U.S. GENIUS Act Bans Stablecoin Yield – and Supercharges Tokenization

President Trump signed the GENIUS Act on July 18, 2025, creating a federal regime for payment stablecoins and banning interest or “yield” to holders. Legal experts say the law hardens licensing, Bank Secrecy Act (BSA) duties, and reserve rules, while markets eye tokenized Treasuries as the new yield outlet.

What the GENIUS Act Actually Does – Rules, Bans, and the New Playing Field

The law’s core: it sets a national framework for payment stablecoins – dollar-pegged tokens redeemable at par – and assigns who can issue them and how. This is now the baseline for U.S. stablecoin compliance.

Regulators now treat stablecoin issuers like financial institutions for Anti-Money Laundering (AML): the White House fact sheet highlights explicit BSA coverage, with KYC verification, sanctions screening, and risk programs. That narrows the gray zone that issuers lived in and brings Treasury squarely into day-to-day oversight.

The yield ban is the lightning rod. Top law firms say issuers may not pay “interest or yield” to stablecoin holders – domestic or foreign. That draws a bright line between a payment token and a deposit product, and it blocks pseudo-bank offerings that blurred the two in past cycles.

Scope also matters. Latham & Watkins notes the Act limits what issuers can do: issue and redeem stablecoins, manage reserves, and provide custody. It segregates backing assets and bars commingling, with only narrow exceptions. Think “narrow bank” rules for token issuers – tight guardrails by design.

If stablecoins can’t pay yield, capital that wants risk-free returns will seek yield elsewhere, notably tokenized money market funds and Treasuries. Executives in tokenization argue the law “protects” stablecoins as payment rails while funneling income-seeking cash into regulated fund wrappers.

Context abroad reinforces the split. Hong Kong just switched on a licensing regime for fiat-backed stablecoins under the HKMA, while early commentary warns about strict identity checks. The U.S. and HK now run parallel, regulated paths – with different choices on how far issuers can go.

Why Tokenization Stands to Benefit – The Flows, the Products, and the Scale

Yield doesn’t disappear; it moves. With stablecoins barred from paying interest, investors who want cash-like income can turn to tokenized funds that hold T-bills and money market instruments. The pitch is simple: keep stable, earn 4–5% via the fund, settle faster, and stay on digital rails.

The plumbing is already there. Independent trackers show tokenized U.S. Treasuries at about $6.5B today, up sharply from 2024. That pool has grown alongside BUIDL-style institutional products and on-chain money funds. Scale is small compared to TradFi, but the curve is steep.

The TradFi bridge is widening. Goldman Sachs and BNY Mellon linked tokenized money market funds to institutional platforms this summer, while BlackRock and Franklin Templeton keep adding tokenized cash vehicles. It’s still a “walled garden,” but it normalizes tokenized cash equivalents for large clients.

Macro tailwinds help. The ICI puts U.S. money market fund assets at ~$7.15T. Even a tiny slice moving into tokenized MMFs would dwarf today’s on-chain Treasury market. The GENIUS yield ban makes that migration more likely for any investor who wants income + instant settlement.

Policy signals are aligning. The White House embraced BSA-level controls for payment tokens; the SEC staff recently issued guidance clarifying parts of staking. For institutions, clearer lines on tokens + no yield on stablecoins = less compliance friction for tokenized funds that sit in familiar regulatory buckets.

Add the overseas vector. Hong Kong’s regime lets banks and brokers apply to issue stablecoins under strict rules, and big names are already organizing JVs. That creates cross-border routes for tokenized cash and securities, with KYC built in – another nudge for institutions to adopt tokenized wrappers.

GENIUS Act Pathway

Picture a user with $10M in stablecoins who wants safe yield. Yesterday: park in a yield-bearing stablecoin product. Today, under GENIUS: no yield from issuers – so the cash slides into a tokenized MMF that holds T-bills, then settles back to stablecoins for payments. The function survives; the wrapper changes.

That shift lines up incentives. Stablecoins become clean payment rails with strict Anti-Money Laundering rules. Tokenized funds become the yield layer with clear fund law. Banks, brokers, and asset managers can plug in without reinventing compliance. The result: fewer legal headaches, more predictable pipes.

Watch three signals in the next month: (1) issuer reserve disclosures after the yield ban; (2) RWA mint data for tokenized Treasuries; (3) HKMA licensing milestones. If they all move up and right, the GENIUS Act won’t just police stablecoins – it will accelerate tokenization.