The recent passage of the US GENIUS Act has been hailed as a significant milestone for stablecoin adoption, but a crucial provision within the legislation has sparked debate within the industry. The act prohibits issuers from offering yield-bearing stablecoins, effectively preventing investors from earning interest on their digital dollar holdings. This move has raised questions about whether the bill was influenced by pressure from the banking industry to restrict yield-bearing stablecoins.
Temujin Louie, CEO of Wanchain, has cautioned against viewing the GENIUS Act as a complete victory for the industry. He believes that by banning stablecoin issuers from offering yield, the legislation inadvertently protects a major advantage of money market funds. Money market funds, particularly when issued in tokenized form, are emerging as a viable alternative to stablecoins on Wall Street. Tokenized MMFs offer speed and flexibility while maintaining safety and regulatory oversight.
Paul Brody, global blockchain leader at EY, sees potential for tokenized MMFs and tokenized deposits to thrive in the absence of yield on stablecoin holdings. He notes that money market funds can offer yield to investors, a feature that stablecoins currently lack. However, Brody acknowledges that stablecoins have their own advantages, particularly in their ability to easily integrate into decentralized finance (DeFi) services.
The banking industry’s influence on the stablecoin debate cannot be ignored. Financial institutions have reportedly lobbied for the prohibition of yield-bearing stablecoins to protect their traditional business model. Banks have long offered minimal interest to depositors and feared competition from stablecoin issuers offering yield directly to holders. Despite this, the Securities and Exchange Commission approved the country’s first yield-bearing stablecoin security in February, indicating that yield-bearing digital assets do have a place in the US market.
Overall, the GENIUS Act has opened up new discussions within the industry about the future of stablecoins and their relationship with money market funds. While the prohibition on yield-bearing stablecoins may have been influenced by the banking industry, it has also brought attention to the potential of tokenized MMFs as a viable alternative. As the debate continues, it will be interesting to see how the market evolves to accommodate these changes.