GENIUS Act prohibits yield-bearing stablecoins
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. This raises 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.”
Tokenized money market funds gain momentum
As Cointelegraph previously reported, money market funds (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:
“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, also 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.
Will DeFi compatibility save stablecoins?
According to EY’s Brody, the availability of yield could be a deciding factor between tokenized MMFs and stablecoins. However, stablecoins retain some distinct 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.”
Banking lobby’s influence on legislation
The GENIUS Act’s prohibition on yield-bearing stablecoins didn’t surprise many, with prior reports suggesting that the banking lobby exerted significant influence over the stablecoin policy debate.
Back in May, NYU professor and blockchain consultant Austin Campbell cited sources within the banking industry, revealing that financial institutions were actively lobbying to block interest-bearing stablecoins to protect their 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.
Yield-bearing stablecoins still exist — for now
Despite the GENIUS Act’s ban, yield-bearing digital assets continue to exist in the US under securities regulation. In February, the SEC approved the country’s first yield-bearing stablecoin security, issued by Figure Markets. The token, called YLDS, launched with a 3.85% yield.
