Type statement: This article is a B-type "preliminary explainer." The main purpose of the title is to answer a practical question: after stablecoins are banned from paying direct interest, can yield products for holding stablecoins still be used? This requires understanding the legal framework before making a judgment.
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You may have been used to keeping USDC or USDT on an exchange and earning a little interest without doing anything.
The answer is: yes, you can continue, but the game has changed. Before, it was "earning while lying down." Now, you need to "earn by being active."
First, look at the change: the law draws a line between "passive interest" and "activity rewards"
The GENIUS Act, which took effect in July 2025, explicitly bans stablecoin issuers such as Circle and Tether from directly paying interest or yield to holders.
But things moved further in May 2026. The Senate Banking Committee passed key provisions of the CLARITY Act by a 15-9 vote, expanding the scope of the yield ban—from only restricting stablecoin issuers to covering all digital asset service providers, including exchanges, wallets, and brokers.
However, the bill leaves a key opening: it introduces a legal distinction between "passive yield vs. activity-based rewards." What it bans are rewards that are "functionally or economically equivalent to bank deposit interest," meaning yield that is generated automatically simply because you hold. But rewards based on real activity or transactions are preserved, such as staking, market making, credit card cashback, and merchant transaction rewards.
How did those previous "earn while holding" products work?
After the GENIUS Act was signed, there was actually a gray area: the law only restricted "issuers," not "exchanges."
The operating model at the time was like this: issuers gave interest generated from reserves to exchanges, and exchanges then distributed it to users under the name of "third-party rewards." Coinbase previously used this model to offer USDC yield of about 3.85%. It was not called interest but "third-party payments."
Section 404 of the CLARITY Act is designed to close this loophole by bringing all digital asset service providers under the rules.
So how can you still earn after that?
Model 1: Use-to-Earn
This is the direction publicly advocated by Circle CEO Jeremy Allaire. He has made clear that stablecoins should shift toward reward models based on transactions and utility, such as transaction cashback, merchant loyalty programs, and tiered benefits for high-frequency users. This model is allowed by law because it rewards "activity" rather than "holding."
Model 2: DeFi lending yield
You can deposit stablecoins into DeFi protocols such as Aave and Compound to earn interest. These yields come from supply and demand in the lending market and are on-chain active behavior. They are not currently explicitly banned by law. But note that DeFi rates are floating—in April 2026, Aave's USDC rate was only about 2.61%, lower than yields from traditional cash management accounts during the same period.
Model 3: Indirect access through compliant channels
If issuers invest reserves in tokenized money market funds and then pass part of the yield back to users through compliant methods, that is also a possible path. Wall Street institutions such as BlackRock and Morgan Stanley filed concentrated registrations for such products in April-May 2026, targeting exactly the compliant yield demand for stablecoin reserves.
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What do you need to do?
[What to do]: Evaluate the stablecoin yield product you are using and determine whether it falls under prohibited "passive yield" or permitted "activity rewards."
[How to do it]:
Go to the exchange or wallet you normally use and find the stablecoin yield product you participate in.
Check the product description to see whether it says "earn simply by holding" or "earn rewards through trading/staking activity."
If it is the former, you may need to find an alternative after regulation officially lands. If it is the latter, it can most likely continue to be used.
[Completion standard]: You can determine which model the product you are using belongs to and have a basic expectation about its future survival.
How to verify completion: On the exchange's yield product page, check the product description and terms. If it clearly ties yield to "trading activity," "staking," or "behavior," it most likely falls under compliant "activity rewards." If it only says "hold to earn X% APY," then it belongs to the prohibited passive yield model, and you should pay attention to the platform's later adjustment notices.
Next action: If you have stablecoins sitting on an exchange earning interest, go to the product page now and look at the description—"passive yield" products and "activity reward" products will face different compliance fates after 2026. Figure it out early so you are not caught off guard when the platform sends a notice.
