The recent passage of the US GENIUS Act was widely celebrated as a major step forward for stablecoin adoption, but a key provision may curb the appeal of digital dollars compared to money market funds, raising questions about whether the bill’s authors were swayed by banking industry pressure to restrict yield-bearing stablecoins.
The GENIUS Act expressly bans issuers from offering yield-bearing stablecoins, effectively preventing both retail and institutional investors from earning interest on their digital dollar holdings.
Because of this, Temujin Louie, CEO of crosschain interoperability protocol Wanchain, cautioned against viewing the legislation as an unqualified win for the industry.
“In a vacuum, this may be true,” Louie told Cointelegraph. “But by explicitly prohibiting stablecoin issuers from offering yield, the GENIUS Act actually protects a major advantage of money market funds.”
As Cointelegraph reported, money market funds, or MMFs, are emerging as Wall Street’s answer to stablecoins, particularly when issued in tokenized form. JPMorgan strategist Teresa Ho noted that tokenized MMFs could unlock new use cases, such as serving as margin collateral.
Louie agrees, claiming that “tokenization enables money market funds to adopt the speed and flexibility that previously made stablecoins unique, without sacrificing safety and regulatory oversight.”
Paul Brody, global blockchain leader at EY, told Cointelegraph that tokenized MMFs and tokenized deposits “could find a significant new opportunity onchain,” especially in the absence of yield on stablecoin holdings.
“Money market funds can operate and look a lot like stablecoins to end-users, but with the difference that they do offer yield,” Brody said.
According to EY’s Brody, the availability of yield could be a deciding factor between tokenized MMFs and stablecoins. Still, he noted that stablecoins retain certain advantages:
“Stablecoins are allowed as bearer assets, which means they can easily be put into DeFi services and other onchain financial services without complicated management of access and transfer controls. If tokenized money market funds have many restrictions that prevent such usage, it’s possible the attraction of yield might not be enough to offset the added operational complications.”
Related: Crypto execs center stage as Trump signs stablecoin bill into law
The banking industry’s grip on the stablecoin debate
The GENIUS Act’s prohibition on yield-bearing stablecoins came as little surprise, with Cointelegraph previously reporting that the banking lobby appears to have exerted significant influence over the ongoing policy debate around stablecoins.
Back in May, NYU professor and blockchain consultant Austin Campbell cited sources within the banking industry, revealing that financial institutions are actively lobbying to block interest-bearing stablecoins to protect their long-standing business model.
After decades of offering depositors minimal interest, banks feared their competitiveness would be threatened if stablecoin issuers were allowed to offer yield directly to holders, Campbell said.
Still, yield-bearing digital assets do exist in the US, albeit under the apparent purview of securities regulation. In February, the Securities and Exchange Commission approved the country’s first yield-bearing stablecoin security, issued by Figure Markets. The token, called YLDS, offered a 3.85% yield at launch.
Related: GENIUS sets new stablecoin rules but remains vague on foreign issuers