PayPal plans to offer users a 3.7% return if they hold the company’s PYUSD stablecoin in their PayPal or Venmo wallets, according to a Bloomberg report based on an interview with the company. The company plans to roll out the offering this summer in the United States. Rewards will accrue daily and be paid out monthly, with the goal of encouraging adoption of the stablecoin on the PayPal network.
Currently holders of the USDC stablecoin on Coinbase can earn 4.1% rewards in the United States. Coinbase had a half ownership stake in USDC, until transferring it to Circle. But it still earns more interest on the stablecoin’s assets than Circle, according to Circle’s IPO filing. In some jurisdictions such as Europe, stablecoins are considered to be e-money which is not allowed to earn interest.
Draft legislation for stablecoins is currently being debated in both the House (STABLE Act) and the Senate (GENIUS Act). We previously noted that both the latest legislation drafts included clauses banning the payment of interest or yield by the issuer to stablecoin holders. The likely rationale is to safeguard bank deposits. If banks have to pay more to deposits holders, then loans will get more expensive.
However, Coinbase is not the issuer of USDC, so technically it may be free to pay interest, even though it receives the interest on the underlying assets. And PayPal’s stablecoin is issued by Paxos, despite PayPal recently receiving a New York trust charter. Of course, Paxos will pay most of the interest on the reserves to PayPal.
So, if legislators really don’t want to see interest paid on stablecoins, they may need to apply the ban on interest more broadly. Potentially it won’t just apply to the issuer, but also to any party that receives payment from the issuer in connection with the stablecoin.
This won’t entirely prevent interest bearing stablecoins. It will likely still be possible to register an asset as a security with the SEC, that might look like a stablecoin but will be allowed to pay interest. Figure released one earlier this year. Given the desire to get stablecoin legislation passed soon, regulatory clarity probably isn’t far off.
