rewards.” Welcome to the next legal gray zone in crypto.

📊 Quick Hits

• 💸 4.1% APY — USDC "rewards" on Coinbase
• 🪙 3.7% APY — PYUSD "rewards" on PayPal + Venmo
• 🌐 250B — Global stablecoin market cap
• 🚀 2T — Forecasted stablecoin market in 3–5 years (Ripple)
• 🌍 6.6% — Avg. global remittance fee (vs. <1% with stablecoins)

🧱 The GENIUS Act: No Yield, No Exceptions

The U.S. just drew a hard line with the GENIUS Act, banning stablecoin issuers from offering any kind of interest. The goal? Kill the idea that stablecoins could behave like savings accounts or investment products.

“This law is a firewall between crypto and systemic financial risk,” — Senator Elizabeth Warren

In short: stablecoins can be digital dollars — not bank accounts. No yield. No gray area. Or so they thought.

💡 The Workaround: Rewards ≠ Interest?

Coinbase and PayPal didn’t break the law. They just slid around it.

Coinbase made a sharp pivot: They stopped co-issuing USDC with Circle and now label their 4.1% APY as a “rewards program”, not interest. It’s semantics with legal implications.

PayPal offers 3.7% APY on PYUSD, but cleverly points to Paxos as the issuer. Since Paxos isn’t directly paying the yield — PayPal is — they argue they’re outside the law’s jurisdiction.

“We don’t pay interest. We pay rewards.” — Brian Armstrong, CEO of Coinbase “It’s a feature, not a security.” — James Alexander Chriss, CEO of PayPal

Here's the legal sleight of hand: The law bans issuers from offering yield. It says nothing about custodians (like Coinbase) or distribution platforms (like PayPal). So if the rewards come from someone else — it's technically not a violation.

⚖️ Legal or Just Clever?

This isn’t just regulatory yoga — it’s a calculated strategy.

• Circle (issuer of USDC) doesn’t offer yield
• Coinbase (not the issuer) does
• Paxos (issuer of PYUSD) stays silent
• PayPal (just distributing) offers 3.7% APY

This structure creates legal distance between yield and issuer. And that’s the whole game. But the SEC isn’t impressed.

“If it walks like interest and talks like interest… it probably is,” — Senior SEC advisor

The SEC recently dropped a case involving PYUSD, but made it clear: they’re watching. Hard. Especially if this structure spreads.

💵 Why Are They Doing This?

Because stablecoins aren’t just hot — they’re inevitable.

• Western Union is testing stablecoins for cross-border remittances
• Amazon, JD.com, Alipay are exploring stablecoin settlement
• In the Global South, stablecoins = inflation hedge + payment rail
• Remittance fees globally average 6.6%. With stablecoins? Under 1%.

“Stablecoins could be crypto’s first mass-market product.” — Brad Garlinghouse, CEO, Ripple “We see them as an opportunity, not a threat.” — Devin McGranahan, CEO, Western Union

And in a world where 3–4% yield is considered survival income — especially in emerging markets — platforms offering even modest returns win the user onboarding war.

🧨 Political Blowback Incoming

Not everyone’s thrilled.

• Senator Warren is demanding “strict enforcement” of the GENIUS Act
• She warns yield-bearing stablecoins are “investment products in disguise”
• And when it crashes? She says Big Tech will “come begging for a bailout”

But Coinbase and PayPal? Unfazed. The legal architecture is holding — for now. And as long as they don’t technically issue the coin, the rewards keep flowing.

🔭 What’s Next? The Stablecoin Arms Race

We’re not at the end — we’re at the start line.

Expect to see:

• Platforms offering “rewards” under loyalty or cashback schemes
• Regulators racing to redefine what counts as “interest”
• LatAm, Africa, Southeast Asia pilots using stablecoins for everyday payments
• Retail giants adopting stablecoins for faster, cheaper settlements
• More lobbying to keep the issuer/platform firewall intact

The U.S. may have drawn a line — but the global game is only heating up.

TL;DR

• 🇺🇸 New U.S. law bans interest on stablecoins — but only for issuers
• 💰 Coinbase and PayPal are exploiting a legal loophole with “rewards”
• ⚖️ The SEC is watching, but for now it’s all technically legal
• 🌍 With a 2T market on the horizon, stablecoins are going mainstream
• 🧨 Political pressure is building, but fintech platforms are scaling fast