O’Connor: Stablecoins Became Digital Cash, Not Capital

John O’Connor published an opinion today arguing stablecoins have grown into $322 billion of digital cash used mainly for trading and settlement rather than as yield-generating capital. He notes the GENIUS Act bars permitted payment stablecoin issuers from paying interest to holders.

O’Connor points to market measures he says show widespread payment use. Combined supply stands at about $322 billion. Transaction volumes are projected to exceed the combined volumes of major card networks by year-end. Payments firms including PayPal, Visa and Mastercard, and several large Japanese banks have integrated stablecoin rails.

Reserve composition is central to the argument. Most reserve assets backing payment stablecoins are held in short-term U.S. Treasuries and money market funds. Those assets generate yield that accrues to issuers rather than to token holders under the current legal design.

The GENIUS Act defines permitted payment stablecoins as instruments that cannot pay interest to holders. The law requires reserve backing in high-quality liquid assets such as Treasuries or insured deposits. Regulators and industry groups have warned that if retail stablecoins paid interest, deposit outflows could accelerate and reduce banks’ lending capacity.

Industry participants point to a separate on-chain product set that passes yield through to holders. Institutional tokenized Treasury funds including BlackRock BUIDL, Franklin Templeton BENJI and Ondo Finance USDY deliver Treasury yields directly to investors and operate as investment instruments rather than pure payment tokens.

Under the current regulatory framework, permitted payment stablecoins and tokenized Treasury funds can coexist but a single instrument cannot serve at once as a no-yield payment token and a yield-bearing investment vehicle. Lawmakers and market participants are debating whether future policy should preserve that separation or permit payment tokens to carry yield.