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This is the fifth in a series of articles on stablecoins. The first article was on reserves. The second on the singleness of money or par, the third was on skinny Fed Accounts and the fourth on lack of credit protection. These articles follow the text of the regulation, exposing some of the unintended consequences of the GENIUS act and stablecoin thinking in general. In this article, yield on stablecoins is discussed.
Physical cash in a physical wallet has zero yield. Dollars under the pillow or in a safe, ditto. In the world where negative interest rates used to prevail, this zero yield was a positive. This is the mythical, Zero Lower Bound or ZLB. ZLB moved physical cash beyond the pale of conventional monetary policy. That was the worry expressed in many articles written by central bankers, the IMF etc. Cash sitting idle erodes in value with inflation. Cash sitting in a bank account also erodes in value with inflation if the yield is lower than inflation. Yield is one of the prices of money. The four prices of money, according to the money view espoused by Perry Mehrling are par, interest, fx-price and commodity price. Par is the present price of money that no-one thinks about, a dollar in the bank can be exchanged for a dollar in your wallet. The so-called singleness of money. This article is about interest or yield, which is the future price of money.
The GENIUS act is clear on the rule that issuers of stablecoins cannot pay interest on the stablecoins that they issue. Section 4.11 states “PROHIBITION ON INTEREST. — No permitted payment stablecoin issuer or foreign payment stablecoin issuer shall pay the holder of any payment stablecoin any form of interest or yield (whether in cash, tokens, or other consideration) solely in connection with the holding, use, or retention of such pay-
ment stablecoin.” Such language was inserted in the bill by lawmakers who are beholden to the community banks, according to congressman Bill Foster, who I talked with during the last Government Blockchain Association meeting in October 2025.
Read the GENIUS language carefully, the prohibition on interest is ONLY on the issuers. This has led to centralized exchanges such as Coinbase, DeFi protocols such as Aave paying interest on stablecoins, since they are not issuers. There are a host of platforms paying interest on USDC, USDT and other stablecoins.
They are afraid of deposit flight, which is a death knell to small community banks. Deposit flight of sufficient magnitude is a bank run, leading to the collapse of a bank. It is not just, community banks that are afraid of yield on stablecoins, many banks including the biggest too big to fail banks such as JP Morgan are against yield on stablecoins.
