The latest passage of the US GENIUS Act was broadly celebrated as a significant step ahead for stablecoin adoption, however a key provision might curb the enchantment of digital {dollars} in comparison with cash market funds, elevating questions on whether or not the invoice’s authors have been swayed by banking trade stress to limit yield-bearing stablecoins.
The GENIUS Act expressly bans issuers from providing yield-bearing stablecoins, successfully stopping each retail and institutional buyers from incomes curiosity on their digital greenback holdings.
Due to this, Temujin Louie, CEO of crosschain interoperability protocol Wanchain, cautioned towards viewing the laws as an unqualified win for the trade.
“In a vacuum, this can be true,” Louie advised Cointelegraph. “However by explicitly prohibiting stablecoin issuers from providing yield, the GENIUS Act really protects a significant benefit of cash market funds.”
As Cointelegraph reported, cash market funds, or MMFs, are rising as Wall Avenue’s reply to stablecoins, significantly when issued in tokenized kind. JPMorgan strategist Teresa Ho famous that tokenized MMFs might unlock new use circumstances, comparable to serving as margin collateral.
Louie agrees, claiming that “tokenization allows cash market funds to undertake the velocity and adaptability that beforehand made stablecoins distinctive, with out sacrificing security and regulatory oversight.”
Paul Brody, world blockchain chief at EY, advised Cointelegraph that tokenized MMFs and tokenized deposits “might discover a vital new alternative onchain,” particularly within the absence of yield on stablecoin holdings.
“Cash market funds can function and look so much like stablecoins to end-users, however with the distinction that they do provide yield,” Brody mentioned.
Based on EY’s Brody, the supply of yield may very well be a deciding issue between tokenized MMFs and stablecoins. Nonetheless, he famous that stablecoins retain sure benefits:
“Stablecoins are allowed as bearer property, which implies they’ll simply be put into DeFi providers and different onchain monetary providers with out difficult administration of entry and switch controls. If tokenized cash market funds have many restrictions that stop such utilization, it’s doable the attraction of yield may not be sufficient to offset the added operational problems.”
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The banking trade’s grip on the stablecoin debate
The GENIUS Act’s prohibition on yield-bearing stablecoins got here as little shock, with Cointelegraph previously reporting that the banking foyer seems to have exerted vital affect over the continued coverage debate round stablecoins.
Again in Could, NYU professor and blockchain advisor Austin Campbell cited sources inside the banking trade, revealing that monetary establishments are actively lobbying to dam interest-bearing stablecoins to guard their long-standing enterprise mannequin.
After many years of providing depositors minimal curiosity, banks feared their competitiveness could be threatened if stablecoin issuers have been allowed to supply yield on to holders, Campbell mentioned.
Nonetheless, yield-bearing digital property do exist within the US, albeit beneath the obvious purview of securities regulation. In February, the Securities and Alternate Fee permitted the nation’s first yield-bearing stablecoin security, issued by Determine Markets. The token, referred to as YLDS, provided a 3.85% yield at launch.
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