A Trump stablecoin with an annualized 20% return is a cat-and-mouse game of deafening oneself to the truth.

Author: Lawyer Liu Honglin

Recently, I’ve been quite busy with work and haven’t paid much attention to market trends. Yesterday, I opened a certain app and immediately noticed a promotion for the stablecoin USD 1 issued by the Trump family, boldly stating “Annualized current yield 20%.”

Reflecting on the recent high yield of up to 0.5% for digital renminbi savings, I can’t help but marvel at how fiercely American capitalism wields its sickle.

This reminds me that after Circle went public in June 2025, they also ran similar high-yield USDC promotions on multiple platforms. This time, Binance’s strong recommendation of USD 1 suggests that CZ is once again trying to “pursue progress” in the United States.

Of course, the purpose of writing this article today is not to gossip but to analyze the essence behind the phenomenon. In the crypto world, such “high-yield sheep’s wool” stablecoins will continue to exist, but behind this is actually a tacit game of cat and mouse between global regulators and stablecoin players.

What does this mean?

We need to understand the broader context: Currently, whether it’s the EU’s MiCA regulation or the US’s proposed “Payment Stablecoin Clarity Act,” the core logic of regulators is a strict rule—prohibiting stablecoin issuers from paying interest to users.

This makes sense. If Circle could directly pay 5% government bond interest to USDC holders, it would essentially become a bank. How could traditional banks survive?

But the reality is, stablecoins held by users are still earning yields, often dozens of times higher than bank deposits. Where does this money come from? It’s actually a clever game of legal structural design.

Today, Lawyer Honglin will analyze from the perspectives of legal compliance and business architecture how top players like Coinbase, PayPal, and Ethena are “legally” delivering money to users at the edge of the “interest prohibition” red line.

Method 1: Coinbase & Circle—Turning “Stablecoin Interest” into “Marketing Fees”

This is currently the most textbook-level compliant operation, a true art of “handing over with the left hand and receiving with the right.” We know that Circle is the issuer of USDC, but its largest distribution channel is Coinbase. According to publicly disclosed SEC documents (especially the “Partnership Agreement” signed by both parties in August 2023), their profit-sharing mechanism is quite interesting.

On the surface, Circle holds USD reserves to buy government bonds, earning huge interest. Regulations clearly state that Circle, as the issuer, cannot pay this interest directly to token holders.

But in practice, Circle and Coinbase signed a clever revenue-sharing agreement. Circle pays Coinbase a large fee based on the USDC balance on Coinbase’s platform. In financial reports, this money is not called “interest sharing” but is referred to as “distribution fees” or “platform service fees.”

The final link in the fund transfer chain is Coinbase, which, after receiving this money, launches the “USDC Rewards” program, offering about 4.7% annualized yield.

Coinbase’s user agreement is very “cunning”: “The rewards provided by Coinbase are not paid by the issuer Circle but are loyalty rewards from Coinbase as part of a marketing campaign, paid out of pocket.”

See, the legal logic is perfectly closed:

Circle does not pay interest; it pays B2B service fees;

Coinbase does not pay interest; it issues marketing red envelopes;

The money users receive, in legal terms, shifts from “financial income” to “gifts” or “marketing income.”

This is why Coinbase recently even made high yields exclusive benefits for Coinbase One members—further solidifying that this is a “member benefit,” not “deposit interest.”

Method 2: PayPal & PYUSD—Using DeFi as a Sword to Generate Compliant Interest

PayPal’s issued PYUSD is also restricted by the “interest prohibition.” As a traditional financial giant, PayPal’s strategy is “borrowing to give as a gift,” guiding users toward DeFi protocols.

Structurally, PayPal has partnered with MakerDAO (now Sky Protocol) under the alias Spark. Users, through the PayPal interface or partner wallets, are effectively depositing PYUSD into Spark’s smart contracts.

The fund flow becomes very interesting: the yield does not come from PayPal’s balance sheet but from the operation of on-chain protocols (Spark uses this money to lend on-chain or invest via RWA mechanisms).

This creates a perfect compliance separation. When regulators ask questions, PayPal can shrug and say: “We only provide a Web3 gateway; the yield is earned by users in decentralized protocols, which is a code-based activity and has nothing to do with us.” This approach cleverly exploits the “technological neutrality” defense, isolating the compliance responsibilities of centralized institutions through smart contracts.

Method 3: Ethena (USDe) — The “Points Magic” Approach

If the first two are still circling within the traditional financial framework, Ethena is directly flipping the table, creating a “synthetic asset + points options” gameplay. USDe is highly controversial in the compliance circle because it is essentially not a stablecoin but a “structured hedge fund.”

Its returns do not come from buying government bonds but from shorting ETH on exchanges to earn funding rates. These earnings are extremely high in a bull market.

To avoid securities law, Ethena cannot directly distribute these trading profits to users, or USDe would definitely be classified as a “security” (Howey test cannot be bypassed).

So Ethena invented the “Points Magic”: I don’t give you money; I give you “points.” Officially, points are claimed to have no monetary value, only proof of activity. But the market tacitly understands that points will be airdropped with tokens (ENA), and some platforms (like Whales Market) can directly price and trade points.

By leveraging the “uncertainty of returns” (how many tokens points can be exchanged for is uncertain), Ethena attempts to cut off the “reasonable profit expectation” chain in the Howey test. Before regulatory crackdown, this “shadow interest” has already absorbed hundreds of billions of dollars in liquidity.

Method 4: Exchange “Wool” — The Accounting Game of CAC (Customer Acquisition Cost)

Frequent wool pullers know that exchanges like certain apps often offer 10%-20% APR on FDUSD or USD 1 deposits, which is obviously higher than government bond yields. Where does this money come from?

In accounting terms, this is not interest expense but customer acquisition cost (CAC).

The underlying logic is Launchpool (new coin mining): exchanges distribute these assets for free to stablecoin holders through listing fees or tokens provided by project teams.

Legally, this is classified as “airdrops” or “promotional gifts.” Users holding stablecoins do not directly generate fiat currency income but receive a volatile asset. Regulators find it hard to prohibit companies from “burning money” for marketing. As long as exchanges are willing to subsidize this part of their profits (even at a loss), it is a legal business promotion.

Mankun Lawyer’s Summary

After reviewing these cases, you will see that the regulation prohibiting stablecoin interest has, in practice, become a formality.

As long as US dollar interest rates remain high, the time value of capital cannot disappear out of thin air. Regulators block the “issuer directly paying interest,” but capital finds countless windows through “distribution agreements,” “DeFi nesting,” “points options,” and “marketing subsidies.”

For Web3 entrepreneurs, the clear takeaway is: don’t try to fight regulation head-on by issuing “interest-bearing stablecoins,” as that’s akin to shooting yourself in the foot; but you can design your business to turn “interest” into “service fees,” “points,” or “membership rights.”

This is not about loophole exploitation; legally, it’s about structural compliance.

And these business innovations and legal compliance structures are part of our daily operations. If you also need assistance with Web3 project business innovation and compliance structure design, welcome to contact Lawyer Mankun.