The GENIUS Act, signed into law in July, was billed as a breakthrough moment for U.S. stablecoin regulation. Supporters praised it as the clearest framework yet for digital dollars, predicting a surge in adoption.
But one detail buried in the legislation is now sparking controversy: stablecoin issuers are forbidden from paying interest to holders.
This restriction may have bigger consequences than most realize. By removing the ability to offer returns, the law hands a quiet advantage to tokenized money market funds — a traditional finance product now making its way onto blockchains. These funds, already common in Wall Street portfolios, can pay yield while still matching many of the speed and settlement benefits stablecoins are known for.
Temujin Louie, CEO of interoperability platform Wanchain, believes the yield ban tilts the field. “Tokenized MMFs now have the same tech perks without giving up their ability to earn for investors,” he said, adding that the move could reshape where capital flows in the on-chain economy.
Analysts at EY agree that money market products could find fresh momentum, especially as banks explore tokenized offerings. Paul Brody, the firm’s global blockchain leader, said yield might sway some users away from stablecoins, but he also stressed that bearer-asset functionality still gives stablecoins a DeFi-friendly edge. MMFs, in contrast, often carry compliance rules and transfer restrictions that make them harder to plug into open blockchain systems.
Behind the scenes, industry watchers suspect the banking lobby’s fingerprints on the legislation. For decades, banks paid minimal interest to depositors; allowing stablecoins to compete on yield could have threatened that model. Earlier this year, blockchain policy experts pointed to active lobbying to ensure stablecoins could not directly pay holders.
Yield-bearing digital assets aren’t entirely gone — Figure Markets rolled out a regulated, interest-paying stablecoin earlier this year — but such products face securities oversight, a route most issuers may avoid.
In the end, the GENIUS Act delivers a paradox: it clears a path for stablecoins to operate more freely under U.S. law while removing one of their most appealing features. Whether investors prioritize yield or the frictionless nature of DeFi could decide which asset — yield-free stablecoins or interest-bearing tokenized funds — dominates the next phase of the digital dollar race.
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Alex is an experienced financial journalist and cryptocurrency enthusiast. With over 8 years of experience covering the crypto, blockchain, and fintech industries, he is well-versed in the complex and ever-evolving world of digital assets. His insightful and thought-provoking articles provide readers with a clear picture of the latest developments and trends in the market. His approach allows him to break down complex ideas into accessible and in-depth content. Follow his publications to stay up to date with the most important trends and topics.
Source: https://coindoo.com/genius-act-clears-path-for-stablecoins-while-quietly-protecting-banks/