TL;DR: The New Reality
Under the GENIUS Act of 2025, signed into law by President Trump on July 18, 2025, banks and other permitted stablecoin issuers are explicitly prohibited from offering any form of interest or yield to stablecoin holders. However, there's a compliant workaround: the Act doesn't explicitly prohibit affiliate or third-party arrangements that might offer interest-bearing products.
This regulatory framework creates unprecedented opportunities for banks to partner with programmable stablecoin infrastructure providers offering their customers yield-generating capabilities while remaining fully compliant.
The GENIUS Act: What Changed for Banks
The Prohibition is Clear and Absolute
The GENIUS Act states: "No permitted payment stablecoin issuer or foreign payment stablecoin issuer shall pay the holder of any payment stablecoin any form of interest or yield (whether in cash, tokens, or other consideration) solely in connection with the holding, use, or retention of such payment stablecoin."
This applies to:
Bank subsidiaries that issue stablecoins
Federal qualified stablecoin issuers (nonbank entities approved by the OCC)
State-qualified issuers operating under equivalent frameworks
Foreign issuers seeking U.S. market access
Why the Prohibition Exists
The restriction stems from historic concerns about the separation of banking and commerce, which has taken new shape in the digital age. Regulators worry that yield-bearing stablecoins could:
Destabilize traditional banking by creating unfair competition
Trigger massive deposit outflows from regulated institutions
Concentrate financial power in unregulated entities
Disrupt credit creation by reducing available bank deposits
Banking groups have warned Congress that allowing yield on stablecoins could result in $6.6 trillion in deposit outflows from traditional banks, potentially "undermining credit creation" and leading to "higher interest rates" and "fewer loans."
The Compliant Workaround: Third-Party Infrastructure
How Banks Can Still Offer Yield
While banks cannot directly offer yield on their stablecoins, they can partner with specialized infrastructure providers to offer yield-generating services to their customers. Here's how this works:
1. Clear Separation of Services
Bank issues compliant, non-yield-bearing stablecoins
Third-party infrastructure provider offers programmable yield services
Customer maintains control while accessing advanced features
2. Partnership Models
Referral arrangements: Banks recommend approved infrastructure partners
API integrations: Seamless connection between bank systems and yield platforms
White-label solutions: Banks offer infrastructure services under their own brand
3. Regulatory Compliance
Bank remains fully GENIUS Act compliant
Infrastructure provider operates independently
Customer relationship preserved with enhanced services
Real-World Example: The Coinbase Model
Coinbase has demonstrated this approach by offering a 4.1% APY on USDC holdings through its Embedded Wallet, a non-custodial platform. This APY is generated not by the stablecoin itself but by Coinbase's infrastructure, which leverages its reserves and partnerships with DeFi protocols.
This model works because:
Circle (USDC issuer) doesn't pay yield directly
Coinbase (infrastructure provider) generates yield through DeFi integration
Users access yield without violating issuer restrictions
Partnership Checklist for Banks
Legal and Compliance Requirements
✓ Regulatory Separation
Ensure clear legal separation between stablecoin issuance and yield services
Document that yield comes from infrastructure, not stablecoin holdings
Maintain compliance with Bank Secrecy Act and AML requirements
✓ Risk Management
Conduct effective risk assessment prior to engaging in crypto-asset partnerships
Maintain appropriate third-party risk management processes for vendors involved in crypto-asset operations
Implement circuit breakers for rapid position liquidation if needed
✓ Documentation
Clear partnership agreements defining roles and responsibilities
Customer disclosures explaining yield source and risks
Audit trails for all transactions and interactions
Technical Integration Requirements
✓ Custody Integration
Partner with providers supporting major custody solutions (Fireblocks, BitGo, Tatum)
Maintain customer control over private keys
Enable seamless API connectivity
✓ Operational Excellence
Real-time position monitoring and reporting
Automated compliance checks and reporting
Emergency procedures for immediate fund recovery
✓ Customer Experience
Unified interface hiding technical complexity
Clear yield attribution and performance reporting
Instant liquidity for customer withdrawals
Strategic Considerations
✓ Partner Selection Criteria
Regulatory compliance: Operating within established frameworks
Technical maturity: Production-ready infrastructure with proven track record
Security standards: Enterprise-grade protection and audit history
Scalability: Ability to handle institutional-volume operations
✓ Business Model Alignment
Revenue sharing arrangements that benefit both parties
Clear customer attribution and relationship ownership
Competitive differentiation through enhanced services
The Market Opportunity
Massive Demand for Yield
The total value of issued stablecoins has doubled to $250 billion today from $120 billion 18 months ago, and is forecast to reach more than $400 billion by year-end and $2 trillion by 2028.
Current yield offerings demonstrate strong demand:
Holding USDC on Coinbase allows users to earn 4.1% APY and has led to deposits of $12 billion
The largest stablecoin in Europe has a circulating supply of just €200 million due to MiCA restrictions on yield
Competitive Pressure
Banks have become increasingly wary of stablecoins potentially capturing a significant share of deposits and payment volumes traditionally held by regulated financial institutions, particularly if tech giants or major retailers enter the arena.
Major Banking Initiatives:
J.P. Morgan Chase, Bank of America, Citigroup, and Wells Fargo are exploring consortium-backed stablecoins
Japan's three largest banks (MUFG, SMBC, and Mizuho) joined a pilot platform called "Project Pax" to use stablecoins for cross-border payments
Standard Chartered's Hong Kong branch formed a joint venture to apply for a Hong Kong Monetary Authority license to issue a Hong Kong dollar-backed stablecoin
Regional Opportunities
Latin America: 100% of survey respondents in the region are either live, piloting, or in planning stages with their stablecoin payments strategy
Asia-Pacific: 49% say market expansion is the #1 stablecoin driver
North America: 88% of firms see stablecoin regulation as a green light, not a barrier
Implementation Roadmap
Phase 1: Foundation (0-90 days)
Legal review of GENIUS Act implications and partnership models
Infrastructure partner evaluation based on compliance and technical criteria
Pilot program design with select institutional customers
Phase 2: Integration (90-180 days)
API integration with chosen infrastructure provider
Customer onboarding systems for yield services
Risk management frameworks for third-party operations
Phase 3: Scale (180+ days)
Full product launch with marketing and customer education
Performance optimization based on customer usage patterns
Expansion planning for additional services and markets
The Future: Programmable Money Infrastructure
The GENIUS Act prohibition isn't just a restriction—it's a market opportunity. By forcing separation between issuance and yield generation, regulators have created space for specialized infrastructure providers that can offer capabilities traditional banks cannot.
Beyond Yield: Programmable Features
Modern stablecoin infrastructure offers more than just yield:
Cancellable payments with programmable windows
Smart escrows with milestone-based releases
Automated compliance with Travel Rule integration
Cross-chain operations for global accessibility
The Partnership Advantage
Banks that embrace infrastructure partnerships will offer:
Competitive yields without regulatory risk
Advanced features impossible with traditional systems
Customer retention through enhanced services
Revenue generation from partnership arrangements
Key Takeaways
Banks cannot directly offer yield on stablecoins under the GENIUS Act
Third-party partnerships provide a compliant workaround
Infrastructure providers are building the programmable layer banks need
Early movers will capture the growing demand for yield-bearing digital assets
Proper compliance requires careful legal structure and risk management
The stablecoin economy is evolving rapidly, and banks that adapt their strategies to work within the new regulatory framework, while leveraging partnerships for enhanced capabilities will be best positioned to serve their customers' evolving needs.
Looking to implement compliant stablecoin yield solutions? The key is finding infrastructure partners that understand both the technical requirements and regulatory landscape. The future of banking lies not in choosing between traditional and digital assets, but in building bridges that connect them.
