Redstone analysts say yield-bearing assets, another sort of crypto application, are about to have their time in the spotlight. The blockchain firm expects yield-bearing assets to grow rapidly as institutional adoption accelerates, thanks to the passage of the GENIUS Act.
The GENIUS Act is the foundation of a regulatory framework for dollar-pegged cryptocurrencies, and according to a report from Redstone, it is sparking a surge in interest-bearing stablecoins.
Redstone on the potential of yield-bearing assets
The report claims that the market size of interest-bearing stablecoins has already jumped 300% over the past year because new projects have emerged to compete with Tether and Circle. The researchers pointed out that yield-generating assets only make up 8% to 11% of crypto, compared to 55% to 65% of traditional finance, which proves there is much more space for crypto’s yield infrastructure to grow.
While crypto’s total market capitalization was about $3.55 trillion, only $300 billion to $400 billion of those assets generated any yield, the report also said. According to Redstone, that gap presents crypto with its “greatest opportunity.”
Once the industry starts offering standard yields alongside clear risk metrics, it becomes even more attractive than TradFi, something some crypto-native observers claim has the banks worried.
GENIUS Act loophole makes yield-bearing assets attractive
Yield-bearing assets have indeed been on the up and up this year, but despite the strong metrics and the clear merits that tokenization offers, institutional investors have remained skittish; they just won’t feel safe unless there are clear risk metrics.
The GENIUS Act provides regulatory clarity, and it also makes some interesting demands that affect yield-bearing assets like stablecoins in the USA and ensures they have a bright future in the industry.
In traditional finance, capital is known to routinely earn interest, but most crypto assets do not provide any returns except the profit they offer from a rise in prices. Yield-bearing crypto assets would be a marriage of both ends and could unlock significant funds while encouraging major financial firms to test the waters as regulations improve.
The GENIUS Act makes it an offense for major stablecoin issuers like Circle and Tether to pay interest, yield, or other financial rewards directly to holders. This way, stablecoins will not compete directly with insured bank deposits or money market funds, which are subject to stricter oversight.
However, there is reportedly a loophole in Section 16(d) of the GENIUS Act, and it exempts affiliates of issuers or third-party distributors, such as cryptocurrency exchanges and brokers, in terms of issuing rewards or incentives on stablecoin holdings. As such, these platforms can effectively provide yield indirectly by capturing returns generated from the underlying reserve and redistributing them to users as “rewards,” “staking incentives,” or promotional bonuses.
The rewards are being marketed as non-interest payments in respect of the Act’s language; however, some can argue that they are essentially yields as they attract users with competitive returns while the exchanges profit from reserve yields, customer acquisition fees, or trading volume.
Critics have highlighted this loophole as potentially problematic, with many claiming it could affect the banks’ lending capacity and even cause a disruption. Trade groups have requested it be removed, but as of the time of this writing.
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