When President Trump signed the GENIUS Act into law this summer, he called it “American brilliance at its best,” and for once, Washington’s slogan may live up to its name. The law establishes the nation’s first regulatory framework for stablecoins, the digital tokens pegged to the value of the U.S. dollar. It requires 100 percent reserve backing in dollars or Treasurys and forbids issuers from paying interest to coinholders.
That final clause of no interest is the most important. The GENIUS Act recognized that stablecoins aren’t investment vehicles; they are payment instruments. Their purpose is to move money efficiently, not to promise yield. But as the ink dries, lobbyists are already circling, looking for ways to turn digital cash into a speculative asset. Exchanges have begun dangling “rewards” programs that mimic deposit interest. Their pitch sounds familiar: why hold dollars when your stablecoin can earn you more?
Congress should slam that door shut before the next crisis begins.
The debate now roiling Capitol Hill isn’t theoretical. The Senate’s effort to write a market-structure bill for digital assets has stalled precisely because of this issue. Disagreements over whether stablecoin “rewards” amount to prohibited interest have splintered negotiations and stalled progress. Some lawmakers want to revisit the prohibition; others, led by Sen. Cynthia Lummis (R-Wyo.), argue that Congress should “leave the stablecoin bill alone.” The integrity of the GENIUS Act depends on keeping its clean separation between payments and investments.
The distinction isn’t mere semantics. When a stablecoin starts paying yield, it ceases to be a medium of exchange and becomes something else entirely: a money-market fund by another name. As Kenechukwu Anadu and colleagues explain, the minute a stablecoin begins to act like a money-market fund, it inherits the same systemic risks: maturity transformation, liquidity mismatches, and the potential for digital bank runs. The researchers warn that “yield-bearing stablecoins” could replicate the same dynamics that once crashed the Reserve Primary Fund in 2008, only faster and on a global scale.
Federal Reserve Governor Christopher Waller made the point plainly at the Fed’s Payments Innovation Conference this month: stablecoins should be treated like cash, not deposits. They should settle transactions, not invite speculation. Allowing them to pay interest without the same level of regulatory oversight as traditional banks would undermine both monetary stability and community banking.
Community banks are the canaries in this digital coal mine. If exchanges begin offering “rewards” on stablecoin balances, local institutions will lose deposits overnight. The same yield-chasing that gutted small banks in the money-market era would now happen at the speed of code. The result would be consolidation. The most significant players would grow bigger; the smallest would disappear.
Supporters of rewards argue that prohibiting them would stifle competition. The opposite is true. It would preserve a level playing field between banks, fintechs, and exchanges. Under existing law, entities that pay interest on deposits must comply with strict capital, liquidity, and disclosure rules. If a crypto firm wants to play banker, it should follow the same rules or forego the privilege.
This isn’t about punishing innovation. It’s about honesty in function. The GENIUS Act already provides ample room for digital-asset growth while preserving consumer protection. Stablecoins can still revolutionize cross-border payments, remittances, and settlement systems. What they cannot do and must not be allowed to do is blur the line between cash and investment.
In keeping with the spirit of the GENIUS Act’s prohibition on issuer rewards, which President Trump proudly signed into law, stablecoin rewards offered by exchanges or other business entities should also be prohibited, unless entities comply with rules that are already on the books. This is about ensuring that the government does not pick winners and losers.
Rewarding stablecoin holders might sound like innovation. In reality, it’s a shortcut to trouble: a marketing trick that turns digital money into digital debt. Congress should remember why the GENIUS Act exists: to keep America’s financial foundation stable, sound, and sovereign.
