Coinbase & PayPal Defy Fed Ban: How They’re Skirting Regulations to Deliver Stablecoin Yields

Wall Street's rulebook gathers dust as crypto giants tap creative loopholes.

Yield Hunting in the Shadows

While the SEC cracks down, Coinbase and PayPal deploy 'programmatic rewards'—a slick rebrand of interest-bearing accounts that somehow dodges the federal axe. Their playbook? Partner with offshore entities and structure payouts as 'rewards' rather than interest. Clever—if you ignore the regulators grinding their teeth.

The Stablecoin Shell Game

USDC and PYUSD now offer 4-6% APY through backdoor channels, exploiting the same regulatory gaps DeFi protocols perfected years ago. 'It's not yield, it's engagement incentives,' claims one exec with a straight face—meanwhile, traditional banks offer 0.5% on savings. The irony? These yields are backed by the very T-bills the Fed tried to protect.

The Coming Reckoning

Watch for the SEC's next move—this cat-and-mouse game can't last forever. Until then, enjoy the yield party while it lasts. Just don't call it 'interest' unless you want a lawsuit with your 5% returns.

Coinbase and PayPal Defy Stablecoin Law, Say Yield Rules Don’t Apply

In recent earnings calls, executives at both Coinbase and PayPal confirmed they will continue rewarding users who hold stablecoins on their platforms, arguing the law does not apply to them.

“We are not the issuer,” Coinbase CEO Brian Armstrong said, responding to a shareholder question. “We don’t pay interest or yield, we pay rewards.”

Coinbase currently offers US users 4.1% APY on USDC holdings, calling the payout a “rewards program.”

While Coinbase co-developed USDC with Circle, it ceased being a formal issuer of the stablecoin in 2023. Circle, now the sole issuer, offers no direct yield to users.

Coinbase's stablecoin revenue is up 44% year-to-date vs. the same period last year, despite 100bps of rate cuts since then. pic.twitter.com/Z1BoNH8Bhl

PayPal, meanwhile, offers 3.7% annual returns to users holding its stablecoin, PYUSD, through both PayPal and Venmo.

While PYUSD bears the company’s name, it is technically issued by Paxos, a third-party firm. That legal distinction allows PayPal to argue it, too, is not violating the GENIUS Act.

PayPal CEO James Alexander Chriss defended the rewards structure during last week’s earnings call, calling it a key feature for user growth.

The SEC dropped a long-running investigation into PYUSD’s classification earlier this year.

Stablecoins are also gaining ground for their cost-efficiency. The global average remittance fee still hovers around 6.6%, well above the UN’s 3% target.

However, not everyone is on board. Senator Elizabeth Warren warned that private firms launching stablecoins could lead to privacy invasions and systemic risks.

“Then they’ll come begging for a bailout when it inevitably blows up,” she said.

Despite such concerns, interest from global corporations, including Amazon, Walmart, and Chinese giants like JD.com and Alipay, suggests the race is well underway.

Stablecoins Edge Closer to Mainstream Adoption

Western Union is positioning itself for a new phase of digital transformation, signaling strong interest in using stablecoins to modernize its global remittance operations.

Last month, CEO Devin McGranahan outlined how stablecoins could streamline cross-border transfers, improve currency conversion in underserved markets, and provide financial tools for populations grappling with unstable local currencies.

“We see stablecoins really as an opportunity, not as a threat,” McGranahan said, pointing to ongoing pilot programs in South America and Africa.

As reported, Ripple CEO Brad Garlinghouse has said the stablecoin sector is poised for explosive growth, projecting the market could balloon from its current $250 billion capitalization to as much as $2 trillion in the near future.

“Many people think it will reach $1 to $2 trillion in a handful of years,” Garlinghouse said, adding that Ripple is positioned to benefit from that trajectory.