The GENIUS Act: A Stablecoin Win or a Banking Industry Victory?
The recent passing of the US GENIUS Act has been hailed as a significant step forward for stablecoin adoption, but a closer look at the legislation reveals a key provision that may actually hinder the growth of digital dollars. The Act’s ban on yield-bearing stablecoins has raised eyebrows, with some questioning whether the bill’s authors were swayed by pressure from the banking industry to restrict these types of stablecoins.
What’s in the Fine Print?
Upon closer inspection, the GENIUS Act expressly prohibits stablecoin issuers from offering yield, effectively preventing both retail and institutional investors from earning interest on their digital dollar holdings. This has led some industry experts to caution against viewing the legislation as an unqualified win for the industry. Temujin Louie, CEO of Wanchain, a cross-chain interoperability protocol, notes that the ban on yield-bearing stablecoins may actually protect the advantages of money market funds.
Money Market Funds: The New Competitor?
Money market funds, or MMFs, are emerging as a rival to stablecoins, particularly when issued in tokenized form. As reported by Cointelegraph, tokenized MMFs could unlock new use cases, such as serving as margin collateral. Louie agrees, stating that tokenization enables MMFs 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 notes that tokenized MMFs and deposits could find significant opportunities on-chain, especially in the absence of yield on stablecoin holdings.
The Battle for Yield
The availability of yield may be a deciding factor between tokenized MMFs and stablecoins. While stablecoins retain certain advantages, such as being allowed as bearer assets, which makes them easily transferable and usable in DeFi services, the lack of yield may drive investors towards MMFs. Brody notes that if tokenized MMFs have too many restrictions, the attraction of yield might not be enough to offset the added operational complications.
Banking Industry Influence
The GENIUS Act’s prohibition on yield-bearing stablecoins has raised questions about the influence of the banking industry on the stablecoin debate. As reported by Cointelegraph, the banking lobby appears to have exerted significant influence over the ongoing policy debate around stablecoins. Austin Campbell, an NYU professor and blockchain consultant, revealed that financial institutions are actively lobbying to block interest-bearing stablecoins to protect their long-standing business model. With banks offering minimal interest to depositors for decades, the prospect of stablecoin issuers offering yield directly to holders may have been seen as a threat to their competitiveness.
A Glimmer of Hope
While the GENIUS Act may have restricted the growth of yield-bearing stablecoins, there are still opportunities for innovation and growth in the space. The approval of the first yield-bearing stablecoin security by the Securities and Exchange Commission in February is a case in point. The token, called YLDS, offered a 3.85% yield at launch, demonstrating that yield-bearing digital assets can exist in the US, albeit under securities regulation. As the stablecoin landscape continues to evolve, it will be interesting to see how the industry adapts to the new rules and regulations.
