Stablecoin Yield Raises Questions About Funding, Losses and Customer Rights

Stablecoin yield puts the focus on a question reserve rules alone can’t answer: what financial product is a customer actually using when a token balance earns a return? The answer depends on who pays, where the assets sit and what happens when losses hit.

Bernardo Brites is co-founder and CEO of Trace Finance, a regulated banking correspondent that connects stablecoin settlement to local banking systems in Brazil, the United States and emerging markets. Trace Finance operates on regulated, bank-connected payment infrastructure and may benefit from the policy direction discussed. The views are his own.

One token can sit beside several different products

A customer might lend tokens to a platform that lends them onward, receive a share of returns from assets held by a platform, or earn a reward funded from a company’s own balance sheet. A token might also serve as collateral in a separate investment product. Calling all of these arrangements “stablecoin yield” obscures differences in customer claims, asset control and exposure to loss.

That distinction matters as policymakers move beyond the basic questions of issuance and redemption. A payment token backed by liquid reserves and redeemable at par has one risk profile. A product promising a return introduces questions about lending, securities, deposit-taking or rewards, depending on its structure. The token’s label does not answer those questions; the product’s legal and economic design does.

The US GENIUS Act sets a starting point for permitted payment stablecoin issuers: reserves must be identifiable and at least equal to outstanding payment stablecoins. It also bars an issuer from paying interest or yield simply because a person holds its token. Those provisions address reserve backing and redemption. They don’t expressly resolve every arrangement in which an affiliate, platform or other third party pays a return tied to a stablecoin.

The White House has described that distinction as a gap that could allow firms to offer interest-bearing arrangements outside the issuer. For customers, the economic effect may look much the same as issuer-paid yield, even when another entity makes the payment. That makes the allocation of responsibilities a central policy question.

The product’s design determines the risk

Regulators and customers need to know who promises the return, where the funds are held, who controls them and who bears losses if a borrower defaults or asset values fall. One practical test is whether the payment token remains redeemable at par while the associated yield product is still open, or has taken a loss.

In April 2025, the US Securities and Exchange Commission’s Division of Corporation Finance said its statement on certain reserve-backed payment stablecoins did not address yield-bearing stablecoins. It said legal treatment depends on the facts of each stablecoin and the circumstances of its offer and sale. That statement is not a final rule, but it draws a clear boundary: analysis of the payment token does not settle the status of a return offered alongside it.

Clear product terms can make that boundary legible. Payment tokens need understandable reserve and redemption disclosures. Yield products should identify their funding, counterparties, loss rules and the customer’s legal claim. The products can operate together, but customers need to see where payment balances end and investment risk begins.

Bank-connected settlement can clarify responsibility

Bank-connected infrastructure can help make responsibilities visible through account records, customer checks, payment controls and defined handling of funds. The relevant question isn’t whether a token carries a bank’s name. It’s whether the operating structure shows which party holds the money, which party owes the customer and who is responsible when a transaction fails.

Brazil provides an example of the operating context. Banco Central do Brasil’s Resolution BCB 520 places virtual asset service providers within a defined regulatory perimeter and sets rules for their activities. It does not settle the classification of every yield product. It does illustrate why clear responsibility matters when stablecoins move between token networks and domestic payment systems.

Stress will reveal whether the separation works

Strict limits on yield could push some customers toward offshore platforms or unregulated protocols, where information may be thinner. That possibility argues for rules that distinguish payment balances from lending accounts and investment products, instead of treating every return arrangement as identical.

Customers should be able to assess how a return is funded, how reserves are treated, when redemption is available, what fees apply and who absorbs losses. Firms that can answer those questions plainly will be better positioned as rulemaking and enforcement develop. For the market, the test is whether product disclosures still explain the customer’s rights when a borrower fails or redemption comes under pressure.

The post Why Stablecoin Yield Is the Next Regulatory Flashpoint appeared first on The Fintech Times.