The recent US legislation regarding fresh stablecoins may elevate the demand for Ether (ETH) and decentralized finance platforms, which largely depend on the Ethereum network, as per analysts.
The GENIUS bill, enacted by US President Donald Trump on Friday, prohibits yield-generating stablecoins, eliminating interest-earning options for both institutions and individual traders. This class of stablecoin produces interest or earnings for the owner via yield-generating methods, such as staking or lending.
Crypto analyst Nic Puckrin noted that the elimination of yield on stablecoins “is excellent news for Ethereum-based DeFi as the primary alternative for generating passive income.”
Yield can serve as a means of passive income and also to alleviate the impacts of fiat inflation.
“The dollar is a depreciating asset devoid of yield,” CoinFund President Christopher Perkins stated to Cointelegraph. “DeFi is where yield can be generated to maintain value. Therefore, I anticipate that stablecoin summer will transition into DeFi summer.”
Yield-generating opportunities are appealing to individual investors, and essential for financial institutions that are accountable to shareholders and must produce cash flow or realize gains on capital to honor their fiduciary duties to investors.
This necessity could have significant ramifications for decentralized finance and could attract more institutional investment into the crypto sector, as these financial entities pursue yield on-chain.
Related: Nasdaq submits application to incorporate staking for BlackRock iShares ETH ETF
Established interests resist yield-generating fiat-backed stablecoins
During the DC Blockchain Summit in March, US Senator Kirsten Gillibrand remarked that yield-bearing stablecoins could destroy the traditional banking industry.
The senator contended that private stablecoin issuers transmitting interest opportunities to their customers would weaken the loan market and diminish demand for traditional banking services.
Gillibrand inquired, “If there is no incentive to deposit your funds in a local bank, who will provide you a mortgage?”
New York University educator Austin Campbell countered the banking sector in a May X post, asserting that traditional banks are threatened by yield-generating stablecoins, as they have the potential to diminish banking profits. Campbell remarked that lawmakers opposing interest-bearing tokens were engaging in “cartel protection.”
The heightened competition from these yield-generating fiat tokens will ultimately supplant conventional stablecoins altogether, as indicated by Tether co-founder Reeve Collins.
“If you are confident that both fiat-backed and synthetic tokens are stable, then you will always be drawn to the one that provides a higher yield,” Collins conveyed to Cointelegraph.
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