GENIUS Act Under Fire as Stablecoin Yield Ban Sparks Debate — Traditional Finance Strikes Back?
In what was initially hailed as a landmark moment for crypto regulation, the recently signed GENIUS Act is now facing scrutiny over a controversial clause that bans yield-bearing stablecoins — a move some say hands a strategic advantage right back to traditional finance (TradFi).
Signed into law by President Trump on July 18, the GENIUS Act aims to formalize and accelerate stablecoin adoption across the U.S. But hidden beneath the applause lies a pivotal limitation: issuers are prohibited from offering interest on digital dollar holdings — effectively crippling stablecoins' competitiveness against money market funds.
“By explicitly prohibiting stablecoin issuers from offering yield, the GENIUS Act actually protects a major advantage of money market funds,” says Temujin Louie, CEO of Wanchain. And he's not alone.
With Wall Street racing ahead in tokenizing traditional assets, JPMorgan and EY are betting big on tokenized money market funds (MMFs). These digital assets mimic stablecoins in speed and accessibility — but they offer yield, which is increasingly becoming the deciding factor for onchain capital deployment.
According to Paul Brody of EY:
> “Tokenized MMFs could become powerful alternatives to stablecoins, especially with the added benefit of interest. Still, stablecoins retain an edge in DeFi due to their bearer asset structure.”
The bigger question? Whether the banking lobby had a hand in shaping this clause. Critics argue that financial institutions, fearing the rise of high-yield stablecoins, pressured lawmakers to protect their long-standing business model — one that offers low returns to depositors.
Yet, innovation finds a way. Earlier this year, the SEC approved YLDS, the first yield-bearing stablecoin security — proving there’s still regulatory space for yield under a different framework.
What’s Next you think?
