PayPal’s Stablecoin Rewards Continue Under GENIUS Act Ambiguity

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Despite a federal ban, two financial giants are sidestepping Congress to keep doling out stablecoin rewards—raising alarm bells about regulatory loopholes that could threaten constitutional checks and responsible governance.

Story Snapshot

Coinbase and PayPal continue offering stablecoin rewards to U.S. users by exploiting a legal gray area in the GENIUS Act.
Their workaround uses “rewards” terminology and platform incentives instead of direct interest, defying the Act’s intent.
This maneuver exposes gaps in current law and intensifies debate over federal oversight, innovation, and consumer risk.
Lawmakers and regulatory agencies face pressure to respond, as new loopholes challenge conservative calls for limited, constitutional government.

Platforms Use Legal Workaround to Defy Congressional Ban

Following the July 18, 2025 passage of the GENIUS Act, which prohibits stablecoin issuers from offering yield or interest to users, Coinbase and PayPal publicly reaffirmed their commitment to rewarding U.S. stablecoin holders. Both companies assert in public statements that, because they do not issue the stablecoins directly, their “rewards” programs are exempt from the GENIUS Act’s prohibition on yield payment. This argument hinges on the technicality that only issuers are banned from paying yield, not third-party platforms distributing incentives under different terminology.

The companies’ rapid, public response sparked coverage across crypto news outlets, with top executives explicitly defending the practice. Coinbase CEO Brian Armstrong stated, “We are not the issuer… We don’t pay interest or yield, we pay rewards,” while PayPal CEO James Alexander Chriss claimed platform-based incentives are essential for user growth and retention. Both firms have continued to offer annual percentage yields—4.1% on USDC at Coinbase and 3.7% on PYUSD at PayPal—despite the federal prohibition aimed at issuers. No enforcement actions have been announced so far, a development cited by legal commentators as evidence of regulatory uncertainty over third-party incentive programs.

Regulatory Fight Reveals Gaps and Growing Tensions

The GENIUS Act was designed as a bipartisan effort to bring order to the fast-growing stablecoin sector, clarifying their legal status while explicitly barring issuers from offering passive income products. Yet, the Act’s language left a glaring loophole: non-issuer platforms like Coinbase and PayPal can still provide financial incentives, as long as they’re not labeled “interest.” Several lawmakers, including banking committee members such as Senators Tim Scott and Kirsten Gillibrand, have expressed concern that the GENIUS Act’s definitions allow incentive programs that may bypass legislative intent to prevent yield-bearing structure.

Legal analysts and academics, including regulatory experts at the Brookings Institution and Frost Brown Todd, have questioned whether the SEC and CFTC adequately anticipated third-party incentive structures during the drafting of the law. The SEC’s earlier investigation into PayPal’s PYUSD classification was quietly dropped, and both companies have leveraged their industry influence and lobbying power to resist further scrutiny. While some experts believe regulators will ultimately seek to amend the law or broaden its enforcement, the current climate highlights the ongoing struggle between rapid technological innovation and slow-moving federal oversight.

Broader Impact: Constitutional Concerns and Pressure for Reform

Constitutional scholars such as those at the Heritage Foundation and Reason Foundation have warned that regulatory arbitrage enabled by current GENIUS Act language may erode legislative authority and weaken respect for statutory limits. Regulatory arbitrage—where companies exploit legal technicalities to achieve what lawmakers sought to prevent—can erode respect for clear rules, encourage further regulatory overreach, and undermine public faith in the legislative process. Industry analysts, including those at CCN and cryptocurrency research firms, caution that platforms may engage in competitive loophole exploitation, increasing consumer exposure to platform-driven risks

💵 @Coinbase and @PayPal are pushing forward with stablecoin yield programs, despite new US legislation banning such incentives for issuers.#Coinbase #PayPal https://t.co/F4bTmQbl6J

— Cryptonews.com (@cryptonews) August 5, 2025

Supporters of limited government, including policymakers in conservative fiscal groups, view the situation as evidence that regulatory frameworks for emerging financial technologies must be precise and enforceable to preserve legislative intent and accountability. The debate is far from settled, with some lawmakers pushing for urgent amendments and others defending the rewards as drivers of innovation and user choice. For conservatives focused on defending constitutional order, individual liberty, and responsible fiscal policy, the episode is a stark reminder of why detailed, enforceable laws—and vigilant oversight—remain essential to curbing both government and corporate overreach.