1
Regulatory Prohibition
US law explicitly bans stablecoin interest payments to avoid securities classification and bank disintermediation
2
Network Effects
USDT/USDC dominate 85% of exchange activity. Deep liquidity and universal acceptance create insurmountable moats
3
Self-Selected Users
60-70% use stablecoins for transactional speed, not yield. Those prioritizing interest already use money market funds
Why PayPal's 3.7% Interest Can't Compete
PayPal USD (PYUSD) pays 3.7% interest—sharing Treasury yield with depositors. By traditional market logic, it should be capturing massive market share from zero-yield USDT and USDC. Instead, PYUSD has <1% market share (~$500M circulation vs. $155B for USDT/USDC combined). The triple lock explains why: regulatory prohibition limits who can pay interest, network effects make liquidity more valuable than yield for most users, and customers self-select for transaction utility over returns. Competition exists but can't overcome these structural barriers.
Analysis: Based on GENIUS Act regulatory framework, Kaiko exchange data showing USDT/USDC trading dominance, Chainalysis stablecoin usage patterns, and PayPal PYUSD circulation data (Q3 2025).