The GENIUS Act killed one of the most obvious selling points for stablecoins: paying holders interest. Now Circle CEO Jeremy Allaire is making the case that the industry doesn’t actually need it.
Allaire has been vocal about transaction-based incentives and loyalty programs as the path forward for USDC, framing the regulatory constraint not as a setback but as what he calls a “powerful tailwind” for adoption. In English: if you can’t pay people to hold your stablecoin, you reward them for actually using it.
What the GENIUS Act actually changes
Signed into law in July 2025, the GENIUS Act drew a hard line between payment stablecoins and deposit-like financial products. The core provision that matters here is the outright ban on direct interest or yield payments from stablecoin issuers to holders.
The law also mandates that stablecoins maintain 1:1 backing with high-quality liquid assets, comply with anti-money laundering rules, and submit to regular attestations. Section 4 of the act was specifically designed to differentiate stablecoins from bank deposits, a concession aimed at easing the banking industry’s long-running anxiety about crypto eating into its territory.
The workaround that isn’t really a workaround
Coinbase has already been navigating this territory. The platform previously marketed rewards on USDC holdings at around 3.85%, but those incentives were structured as third-party rewards rather than direct issuer payments. Under the GENIUS Act’s framework, this kind of arrangement remains viable because the money doesn’t flow from Circle to the holder as interest.
Allaire’s broader argument is that the stablecoin industry should pivot toward usage-driven models entirely. Think cashback on transactions, merchant loyalty programs, or tiered benefits for high-volume users.
The OCC and Treasury have both proposed rules in early 2026 aimed at clarifying how the interest prohibition works in practice, along with updated AML requirements. These proposals suggest that regulators are still working through the granular details of enforcement, which means the precise boundaries of what counts as a “reward” versus what counts as “interest” remain somewhat fluid.
USDC’s position in the new landscape
Despite the regulatory tightening, USDC hasn’t exactly suffered. Circulation reached approximately $77 billion by the end of Q1 2026, a figure that signals the stablecoin’s demand trajectory hasn’t been dented by the yield ban.
Circle’s revenue model also benefits from a quirk of the GENIUS Act’s design. While issuers can’t pay interest to holders, they still earn returns on the reserve assets backing their stablecoins. With $77 billion in high-quality liquid assets generating income, the issuer keeps the spread. The law essentially protects the issuer’s economics while restricting what gets passed downstream.
What this means for investors
Coinbase’s approach to USDC rewards is worth monitoring closely as a bellwether. If third-party reward structures survive regulatory scrutiny and continue attracting users, expect other platforms to replicate the model. If regulators decide to tighten the definition of prohibited payments further, even these arrangements could face pressure.
The lobbying dynamic between crypto platforms and traditional banks adds another layer of uncertainty. Banks pushed hard for Section 4’s distinction between stablecoins and deposits precisely because they didn’t want to compete with yield-bearing digital dollars.