The recently passed GENIUS Act—hailed by many as a turning point for stablecoin regulation—is now under scrutiny for banning yield on stablecoins, a move that could shift investor interest toward traditional finance (TradFi) tokenization products.
Stablecoin Yield Ban May Undermine Digital Dollar Growth
While the GENIUS Act lays regulatory groundwork for stablecoin adoption in the U.S., it expressly prohibits issuers from offering yield-bearing stablecoins. This restriction limits investor ability to earn interest on digital dollars, weakening a core advantage previously held by stablecoins in the digital asset market.
“By explicitly prohibiting yield, the law preserves the dominance of money market funds,” said Temujin Louie, CEO of Wanchain.
TradFi Tokenization Gains Momentum
Tokenized money market funds (MMFs) are emerging as serious contenders to stablecoins, particularly as large institutions like JPMorgan explore their use as onchain collateral solutions. These tokenized MMFs offer real-world yield while maintaining regulatory compliance—something stablecoins may now struggle to match.
Tokenization allows MMFs to mimic stablecoin speed and flexibility—but with added income potential.
Paul Brody, a global blockchain executive at a major consultancy, highlighted that tokenized MMFs may offer users the same stability as stablecoins, but with the key difference: yield.
Operational Tradeoffs Remain
Despite their yield advantage, tokenized MMFs come with transfer and access limitations. Unlike bearer-asset stablecoins, MMFs may not integrate as seamlessly into DeFi protocols due to stricter custody and compliance controls.
This operational complexity could limit MMFs’ adoption, even with their attractive yields.
Industry Influence and Regulatory Power Plays
Critics point to banking industry influence behind the yield prohibition. Financial institutions reportedly lobbied to restrict stablecoin interest offerings, fearing competition for depositor funds.
Meanwhile, regulated yield-bearing digital assets are not entirely banned. In early 2025, the first SEC-approved yield-bearing stablecoin security was launched by a fintech firm, offering 3.85% yield—but under securities laws, not stablecoin regulation.
The GENIUS Act, while advancing stablecoin policy, may inadvertently give TradFi an edge by blocking yield—a key incentive for digital asset users. As tokenized MMFs gain traction, the battle between decentralized innovation and institutional control is far from over.
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Disclaimer
This content is for informational purposes only and does not constitute financial, investment, or legal advice. Cryptocurrency trading involves risk and may result in financial loss.