The current passage of the US GENIUS Act was broadly celebrated as a significant step ahead for stablecoin adoption, however a key provision could curb the attraction of digital {dollars} in comparison with cash market funds, elevating questions on whether or not the invoice’s authors had been swayed by banking business stress to limit yield-bearing stablecoins.
The GENIUS Act expressly bans issuers from providing yield-bearing stablecoins, successfully stopping each retail and institutional traders from incomes curiosity on their digital greenback holdings.
Due to this, Temujin Louie, CEO of crosschain interoperability protocol Wanchain, cautioned in opposition to viewing the laws as an unqualified win for the business.
“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, notably when issued in tokenized type. JPMorgan strategist Teresa Ho famous that tokenized MMFs might unlock new use instances, corresponding to serving as margin collateral.
Louie agrees, claiming that “tokenization permits cash market funds to undertake the velocity and suppleness that beforehand made stablecoins distinctive, with out sacrificing security and regulatory oversight.”
Paul Brody, international 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 rather a lot like stablecoins to end-users, however with the distinction that they do supply yield,” Brody mentioned.
Based on EY’s Brody, the provision of yield could possibly be a deciding issue between tokenized MMFs and stablecoins. Nonetheless, he famous that stablecoins retain sure benefits:
“Stablecoins are allowed as bearer belongings, which suggests they will simply be put into DeFi companies and different onchain monetary companies with out sophisticated administration of entry and switch controls. If tokenized cash market funds have many restrictions that forestall 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 business’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 Might, NYU professor and blockchain advisor Austin Campbell cited sources inside the banking business, revealing that monetary establishments are actively lobbying to dam interest-bearing stablecoins to guard their long-standing enterprise mannequin.
After a long time of providing depositors minimal curiosity, banks feared their competitiveness can be threatened if stablecoin issuers had been allowed to supply yield on to holders, Campbell mentioned.
Nonetheless, yield-bearing digital belongings do exist within the US, albeit beneath the obvious purview of securities regulation. In February, the Securities and Trade Fee authorized the nation’s first yield-bearing stablecoin security, issued by Determine Markets. The token, known as YLDS, provided a 3.85% yield at launch.
Associated: GENIUS sets new stablecoin rules but remains vague on foreign issuers
