BIS maps stablecoin yield models. Do interest bans target the right one?

The Bank for International Settlements (BIS) has released a bulletin categorizing stablecoin yield models into reserve-based and activity-based structures, highlighting significant differences in risk profiles. Reserve-based models, such as Coinbase's USDC implementation, pass through returns from reserve assets and closely track the federal funds rate. Conversely, activity-based models like Binance's Simple Earn deploy customer funds into lending and trading operations, with yields driven primarily by crypto market volatility rather than benchmark interest rates. During 2024, Binance USDT borrowing rates reached 40-50%, reflecting high counterparty risk due to the commingling of assets. The BIS warns that current regulatory interest prohibitions in the EU and US often target the lower-risk reserve-based model while potentially overlooking the systemic risks inherent in activity-based platforms. This distinction is critical for the RWA market as it clarifies how stablecoin yields are generated and where hidden counterparty exposures reside. The collapse of Genesis and the subsequent impact on Gemini Earn users serve as a cautionary example of the risks associated with non-segregated client funds in activity-based models.