One of the central points of the GENIUS Act (U.S.) is the prohibition on paying interest or any form of yield for the mere holding of stablecoins. This rule serves a clear purpose: to reduce the disintermediation of the credit channel caused by stablecoins and to protect the traditional bank funding model.
When a person keeps funds in bank deposits, that balance forms part of the bank's liabilities, and the bank uses this base to finance loans to households and businesses.
When those funds migrate to stablecoins, however, they are held in segregated custody by qualified issuers and custodians, backed by cash or T-Bills. These amounts do not return to the economy as credit.
The practical effect is the disintermediation of the credit channel: the transactional savings that once fed bank intermediation are now invested, indirectly, in high-quality liquid assets. As Roberto Campos Neto noted: "If you have a wallet to transact in digital assets, you reduce banks' capacity to extend credit. You are disintermediating credit and monetary policy because there is less money as a credit channel and money as a deposit."
Without the prohibition on interest at the issuer level, stablecoins could compete directly with interest-bearing deposits, accelerating the migration of funds off bank balance sheets and increasing the fragility of the credit intermediation model.
Moreover, those who hold their balances in stablecoins lose purchasing power to inflation, which reinforces the role of the banking channel as a way to preserve value while financing credit activity.
In summary: by prohibiting yield, the GENIUS Act defines stablecoins as a means of payment, preserves banks' deposit base and seeks to ensure that the classic function of credit continues to support the financial system.
In the next post in the series, we will analyze indirect yield arrangements and the regulatory challenge of dealing with platforms that attempt to pass through, in an opaque manner, part of the return on stablecoin reserves.
