The passage of the GENIUS Act in the United States is seen as a significant advancement for the adoption of stablecoins, but one key provision may undermine the appeal of a digital dollar, particularly in comparison to money market funds, raising questions about whether interest-generating stablecoins are restricted due to banking sector pressures.
The GENIUS Act explicitly prohibits issuers from providing interest-bearing stablecoins, effectively preventing retail and institutional investors from earning interest on a digital dollar.
Temujin Louie, CEO of the Wanchain cross-chain interoperability protocol, warned against viewing this legislation as a pure victory for the industry.
“In a vacuum environment, this might be true,” Louie told Cointelegraph, “but by explicitly prohibiting stablecoin issuers from offering interest, the GENIUS Act actually protects a major advantage of money market funds.”
As reported by Cointelegraph, money market funds, especially when issued in a tokenized form, are gradually becoming Wall Street's response to stablecoins. JPMorgan strategist Teresa Ho noted that tokenized money market funds can open up new uses, such as serving as margin collateral.
Louie agreed, claiming that “tokenization gives money market funds the speed and flexibility that stablecoins had before, without sacrificing safety and regulatory oversight.”
Paul Brody, EY's global blockchain leader, stated that tokenized money market funds and tokenized deposits on-chain may create new opportunities, especially in the absence of stablecoin interest.
“For end users, money market funds look very much like stablecoins, but the difference is that they actually offer interest,” Brody said.
The banking industry's control over the stablecoin debate
It is not surprising that the GENIUS Act prohibits interest-bearing stablecoins, as Cointelegraph previously reported that banking industry lobbying has evidently played a significant role in the stablecoin policy debate.
In May of this year, NYU professor and blockchain advisor Austin Campbell cited sources within the banking industry, revealing that financial institutions are actively lobbying against interest-bearing stablecoins to protect their long-standing business models.