Stablecoin yield and the interest ban

Article 50 of MiCA bans interest on e-money tokens. Neither the issuer nor a crypto-asset service provider may grant interest or any other benefit tied to how long a holder keeps the token. That covers discounts and rewards paid by third parties with the same effect. In the EU the ban therefore reaches exchanges and custodians as well as the issuer.

The issuer still earns on the reserve. Under Article 54 it invests the funds it receives in bank deposits and highly liquid instruments, and the income stays with the issuer. The answer on stablecoin issuers explains how they make money.

In the US, Section 4(a)(11) of the GENIUS Act bars payment stablecoin issuers from paying interest or yield solely for holding, using or retaining the token, as Upshift sets out. The law addresses issuers. Exchanges are not named, and programs such as Coinbase's USDC rewards, funded from the reserve income of the issuer, became known as the rewards loophole.

The CLARITY Act, a broader bill on crypto market structure, would close it. A Senate text by Thom Tillis and Angela Alsobrooks prohibits rewards that are economically or functionally equivalent to interest on a bank deposit and leaves room for rewards tied to transactions and account activity, Decrypt reported. The American Bankers Association wants yield-like benefits that reach holders indirectly banned too.

Banks fund loans with deposits. An ECB blog post warns that interest-bearing stablecoins could draw deposits away from banks and weaken credit supply. A treasurer who wants a return on tokenized cash can turn to instruments built for it: a tokenized deposit can pay interest because it stays a deposit, and a tokenized money market fund passes the return of its assets to investors.

Finance Loop is the meeting place for treasury, banking and crypto teams who argue about who may pay for holding digital money. At Capital & Code in Frankfurt, with Finance Loop as media partner, central bankers, banks, asset managers and corporate treasurers discuss stablecoins and tokenized funds. Finance Loop also covers the subject with the Digital Euro Association, where it is strategic partner.

No. Article 50 of MiCA forbids issuers and crypto-asset service providers from paying interest or any benefit tied to the holding period on e-money tokens.

In the US the GENIUS Act bans interest paid by issuers but does not name exchanges. Platforms that share reserve income with their users through rewards programs use that gap, and the CLARITY Act debate is about closing it.

From the reserve: issuers hold short-term government securities and bank deposits and keep the interest. Yield that reaches holders comes from rewards programs of platforms or from lending the tokens out.