Regulating Yield in Digital Money: Stablecoins, Tokenized Treasury Funds, and the Economics of Competing Regulatory Frameworks

Abstract

The European Union's Markets in Crypto-Assets Regulation (MiCA) and the United States' GENIUS Act of 2025 both prohibit stablecoins from offering interest. However, this restriction has failed to curb the demand for yield on digital dollars. Instead, capital has migrated to functional alternatives, including decentralized finance lending protocols, offshore stablecoin issuers, and tokenized Treasury funds. This paper analyzes the economic impact of restricting yield in digital currency markets. It focuses specifically on tokenized Treasury funds, which are SEC-registered money market funds that now manage over $15 billion in assets. Because these funds offer blockchain-based yields, they compete directly with non-interest-bearing stablecoins for the same investors. This regulatory inconsistency creates a significant opportunity for regulatory arbitrage, raising significant questions about the coherence of current digital asset frameworks. Furthermore, data from the Council of Economic Advisers indicates that the macroeconomic benefits of banning stablecoin yield are modest compared to the associated welfare costs. The paper concludes by discussing the implications of these findings for future financial stability and policy design.