What Is a Stablecoin Reward, and Why Did the CLARITY Act’s Failure Keep It Alive?
Millions of people collect stablecoin rewards without knowing who actually funds them, and the Senate's failure to pass landmark crypto legislation left that question more complicated than ever.
This post may contain links from our sponsors and affiliates, and Flywheel Publishing may receive compensation for actions taken through them.
Stablecoin rewards are payments for holding dollar-pegged tokens, similar to interest on savings accounts. These payments continued even after the CLARITY Act, which aimed to limit them, failed in the Senate on September 15, 2026.
The lack of a cap did not boost Coinbase (NASDAQ:COIN | COIN Price Prediction) or Circle Internet Group (NYSE:CRCL) stock. Millions of people collect these rewards without ever asking who funds them.
Who Actually Pays the Yield?
A balance of USD Coin (CRYPTO:USDC) held on Coinbase can grow by a few percent annually without a single trade. This growth comes from income earned on reserves held in US Treasury bills and repurchase agreements, which pay close to the Secured Overnight Financing Rate, the benchmark for what banks charge each other overnight for cash.
In Q2 2026, Circle reported an average USDC circulation of $76.5 billion, yielding $668 million in reserve income, a 5% year-over-year increase. Coinbase earned $292 million from stablecoins, about a quarter of its total revenue.
Four parties stand between the policy rate and a user’s balance. The Federal Reserve sets the target rate, which reached a 4.00% upper bound on September 16, and short-dated Treasury bills yield roughly 3.87% to 4.08%. Circle collects that as reserve income and shares it with Coinbase, which distributes a portion to users as rewards. Somebody is paying that yield, and it is not the exchange.
The float behind it shrank last quarter. USDC circulation fell from $77.0 billion in March to $73.3 billion in June, along with a decline in the reserve return rate. Higher policy rates lift that rate from here, and the most recently reported quarter was moving the other way.
Why Banks Wanted Stablecoin Rewards Banned
Banks worry that interest-bearing stablecoins compete with no-interest checking accounts, potentially redirecting deposits that could support loans to exchanges. This has led to the GENIUS Act, effective January 2027, which prohibits stablecoin issuers from paying interest.
The CLARITY Act sought to balance the issue by banning issuer-paid interest that mimics bank deposits while allowing rewards based on trading and other activities. That compromise, negotiated with the White House and Senators Thom Tillis and Angela Alsobrooks, helped advance the bill, and Coinbase CEO Brian Armstrong argued at Davos that Americans should be able to earn more money on their money.
The American Bankers Association rejected the text, writing to Senate leadership in late July. Bank of America’s Ebrahim Poonawala called the resolution a net positive for banks that should alleviate deposit-flight concerns. The compromise died along with the broader legislation.
Why Coinbase and Circle Fell
Markets had been concerned that the CLARITY Act would limit rewards for stablecoin issuers. When the Senate failed to advance the bill, neither Circle nor Coinbase saw a relief rally. Circle ended the week of September 17 down 5.79%, while Coinbase gained only 0.98%, even after both stocks rebounded on Federal Reserve decision day.
| Date | Event | CRCL | COIN |
|---|---|---|---|
| September 15 | Senate fails to advance the CLARITY Act | -5.79% on the week | +0.98% on the week |
| September 16 | Federal Reserve raises its target to a 4.00% upper bound | +5.76% on the session | +5.75% on the session |
A higher Federal Reserve target increases reserve income from the USDC float, which is beneficial. However, rising rates generally reduce risk appetite in spot crypto trading, a significant revenue source for Coinbase.
The subscription and services segment, which houses the stablecoin line, was 48% of Coinbase’s second-quarter revenue. Trading fees carried the other half, and that half moves with volumes that shrink when yields climb.
Circle has seen improvements in its reserve-yield exposure but faces competition under the GENIUS Act. Morgan Stanley downgraded Circle from Equal Weight to Underweight on August 3, while Coinbase is impacted by both factors, meaning a legislative reprieve did not significantly boost its price.
Are Stablecoin Rewards Safe Now?
With yield limits eliminated, rewards will continue for now. Circle’s $668 million in quarterly reserve income shows that the issuer side remains secure. The concern is the pass-through to Coinbase’s balance, which remains intact until Congress revisits the topic.
However, threats remain. The GENIUS Act’s ban on issuer-paid interest takes effect in January 2027, and the OCC and FDIC could presume a violation where an issuer pays an affiliate that in turn pays holders, as noted by StoneX. The American Bankers Association continues to lobby against these rewards, so the reward keeps arriving, the Federal Reserve keeps funding it, and a room full of bank lobbyists is still working to shut it off.
Contact [email protected] for any questions or corrections.
Sam Daodu is a crypto analyst who's spent nearly a decade making blockchain understandable—no easy task when most whitepapers read like fever dreams. He writes for 24/7 Wall St., covering Bitcoin, altcoins, and crypto market analysis for investors. Before crypto, he was a tech writer (back when explaining "the cloud" was peak innovation). Since 2018, he's written for CoinTelegraph, Yahoo Finance, The Block, Cryptonews, Zypto, Rain, and more—basically anywhere people want crypto news without the headache. Sam runs MacLabs Marketing, a content agency for crypto brands tired of sounding like AI wrote their website. He also publishes free crypto education on his site for Web3 enthusiasts who think "gas fees" is a typo. When he's not writing or staring at charts, Sam's either: - Watching anime (currently convinced One Piece has better tokenomics than most altcoins) - At the gym sculpting himself into a Greek god - Listening to the music your mum warned you only bad boys listen to Connect: LinkedIn | Email | MacLabs Marketing
