The recent passage of the GENIUS Act in the US marks a significant step in regulating stablecoins, though certain provisions may limit their appeal compared to traditional financial instruments.
Restriction on Yield for Stablecoins
The GENIUS Act explicitly bans issuers from offering yield-bearing stablecoins, effectively preventing both retail and institutional investors from earning interest on their digital dollar holdings.
Competition with Tokenized Money Market Funds
Temujin Louie from Wanchain warns that the legislation could create advantages for traditional financial instruments. 'Tokenization allows money market funds to adopt the speed and flexibility that previously made stablecoins unique,' he noted. According to Paul Brody from EY, the availability of yield could be a deciding factor in the competition between tokenized money market funds and stablecoins.
Banking Lobby Influence on Legislation
The prohibition on yield-bearing stablecoins was expected, as banks have increased pressure on lawmakers. Financial institutions are concerned that allowing stablecoin issuers to offer yield directly threatens their long-standing business model of providing minimal interest on deposits.
Legislation that imposes strict regulations on stablecoins raises important questions about the balance between fintech innovation and the interests of traditional financial institutions.
