The GENIUS Act's "Interest" Prohibition: Evidence of Regulatory Arbitrage in Digital Asset Markets

This paper provides empirical evidence that the interest prohibition contained in the Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act has been effectively circumvented through intermediated distribution structures. Using archival data from January 2024 through January 2026, I demonstrate that USDC "rewards" distributed through Coinbase exhibit a 98.7% correlation with 3-month Treasury Bill yields, with 95.6% pass-through efficiency and a stable 21-basis-point intermediation spread. Ordinary least squares regression analysis with a structural break variable reveals that the Act's July 2025 enactment produced no statistically significant decoupling effect. These findings suggest that the statutory prohibition on "interest or yield" payments has been rendered ineffective through relabeling and structural intermediation. The economic substance of these rewards may trigger scrutiny under the Howey and Reves tests, potentially classifying them as securities despite their nomenclature. This research demonstrates the limitations of prohibition-based regulatory approaches in digital asset markets, a conclusion reinforced by Coinbase's successful January 2026 intervention to block similar interest prohibition language in the proposed Digital Asset Market Clarity Act of 2025 (Clarity).