According to Cointelegraph, the recent enactment of the GENIUS bill by U.S. President Donald Trump has significant implications for the cryptocurrency market, particularly for Ethereum and decentralized finance (DeFi) applications. The legislation, which prohibits yield-bearing stablecoins, is expected to increase demand for Ethereum-based DeFi platforms as they become the primary alternative for generating passive income. Yield-bearing stablecoins, which offer returns through mechanisms like staking or lending, have been a popular choice for both retail traders and institutions seeking to earn interest. However, with the new law in place, these opportunities are curtailed, potentially driving more interest towards DeFi solutions on the Ethereum network.
Crypto analyst Nic Puckrin suggests that the removal of yield on stablecoins could be beneficial for Ethereum-based DeFi, as it positions these platforms as the main source for passive income generation. Christopher Perkins, President of CoinFund, emphasized the importance of yield in preserving value, especially in the face of fiat currency depreciation. He noted that DeFi could become the new frontier for yield generation, transforming the current stablecoin market dynamics into what he terms "DeFi summer." With Ethereum accounting for the majority of the total value locked in the DeFi sector, this shift could attract more institutional capital into the crypto space as financial institutions seek on-chain yield opportunities to meet their fiduciary responsibilities.
The ban on yield-bearing stablecoins has sparked debate among policymakers and industry experts. At the DC Blockchain Summit, U.S. Senator Kirsten Gillibrand expressed concerns that these stablecoins could disrupt the traditional banking sector by reducing the demand for legacy banking services. She argued that if private stablecoin issuers offer interest opportunities to customers, it could undermine the market for loans and other banking services. In contrast, New York University professor Austin Campbell criticized the banking industry's resistance to yield-bearing stablecoins, suggesting that traditional banks view them as a threat to their profits. Campbell accused lawmakers opposing interest-bearing tokens of engaging in "cartel protection."
The competition from yield-bearing fiat tokens is expected to challenge traditional stablecoins, according to Tether co-founder Reeve Collins. He believes that as long as both fiat-backed and synthetic stablecoins are perceived as stable, investors will naturally gravitate towards those offering higher yields. This shift could eventually lead to the displacement of traditional stablecoins, reshaping the landscape of the cryptocurrency market.
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