A Comparative Analysis of Stablecoin Interest Prohibition Under MiCA and the GENIUS Act

Abstract

The prohibition of interest-bearing stablecoins marks a critical juncture in digital asset regulation, exposing fundamental tensions between financial innovation and systemic stability. This paper provides the first comparative legal and financial analysis of the European Union's Markets in Crypto-Assets Regulation (MiCA) and the United States' GENIUS Act of 2025, examining how two major jurisdictions reach convergent prohibitions on yield-bearing stablecoins through markedly divergent regulatory architectures. While both frameworks forbid direct interest payments to holders, they diverge sharply in their treatment of decentralized finance (DeFi) protocols, reserve composition requirements, and supervisory allocation. The paper advances three interconnected contributions: (1) a technical examination of reserve management mechanisms and their implications for run dynamics; (2) a scenario-based stress test identifying contagion pathways from stablecoin markets to traditional banking systems; and (3) an analysis of the "DeFi gap," the substantial regulatory perimeter failure whereby third-party protocols offer functionally equivalent yields outside statutory prohibitions. With stablecoin market capitalization exceeding $300 billion, rivaling the deposit bases of mid-sized national banking systems-the regulatory treatment of these instruments will determine whether they evolve as competitors to traditional banks or as complementary infrastructure within a restructured financial system.