Circle's freshly approved US bank charter for USDC comes with a significant regulatory constraint: the GENIUS Act prohibits federally regulated stablecoin issuers from paying any form of yield or interest to token holders, while Tether's offshore USDT remains free to compete on yield advantages. This creates a structural disadvantage for the issuer that pursued US regulation earliest, even as Circle celebrates federal oversight as a milestone for the stablecoin industry.

What Is the GENIUS Act's Yield Ban, and Why Does It Matter?

The GENIUS Act, signed into federal law on July 18, 2025, contains explicit language in Section 4(a)(11) that bars permitted payment stablecoin issuers from paying yield or interest to holders in any form. The prohibition covers direct cash distributions, token rebates, points-based rewards, and any other benefit tied to holding a stablecoin. Issuers must maintain 1:1 reserves in high-quality liquid assets, primarily cash and short-term US Treasury securities. The issuer keeps the yield earned on those reserves; holders receive none of it.

The Office of the Comptroller of the Currency (OCC), the federal banking regulator, extended the prohibition further on February 25, 2026, by issuing a proposed rule that presumes any coordinated arrangement between an issuer and a related third party to pay holders yield violates the statute. This means even indirect workarounds through affiliate companies face regulatory scrutiny. The comment period for that proposed rule closed on May 1, 2026.

For Circle, this creates a real financial headwind. The company's S-1 filing revealed that interest earned on USDC reserve assets accounted for 95% to 99% of Circle's total revenue from 2022 to 2024. Under the GENIUS Act framework, that revenue stream flows entirely to the issuer, not to token holders. Standard USDC holders see none of it.

How Are Tether and Circle Structuring Their US Compliance Differently?

Tether and Circle have taken divergent paths to navigate the US regulatory landscape, creating an asymmetry that favors Tether's competitive position. Tether's flagship USDT is issued offshore and is not currently subject to the GENIUS Act's reserve and yield provisions. This means Tether can continue earning and potentially distributing yield on USDT globally without federal restrictions. Tether moved to cover the US market separately by launching USA₮ on January 27, 2026, a dollar-backed token issued by Anchorage Digital Bank, which holds a conditional national trust charter from the OCC. Cantor Fitzgerald serves as the reserve custodian, and Bo Hines, former Executive Director of the White House Crypto Council, was named CEO of the Tether USA₮ entity. This structure places the compliant US product inside a nationally chartered bank while leaving global USDT outside the statute's reach.

Circle, by contrast, built USDC as a single, fully regulated, fully attested product from the start. Circle received final OCC approval on July 10, 2026, to establish First National Digital Currency Bank, operating under the name Circle National Trust. The company filed its application on June 30, 2025, and received conditional approval in December 2025. At the time of approval, USDC had roughly $73.2 billion in circulation, making it the second-largest regulated USD stablecoin after USDT.

"Federal supervision gives financial institutions clarity and confidence to build on public blockchains," said Jeremy Allaire, Circle's Co-Founder and CEO.

Jeremy Allaire, Co-Founder and CEO at Circle

However, Circle's single-product approach means USDC is fully bound by the GENIUS Act's yield prohibition. Tether, by maintaining USDT offshore and offering USA₮ as a separate US-compliant product, can keep its global yield advantage while competing for US market share through the separately structured USA₮.

How Does This Yield Ban Affect Competition in the Stablecoin Market?

The competitive distortion runs in one direction, and it hits Circle hardest. Tether earned over $10 billion in net profit during 2025 on roughly $193 billion in reserve assets backing about $186 billion in USDT in circulation, largely from Treasury yields. Meanwhile, Circle's ability to compete on yield with offshore stablecoins and with decentralized finance (DeFi) lending protocols is severely constrained. On platforms like Aave and Compound, USDC supply rates have oscillated in the mid-single digits through 2026, according to data cited in the source.

The regulatory framework creates three distinct competitive tiers:

• Offshore Stablecoins: Tether's USDT and stablecoins issued from the UAE, Singapore, or Hong Kong face no yield ban and can offer yield-bearing products to holders without federal restriction.
• US-Regulated Stablecoins: Circle's USDC, issued under the GENIUS Act framework, is locked out of paying yield to holders, creating a compliance penalty for the issuer that sought US regulation earliest.
• DeFi Lending Alternatives: USDC holders can earn yield by lending their tokens on DeFi protocols, but this shifts revenue away from Circle and toward decentralized platforms.

A Congressional Research Service report published in March 2026 framed the debate in plain terms: banks favor the strict prohibition on paying interest on stablecoins and have argued to close any remaining loopholes. Crypto industry participants view bank opposition as anticompetitive behavior by incumbents protecting the $6.6 trillion US transactional deposit market. The GENIUS Act takes effect on January 18, 2027.

Steps to Understanding the Regulatory Landscape for Stablecoins

For anyone trying to make sense of how stablecoin regulation is reshaping the market, here are the key structural elements to track:

• Reserve Requirements: Permitted stablecoin issuers must hold 1:1 reserves in high-quality liquid assets, principally cash and short-term US Treasury securities, ensuring every token in circulation is backed by real assets.
• Yield Prohibition Scope: The GENIUS Act ban applies only to federally regulated issuers operating under the US framework; offshore issuers and non-regulated entities face no such restriction on paying yield.
• Affiliate Workarounds: The OCC's proposed rule introduces a rebuttable presumption that any coordinated arrangement between an issuer and a related third party to pay holders yield violates the statute, closing potential loopholes.
• Dual-Structure Strategy: Issuers like Tether can maintain an offshore product free from yield restrictions while offering a separately structured US-compliant product, creating competitive flexibility.
• Effective Date: The GENIUS Act takes effect on January 18, 2027, giving issuers and regulators time to finalize implementation rules and compliance procedures.

Jasper Sneff-Nanni, managing principal at fintech consulting firm FS Vector, told American Banker that opening the trust bank is "a tremendous accomplishment for Circle and, for stablecoins, a step into the world of the GENIUS Act". Yet that step comes with a cost: Circle's path to federal regulation has locked it out of the yield competition that Tether can still wage globally.

The result is a compliance penalty that falls hardest on the issuer that pursued US regulation earliest. Circle built USDC as a fully regulated, fully attested product, but under the GENIUS Act framework, compliance costs the ability to compete on yield with offshore stablecoins and with DeFi lending protocols where users can earn returns on their holdings. For institutional and retail users, this creates a choice: accept lower returns on a federally regulated stablecoin, or seek yield elsewhere through offshore products or decentralized platforms.