GENIUS Act stablecoin interest/yield prohibition takes effect

On January 18, 2027, the GENIUS Act's effective date arrives, and with it the ban on permitted and foreign payment stablecoin issuers paying holders interest or yield. The rule affects the stablecoin market broadly, including USDC and USDT.

What is happening

The GENIUS Act, the US stablecoin law, was signed in July 2025. Its Section 4(a)(11) states that no permitted payment stablecoin issuer or foreign payment stablecoin issuer shall pay the holder of any payment stablecoin any form of interest or yield solely in connection with the holding, use, or retention of that stablecoin. The provision takes effect on January 18, 2027.

In practice, this stops issuers from competing directly with bank deposit rates. The prohibition applies only to the issuers themselves. Crypto exchanges and third-party platforms remain free to pay interest on stablecoins held on their platforms, which creates a split market where yield is separated from the issuance of the underlying asset.

The deadline has drawn attention alongside a BIS Working Paper (#1382) by Rashad Ahmed and Iñaki Aldasoro. Using weekly US data from 2019 to 2025, the authors found that stablecoins and bank deposits behave as substitutes: when banks raise deposit rates, stablecoin growth slows. The effect was reported as larger for USDC than for USDT, which the authors link to USDC's closer ties to US depositors. The paper notes it shows a correlation in growth patterns and does not prove that stablecoin growth has reduced bank deposits or lending.

Why it matters

For holders of USDC and USDT, the change means that issuers will not be able to pay yield directly for holding their tokens. Any return would have to come from other venues, such as exchanges or third-party platforms, which are not covered by the issuer-level prohibition. How those platforms respond is worth following.

For traders and market observers, the provision shapes how stablecoin demand may develop. With issuers barred from offering yield, growth depends more on the usefulness of stablecoin payment rails than on returns. The BIS findings suggest that bank deposit rates act as a competing force, and the law removes one tool issuers might have used to respond. The study covers a period of high US interest rates, when stablecoins generally paid no interest, so its conclusions should be read within those limits.

Key details

• Date: January 18, 2027 (confirmed)
• Project: GENIUS Act (US stablecoin law)
• Coins: USDC, USDT
• Category: Regulatory Deadline
• Status: Confirmed
• Source: Forkast (https://forkast.news/bis-quantitative-paper-finds-banks-can-slow-stablecoin-adoption-just-by-raising-deposit-rates/)