How the GENIUS Act and CLARITY Act reshape stablecoin yield

The GENIUS Act, law since July 2025, bars stablecoin issuers from paying yield to holders. The CLARITY Act would have extended a similar ban to exchanges, but it stalled when a Senate cloture vote failed 49-50 on 15 September 2026, according to the congress.gov record. On our reading of both texts (not legal advice), vault infrastructure, lending and liquidity provision sit outside those restrictions. For exchanges and neobanks building Earn products, the yield source moves from issuer subsidies to actual capital deployment. Upshift partners structure Earn this way: the partner distributes a vault, and the return comes from the vault's strategies.

"Rewards are the same as interest. If you are going to be holding balances and paying interest, that's the bank. You should be regulated by a bank."

- Jamie Dimon, CNBC, March 3, 2026

Three weeks after Dimon's remarks, a leaked draft of the CLARITY Act contained provisions to do exactly that. Circle's stock dropped 20% in a single trading session, wiping $5.6 billion in market cap before lunch. The draft suggested banning exchanges from offering passive yield on stablecoins. That put Coinbase's revenue-sharing arrangement with Circle (which funnels roughly 50% of Circle's reserve income into Coinbase's yield products) squarely in the regulatory crosshairs.

Anyone building or earning with stablecoins now has to know which yield models sit on which side of these lines.

What does the GENIUS Act actually say about yield?

The Guiding and Establishing National Innovation for U.S. Stablecoins Act was signed into law on July 18, 2025, after passing the Senate 68-30 and the House 308-122, according to the congress.gov record. It takes effect on the earlier of 18 January 2027 or 120 days after regulators issue final rules. As of 29 September 2026 those rules are still at the proposal stage. Most of the law covers reserve requirements, licensing and issuer oversight, though one section drew a lot of attention from anyone in the stablecoin yield business.

Section 4(a)(11) prohibits payment stablecoin issuers from paying "any form of interest or yield...solely in connection with the holding, use, or retention" of a payment stablecoin. In plain terms: Circle can't share USDC reserve income to fund a "USDC Earn" product. Tether can't offer interest on USDT holdings, so USDT yield comes from elsewhere. Paxos can't pay yield for holding PYUSD. If you issued the stablecoin, you can't pay people to hold it.

The law's scope is deliberately narrow. It targets Permitted Payment Stablecoin Issuers (PPSIs) and "digital asset service providers." It also explicitly excludes several things from that second definition: distributed ledger protocols and related development, immutable and self-custodial wallet interfaces, liquidity pool participation, and self-hosted smart contracts. On our reading, vault infrastructure that deploys capital into lending, liquidity provision and strategy execution falls outside the law's reach. The yield comes from productive use of capital, and the ban targets an issuer paying depositors to hold a token.

The OCC then tightened the screws. In February 2026 the OCC issued proposed rulemaking, published in the Federal Register on 2 March. It adds a rebuttable presumption that certain issuer arrangements with affiliates or related third parties that pass yield on to holders violate the law. Comments closed on 1 May 2026, and the rule is still a proposal as of 29 September 2026. Treasury followed with its own proposed rules on stablecoin issuance, offer and sale on 18 August 2026, with comments due 19 October. The best-known arrangement of this type is the Circle-Coinbase revenue share, under which Circle paid Coinbase $908 million in distribution fees in 2024 alone. Whether the final rule catches it rests on how the OCC settles its definitions. Under the proposal, an issuer that routes reserve income through an affiliate or related third party to fund yield products would be presumed to be paying yield unless it can show otherwise.

What does the CLARITY Act add?

The CLARITY Act (H.R. 3633) passed the House 294-134 in July 2025 and has stalled in the Senate. The Senate Agriculture Committee advanced its portion of market structure legislation in January 2026. Senators Tillis and Alsobrooks reached a yield compromise with White House backing on March 20, and the Senate Banking Committee marked up its substitute text on 14 May and reported it on 1 June. On 15 September 2026 the Senate voted 49-50 on cloture on the motion to proceed, short of the 60 votes needed, according to the congress.gov record. Senator Tillis entered a motion to reconsider, which keeps the bill alive. As of 29 September 2026 no new vote has been scheduled.

Where the GENIUS Act stops at issuers, the CLARITY Act extends to exchanges, brokers and custodial platforms. Passive yield on stablecoin balances, the kind Coinbase Earn and Crypto.com currently offer through reserve-sharing arrangements, would be banned under the bill's definition. That definition covers payments "economically or functionally equivalent to bank interest."

The Senate text includes a carve-out for "activity-based rewards." Yield tied to payments, transfers, trading or platform usage would remain allowed. A user who earns because they're transacting would be fine, and one who earns for holding idle balances would fall under the ban. The draft language also explicitly shields "non-custodial protocols" and "self-hosted smart contracts" from being classified as deposit-taking institutions. Users who bear real protocol risk by depositing into lending markets, liquidity pools or vault strategies are engaging in activity-based yield generation. The bill treats that differently from passive interest on custodial balances.

The bill also carries anti-evasion provisions. Section 404 of the Senate Banking text would direct the SEC, CFTC and Treasury to write joint rules within 12 months of enactment. Those rules would list permitted activities and catch structures that dress up passive yield as activity-based. That rulemaking only starts if the bill becomes law.

How exchange Earn products work today

Exchange Earn products generate yield in one of two ways, and only one faces a regulatory threat.

Reserve-sharing: the model under threat

Coinbase's USDC Rewards program (now restricted to Coinbase One subscribers, at a variable rate Coinbase publishes on its help pages) works through a revenue-sharing arrangement with Circle. Under the Coinbase-Circle Collaboration Agreement signed in August 2023, Coinbase receives roughly 50% of Circle's reserve income, mostly interest from short-term Treasurys and cash equivalents. Circle paid Coinbase $908 million in distribution fees in 2024, and Coinbase passes a portion of this to subscribers as "rewards." No user funds are lent or deployed onchain. The yield is a subsidy funded by the issuer's reserve income. Section 4(a)(11) of the GENIUS Act targets exactly that, and the CLARITY Act would extend the target to exchanges.

DeFi-routed yield: the compliant path

Coinbase launched a separate product in September 2025: onchain USDC lending offering up to 10.8% APY. It routes user deposits through Morpho, a lending protocol, into vaults curated by Steakhouse Financial. User funds go into smart contract-managed lending pools where borrowers pay interest. Crypto.com offers a similar model through its Onchain app's Compound integration, where users deposit into lending pools directly. In both cases the yield comes from actual lending, and users bear real protocol risk.

The regulatory distinction maps cleanly onto this split. Reserve-sharing, where an issuer subsidizes yield to attract deposits, resembles banking, and the laws treat it that way. Yield routed onchain, where capital goes into lending markets and liquidity pools through transparent smart contracts, is economic activity. On our reading, the GENIUS Act and the Senate CLARITY text both leave it alone.

What's banned vs. what's allowed

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The regulatory line runs between yield paid as an incentive to hold stablecoins and yield generated by deploying capital. Issuer subsidies and exchange-funded passive rewards fall on the restricted side. Lending, vault strategies, liquidity provision and activity-based rewards remain on the permitted side. Exchanges and neobanks can keep offering Earn products. The yield source underneath needs to move from issuer subsidies to actual capital deployment through vault infrastructure.

The banking lobby's case, and the market's response

Dimon's argument captured the banking industry's core position: stablecoin yield is functionally equivalent to interest on deposits, and anyone offering it should face the same regulatory burden as a bank. The Independent Community Bankers of America (ICBA) formalized this in a Federal Delegate Board letter on March 4, 2026. It drew on research by Stanford-trained economist Dr. Andrew Rodrigo Nigrinis ("The Lending Impact of Stablecoin-Induced Deposit Outflows," SSRN, October 2025). The ICBA claimed yield-bearing stablecoins could drain $1.3 trillion from community bank deposits (out of $4.8 trillion total) and reduce lending capacity by $850 billion.

The White House Council of Economic Advisers published a direct rebuttal on April 8, 2026. Its analysis found that banning stablecoin yield entirely would push an estimated $2.1 billion back into bank lending, or 0.02% of total U.S. bank loans. Consumers would lose $800 million in annual yield income in exchange. Each dollar gained in bank lending would cost $6.60 in consumer welfare.

The market tells a similar story. Stablecoin market capitalization stood at about $311 billion on 29 September 2026, according to DefiLlama. JPMorgan projects $500-750 billion by 2028, while Standard Chartered and Citi see $1.6 to $2 trillion in the same timeframe. Even the conservative estimate implies growth of roughly 60% from here. A lot of that demand comes from a global audience with no access to Treasury yields through traditional banking, and regulation now shapes how it gets served.

Why vaults become the primary path

A vault accepts stablecoin deposits and deploys them into lending markets, liquidity pools, basis trades and other strategies. It then tracks yield and manages withdrawals through a standardized smart contract layer. The yield comes from the activity of the capital. On our reading, that keeps vaults outside the yield bans in both the GENIUS Act and the Senate CLARITY text.

Exchanges building Earn products are already moving toward this architecture. Upshift's vault layer, for example, powers yield products for wallets and neobanks through a single SDK integration. The exchange or wallet owns the user experience, and the vault handles strategy execution, risk management and yield accounting. Under the GENIUS Act, and under the CLARITY text if it returns, this becomes the standard path for any platform that wants to offer stablecoin yield to its users.

Take the earnAUSD vault on Monad, which routes stablecoin deposits into lending protocols and liquidity pools across the Monad ecosystem. The yield comes from borrower interest and LP fees. Products like it are deployed across 30+ chains with institutional risk controls, managed by professional curators and wrapped in non-custodial smart contracts. Every financial product that offers stablecoin yield now needs a way to generate it through verifiable capital deployment, and vault infrastructure provides one.

Timeline and what to watch

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Final GENIUS rules from the OCC, Treasury and the other regulators come next, with the law taking effect by 18 January 2027 at the latest. If CLARITY returns and passes, its joint anti-evasion rules would then draw the line between "passive yield" (banned) and "activity-based rewards" (allowed). That line would shape how exchanges structure their onchain-routed Earn products.

What to do now

If you're a stablecoin issuer:

• Audit all yield programs and affiliate revenue-sharing arrangements against Section 4(a)(11)

• Track the OCC's proposed affiliate presumption (comments closed 1 May 2026, final rule pending) and Treasury's August 2026 proposal (comments due 19 October 2026)

• Consider partnering with vault infrastructure providers to offer yield through compliant, activity-based channels

If you're an exchange or broker:

• Map your Earn product's yield source. If funded by issuer reserve sharing (as with Coinbase's USDC Rewards), that model faces direct regulatory risk under the GENIUS Act rules and would face more if CLARITY passes

• Evaluate vault SDK integrations (Upshift's API, for example) as the backend for Earn. Yield generated through DeFi deployment is compliant, and the user experience can remain unchanged

• Design activity-based reward structures (earn through trading, payments, staking) as a complementary path

• Track whether the CLARITY Act returns after the failed 15 September 2026 cloture vote, and the final GENIUS rules due before the 18 January 2027 effective date

If you're building a wallet, neobank, or app with an Earn feature:

• Vault infrastructure is the compliant foundation for Earn products under the new regulatory framework. Your users deposit stablecoins, the vault generates yield through lending and strategies, and you deliver the product

• Avoid building Earn on issuer-funded passive yield, which has a regulatory expiration date under GENIUS and would face an extended ban if CLARITY passes. Vault-routed yield through vault-as-a-service infrastructure is the compliant path

• SDK-based integrations let you ship Earn without building strategy execution or risk management in-house

If you're an end user:

• Check where your stablecoin yield comes from. If your exchange's Earn product is funded by issuer reserve sharing, the source may change if CLARITY or a similar bill passes

• Consider depositing directly into stablecoin vaults or lending protocols for yield that comes from capital deployment

• Evaluate risk management and custody models. Non-custodial vaults with policy engines offer yield without handing over custody of your assets

The regulation is still evolving. Consulting qualified legal counsel is essential for issuers, exchanges, and platforms making structural decisions based on these laws.

FAQ

Does the GENIUS Act ban all stablecoin yield?

No. It bans issuers from paying yield for holding their stablecoins, and it explicitly excludes distributed ledger protocols, liquidity pools, and self-custodial wallets from its scope. Third-party yield generated through DeFi lending, vault strategies, liquidity provision, and other forms of capital deployment remains legal.

Can I still earn yield on USDC or USDT?

Yes, through lending protocols and vault infrastructure. You can deposit stablecoins into lending markets like Morpho or Aave, or into curated vaults that deploy across multiple strategies. What changes (or would change, if CLARITY passes) is earning passive yield from an exchange or issuer just for holding stablecoins in your account.

Can exchanges still offer Earn products?

Yes, if the yield source changes. Exchange Earn products that route deposits into vault infrastructure, where capital goes into lending and LP strategies, remain compliant. Coinbase's Morpho-routed lending product already works this way. The restriction hits Earn funded by issuer reserve sharing, where the yield is an issuer subsidy.

How does the CLARITY Act differ from the GENIUS Act?

The GENIUS Act (already law) targets issuers only. The CLARITY Act, stalled in the Senate since a failed cloture vote on 15 September 2026, would extend the passive yield ban to exchanges and brokers. The Senate text also introduces "activity-based rewards" as a permitted category, shields non-custodial protocols from deposit-taking classification, and would direct the SEC, CFTC, and Treasury to write joint anti-evasion rules.

What are "activity-based rewards"?

Yield tied to specific actions: making payments, transferring tokens, trading, or using platform features. The key distinction is that the user earns by doing something. Under the Senate CLARITY text, the exact boundaries would be set by joint rules due within 12 months of enactment and would only arrive if the bill passes.

How do vaults generate yield if issuers can't pay it?

Vault yield has always come from strategies. Vaults deploy deposited stablecoins into lending protocols (earning borrower interest), liquidity pools (earning trading fees), basis trades (earning funding rate spreads) and other strategies. Professional curators manage these deployments with institutional risk controls. The yield comes from productive use of capital. On our reading, that puts vaults outside the yield bans in both the GENIUS Act and the Senate CLARITY text.

Is DeFi yield on stablecoins legal?

On our reading of the GENIUS Act and the Senate CLARITY text, yes, though no regulator or court has ruled on it and you should confirm with counsel. Both texts target issuer-paid and intermediary-paid passive yield, and both explicitly exclude decentralized protocols and self-custodial smart contracts from their scope. Final GENIUS rules, and CLARITY's anti-evasion rules if the bill passes, will settle the edge cases. We expect capital deployment through transparent vault infrastructure to stay on the permitted side.

Where did the ICBA get its $1.3 trillion figure?

The ICBA's claim draws on research by Dr. Andrew Rodrigo Nigrinis in "The Lending Impact of Stablecoin-Induced Deposit Outflows" (SSRN, October 2025). It models scenarios where yield-bearing stablecoins at the federal funds rate could pull 25%+ of deposits from community banks. The White House CEA disputed these projections and put the realistic impact orders of magnitude lower ($2.1 billion, or 0.02% of total bank lending).

The information here is for general purposes only and does not constitute legal, financial or investment advice. Regulatory frameworks are evolving; consult qualified legal counsel for guidance specific to your situation.

Keep reading

• What is Upshift? - How vault infrastructure works, from deposit to strategy execution to withdrawal

• What Are DeFi Yield Vaults? - The mechanics of how vaults generate returns through curated strategies

• Stablecoin yield on Monad with earnAUSD - A live example of vault-generated stablecoin yield in action

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