US Genius Act and Its Impact on Stablecoins
The recently passed US Genius Act has garnered considerable attention as a significant advance for Stablecoin adoption. Yet, its main provisions may undermine the attractiveness of the digital dollar when stacked against money market funds. This shift raises concerns about whether the legislation was influenced by the banking sector.
Notably, the Genius Act prohibits issuers from providing yields on Stablecoins. This effectively means that neither retail nor institutional investors can earn interest on their digital dollar investments.
Temujin Louie, the CEO of Crosschain Interoperability Protocol Wanchain, expressed skepticism about the law being an unqualified win for the industry. “In a vacuum, this may be true,” Louie mentioned in a discussion with Cointelgraf. “However, by banning yields from Stablecoin publishers, it seems the act is actually reinforcing the advantages of money market funds.”
According to Cointelegraph, money market funds (MMFs) have emerged as potential competitors to Stablecoins, especially in their tokenized forms. JPMorgan’s Teresa Ho pointed out that tokenized MMFs can facilitate new opportunities, such as being used as collateral for margins.
Louie believes that “tokenization allows money market funds to maintain stable performance without losing safety and regulatory oversight.” Meanwhile, Paul Brody, EY’s global blockchain leader, noted that tokenized MMFs and deposits could discover significant new avenues, particularly in light of the absence of yield opportunities for Stablecoin holdings.
Brody elaborated, “Money market funds operate similarly to Stablecoins for end users, but their approaches to yielding are different.”
As EY’s Brody points out, yield availability can distinguish tokenized MMFs from Stablecoins. Still, he acknowledged that Stablecoins maintain specific strengths.
“Stability as a bearer asset means it can be effortlessly integrated into DeFi services and other on-chain financial resources, without intricate management of access and transfer. If tokenized money market funds face multiple restrictions hindering such use, the allure of yields may not be enough to offset the added operational complexities.”
Banking Industry Influence on Stablecoin Legislation
The ban targeting interest-bearing Stablecoins in the Genius Act was somewhat expected. Cointelegraph previously reported that banking lobbies likely wielded significant influence over the ongoing discussions regarding Stablecoins.
In May, NYU professor and blockchain consultant Austin Campbell shared insights from the banking sector, indicating that financial institutions are actively pushing against interest-bearing Stablecoins to safeguard their long-standing interests.
Campbell suggested that following years of providing minimal benefits to depositors, banks feared losing competitive ground if Stablecoin issuers began offering yields directly to holders.
However, yield-generating digital assets still exist in the US, albeit under stringent securities regulations. For instance, the Securities and Exchange Commission recently approved the nation’s first yield security in the form of a token called YLDS, which launched with a 3.85% yield.
