Stablecoin Interest at a Crossroads: MiCA’s Prohibition and the US Regulatory Maze

When major crypto platforms disabled stablecoin reward programs for European users in 2024, the decision received little notice outside specialist circles. Yet the policy behind it reflects a fundamental question facing financial regulators worldwide: should digital dollars pay interest, and if not, what should be the legal boundary between payment instruments and deposit-like products? The answer matters because stablecoins now hold over $300 billion in value—rivalling mid-sized national banking systems—and how regulators classify these instruments will determine whether they compete with traditional banks or complement them.

Stablecoins are digital assets designed to maintain consistent value against reference assets like the US dollar. The debate centers on whether holders should earn a yield, which is returns paid or credited based on holding the asset. Regulators in the European Union and United States have reached similar prohibitions through strikingly different paths, revealing deeper institutional differences in how each jurisdiction approaches financial stability and regulatory design.

Europe’s Prohibition: Clarity Through MiCA

The European Union’s response centers on the Markets in Crypto-Assets Regulation (MiCA), formally adopted as Regulation (EU) 2023/1114. MiCA establishes a harmonized framework governing crypto-asset issuance across the EU, with particular attention to asset-referenced tokens and electronic money tokens, the two categories under which most stablecoins fall.

MiCA adopts a categorical ban on yield-bearing stablecoins. Article 22(4) of MiCA provides that issuers of asset-referenced tokens ‘shall not grant interest or any other benefit related to the length of time during which a holder holds such asset-referenced tokens’. This provision reflects a deliberate policy choice to prevent stablecoins from functioning as savings instruments that could compete with bank deposits or money market funds.

The regulatory philosophy underlying this prohibition is precautionary and stability oriented. If stablecoins paid competitive yields, they could accelerate deposit substitution. At current levels, $300 billion in stablecoins paying 4% annually would represent $12 billion flowing outside the traditional banking system. European policymakers worry this could undermine banks’ access to low-cost deposit funding, disrupt monetary policy transmission, and introduce new forms of contagion or run risk. These concerns align with broader EU efforts to limit shadow banking activities that resemble traditional deposit-taking without equivalent prudential safeguards.

Supervisory responsibility under MiCA is shared among national competent authorities and EU-level bodies, most notably the European Banking Authority and the European Securities and Markets Authority. These authorities develop technical standards, supervise significant stablecoin issuers, and ensure consistent application across member states. Authorization to operate in the EU is conditioned on compliance with MiCA’s requirements, including the interest prohibition. Major platforms have already disabled stablecoin reward programs for EU users, demonstrating immediate enforcement impact.

America’s Path: Negotiation Through the GENIUS Act

The United States has approached stablecoin regulation through a more fragmented process. Until recently, no comprehensive federal statute governed payment stablecoins, leaving regulators and market participants to navigate a patchwork of state laws and agency enforcement actions. That changed on July 18, 2025, with enactment of the Guiding and Establishing National Innovation for US Stablecoins Act, commonly known as the GENIUS Act. Supervision is allocated among federal banking regulators depending on the issuer’s charter, reinforcing the Act’s bank-centric approach to payment stablecoins.

The GENIUS Act establishes a federal framework for ‘payment stablecoins’,  defined as digital assets pegged to a fixed monetary value and backed on a one-to-one basis by high-quality liquid assets such as US currency or Treasury bills. Only licensed entities may issue such stablecoins, and issuers are subject to reserve, disclosure, and risk management requirements. Crucially, the Act prohibits permitted issuers from paying interest, yield, dividends, or other returns to holders based solely on holding a payment stablecoin.

In this respect, the US statute converges with the EU approach by drawing a clear line between payment functionality and yield generation at the issuer level. However, the path to this outcome differs markedly. The GENIUS Act reflects a negotiated compromise among legislators, banking stakeholders, and crypto industry lobbyists. Major financial institutions warned that widespread adoption of yield-bearing stablecoins could divert trillions from the banking system, destabilizing credit provision during stress periods. Notably, some major crypto players, including Ripple and Kraken, supported the prohibition, recognizing that retaining interest earned on reserves represents a lucrative business model.

At the same time, broader questions about digital asset classification remain unresolved. The proposed Digital Asset Market Clarity Act seeks to clarify regulatory authority between the US Securities and Exchange Commission and Commodity Futures Trading Commission. The Clarity Act remains pending, underscoring ongoing congressional debates over classification and regulatory perimeter.

Comparative Implications

The convergence in outcome but divergence in regulatory design reflects deeper differences in regulatory architecture. MiCA represents a top-down, harmonized framework that prioritizes clarity and ex ante risk containment. Its prohibition on yield is simple to administer and leaves little room for regulatory arbitrage within the EU.

The US model, by contrast, is iterative and institutionally pluralistic. While the GENIUS Act establishes a federal baseline for payment stablecoins, broader issues remain subject to legislative negotiation and agency interpretation. This approach allows greater flexibility but introduces complexity and prolonged uncertainty.

Both systems, however, share a core concern: the systemic implications of stablecoins that begin to resemble deposit-like instruments. The disagreement lies less in the diagnosis of risk than in the regulatory tools chosen to address it. Yet both frameworks leave critical questions unanswered. Neither directly regulates decentralized finance protocols, where users can deposit stablecoins and earn yield through third-party arrangements. Neither has confronted the challenging cases: what happens when algorithmic stablecoins offer yield, when cross-border issuers exploit regulatory gaps, or when a major issuer fails?

Conclusion

The treatment of stablecoin interest offers a revealing lens into how advanced economies balance financial stability and innovation. The European Union, through MiCA, has opted for clear prohibition to insulate banking and monetary policy from digital disruption. The United States, through the GENIUS Act, has reached similar outcomes for payment stablecoins, but through contested legislative process that leaves broader classification questions unresolved.

Whether one approach proves more effective will depend on how markets evolve and how regulators respond to future stress events. What is clear is that yield on stablecoins is no longer a peripheral issue. It has become a central fault line where digital asset regulation intersects with banking law, monetary policy, and the legal definition of money itself. 

David Krause is an Emeritus Associate Professor of Finance at Marquette University.