Introduction
The recent approval of the GENIUS Act in the United States has been celebrated by proponents of stablecoin technology, yet a significant feature may diminish the attractiveness of digital dollars in contrast to traditional money market funds. This has raised concerns about the influence of the banking sector in shaping a policy that restricts yield-bearing stablecoins.
Impact of the GENIUS Act
Specifically, the GENIUS Act prohibits stablecoin issuers from providing any form of yield, eliminating the opportunity for both individual and institutional investors to earn interest on their digital currency holdings.
“While one could perceive immediate advantages in isolation, the prohibition against yield-bearing stablecoins serves to bolster the competitive edge enjoyed by money market funds (MMFs),”
– Temujin Louie, CEO of Wanchain
Competition with Money Market Funds
Reports indicate that MMFs are becoming increasingly viewed as a rival to stablecoins, notably with the emergence of tokenized versions. According to JPMorgan strategist Teresa Ho, the advent of tokenized MMFs could foster novel applications such as utilizing them as collateral for margin trading. Louie has emphasized that tokenization allows MMFs to adopt the rapidity and flexibility that once set stablecoins apart, while still maintaining compliance and security.
Paul Brody, the global blockchain leader at EY, also pointed out that the intersection of tokenized MMFs and onchain opportunities could become increasingly significant, particularly given the lack of yield from stablecoins. He remarked that MMFs could easily mimic the functionality of stablecoins in user experience, with the key distinction being their ability to offer returns.
Benefits and Challenges of Stablecoins
Despite the restrictions imposed by the GENIUS Act, Brody noted that stablecoins still possess distinct benefits. For instance, stablecoins function as bearer assets, allowing for seamless integration into decentralized finance (DeFi) platforms without imposing overly complex access and transfer protocols. He cautioned, however, that if tokenized MMFs come with excessive constraints, the allure of interest may not outweigh the operational challenges they present.
The Role of the Banking Sector
The banking sector’s influence on the evolving discourse around stablecoins has been significant. Reports from earlier this year suggested that banks have been lobbying against yield-bearing stablecoins fiercely in an effort to defend their traditional revenue streams. Austin Campbell, an NYU professor and blockchain advisor, revealed that these banks are concerned about losing their competitive edge if stablecoin companies are allowed to directly offer interest to consumers.
Conclusion
However, it is essential to note that there are yield-bearing digital assets available in the U.S., albeit under the supervision of securities regulations. A case in point is the YLDS, a yield-bearing stablecoin security approved by the Securities and Exchange Commission earlier this year, which launched with a yield of 3.85%. This landscape adds complexity to the conversation around the implications of the GENIUS Act.
