Will Interest Payments Make Stablecoins More Interesting?

Stablecoins globally are facing consistent regulation requiring high-quality asset backing and prohibiting issuers from paying interest, a rule seen in US legislation like the GENIUS Act and EU's MiCA, largely to keep liquidity within traditional banking systems. However, this prohibition is proving difficult to enforce because stablecoins are treated as bearer assets, allowing users to easily move them into DeFi protocols like AAVE to earn yield, even if it involves small transaction fees. While this circumvention is currently manageable, large-scale, automated switching between stablecoins and yield-bearing accounts could create significant, sudden liquidity movements in the future as the blockchain ecosystem matures. An alternative on-chain option could be tokenized deposits, like JPMorgan Chase's pilot, which represent a claim on a bank deposit and can offer yield, though with counterparty risk. The author notes that similar prohibitions on bank deposit interest existed historically (like under the US Banking Act of 1933) and were eventually bypassed once banking systems were computerized, suggesting that the current stablecoin interest ban is an outdated approach that should be reconsidered, given how easily it can be circumvented in a blockchain environment.

(Source：CoinDesk)