Yes, they can continue, but the form will change—from "interest just for holding" to "rewards only when using platform services."
The GENIUS Act explicitly prohibits stablecoin issuers from paying interest or yield directly to holders. Circle CEO Jeremy Allaire's view is blunt: the industry doesn't need the "pay-to-hold" feature; the future of stablecoins should be driven by trading incentives, loyalty programs, and cash rebates.
So the question is: since the ban targets only issuers, can exchange reward models survive?
Confirming the Legal Status of Coinbase's Current Reward Model
The Coinbase USDC rewards you see now (around 3.35%–3.85% APY) are legally considered "third-party rewards," not interest paid by Circle.
The core structure of the current model: Coinbase uses users' USDC on the platform to buy short-term Treasury bonds and earn interest, then passes a portion back to users as "rewards." Since the payer is Coinbase, not Circle, it remains temporarily legal under the GENIUS Act.
Coinbase is pushing this approach to the limit. It's said that if a new bill tries to ban such a model, the company might reconsider its support for that legislation.
CLARITY Act Variables — The Rules Are Shifting
In May 2026, Senators Tillis and Alsobrooks reached a compromise on stablecoin rewards, with these core boundaries:
Prohibit payments that are "economically or functionally equivalent to bank deposit interest."
Allow rewards tied to real platform activity, but issuers or platforms must pass an "equivalence test" before offering them.
Regulators are required to draft more detailed compliance standards and disclosure rules.
This means: as long as an exchange's rewards are categorized as "activity-related loyalty incentives" rather than "deposit interest," they can continue operating legally.
Risk alert: the banking industry is lobbying to completely close the "loophole" of third-party interest payments. If the final legislation extends the ban to "affiliated parties," the entire model could be challenged. A few crypto banks have already found alternative solutions, but mid-sized and smaller exchanges may not be able to follow suit.
Industry Practice — Compliant Reward Models Are Already Working
Exchanges aren't the only players that can offer rewards. The industry has explored three compliant alternatives:
Model A: Independent Entity Issuance (the current mainstream route for exchange rewards)
Anchorage Digital's reward program for USDtb and USDe is distributed by independent entity Anchorage Digital Neo Ltd., intentionally separated from the licensed custodian bank to sidestep GENIUS Act restrictions. This is essentially the same logic Coinbase uses—keeping the reward issuer distinct from the stablecoin issuer.
Model B: Institutional-Grade Yield Stablecoins
Falcon Finance and Anchorage Digital launched fUSD, designed for institutions with around 3% APY. Rewards are provided by an independent entity, separated from the issuer. This model mainly targets institutions; retail investors can't access it yet.
Model C: DeFi On-Chain Yield Vaults
Stable launched StableEarn, allowing USDT holders to earn yield through Theo's RWA products—no exchange rewards, just direct access to on-chain yield-bearing assets.
How to Verify and Assess Risk
If you currently hold USDC and receive exchange rewards, assess your risk using the following steps:
Check the reward structure: Do you get rewards simply for holding, or do you need to trade, subscribe, or participate in activities? If the latter, it's likely an "activity-based incentive" allowed under the compliance framework.
Check the payer: Are the rewards paid by the exchange, or directly by the issuer (e.g., Circle)? If paid by the exchange, it's currently in a regulatory gray area; if paid directly by Circle, it's already illegal.
Watch for legislative updates: When the final CLARITY Act text is released, focus on the "affiliate clause." If it extends the ban to exchanges, platforms like Coinbase will have to change their reward models.
Next steps: If you rely on USDC rewards as part of a stable yield income strategy, add regulatory developments to your quarterly asset review checklist. Watch for the final Senate vote on the CLARITY Act—if the "affiliate clause" survives, exchange reward models will need reassessment; if only the activity incentive exemption remains, rewards will still exist, but the rules will be more detailed.
