The passage of the U.S. "GENIUS Act" has been widely praised as a significant advancement for the adoption of stablecoins, but one key provision may undermine the appeal of the digital dollar compared to money market funds, raising questions about whether the authors of the bill were influenced by pressure from the banking industry to limit yield-bearing stablecoins.
The "GENIUS Act" explicitly prohibits issuers from offering yield-bearing stablecoins, effectively preventing retail and institutional investors from earning interest on their digital dollar holdings.
As a result, Temujin Louie, CEO of the cross-chain interoperability protocol Wanchain, warned against viewing this legislation as a complete victory for the industry.
"In a vacuum, this might be true," Louie told Cointelegraph. "But by explicitly prohibiting stablecoin issuers from offering yields, the 'GENIUS Act' effectively protects a major advantage of money market funds."
Cointelegraph previously reported that money market funds (MMFs) are becoming Wall Street's response to stablecoins, especially when issued in tokenized form. JPMorgan strategist Teresa Ho pointed out that tokenized MMFs could open up new use cases, such as serving as collateral for margin.
Louie agreed with this view, claiming that "tokenization allows 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 Ernst & Young, told Cointelegraph that tokenized MMFs and tokenized deposits "could find significant new opportunities on-chain," especially in cases where stablecoin holdings do not yield returns.
"Money market funds can operate very much like stablecoins for end users, but the difference is that they do provide yields," Brody said.
According to Brody from Ernst & Young, the availability of yields may be a decisive factor between tokenized MMFs and stablecoins. However, he noted that stablecoins retain certain advantages:
The ban on yield-bearing stablecoins in the "GENIUS Act" is not surprising; Cointelegraph previously reported that banking lobby groups seem to have exerted significant influence over the ongoing policy debate surrounding stablecoins.
As early as May, NYU professor and blockchain consultant Austin Campbell cited insider sources from the banking industry, revealing that financial institutions were actively lobbying to prevent interest-bearing stablecoins to protect their long-standing business models.
Campbell stated that after decades of offering meager interest to depositors, banks are concerned that allowing stablecoin issuers to directly provide yields to holders would threaten their competitiveness.
Nevertheless, yield-bearing digital assets do exist in the U.S., although they are clearly subject to securities regulation. In February, the U.S. Securities and Exchange Commission (SEC) approved the country's first yield-bearing stablecoin security, issued by Figure Markets. The token, named YLDS, offered a yield of 3.85% at issuance.
Related: The U.S. Commodity Futures Trading Commission (CFTC) seeks to allow spot cryptocurrency trading on registered exchanges.
Original article: “Traditional Finance Tokenization Momentum is Strong, the 'GENIUS Act' is Scrutinized for Banning Stablecoin Yields”
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