The debate over whether stablecoin issuers or third parties should be allowed to offer yield has intensified, with advocates framing it as a way to democratize access to returns traditionally captured by banks. Supporters argue that consumers are deprived of yield on their digital cash holdings, while banks continue to profit from deposits. However, a closer look at the mechanics of onchain finance suggests the winners from stablecoin yield may be fewer than advertised.
Yield onchain is not a future concept. It already exists through tokenized money market funds that hold short term US Treasuries and pass returns directly to investors. Over the coming months, access to tokenized assets is expected to broaden significantly, including the launch of tokenized money market fund exchange traded products and potentially pure tokenized Treasury instruments. In that environment, consumers will have multiple yield bearing options without relying on stablecoins to perform a role they were not originally designed for.
The stablecoin yield argument also intersects with concerns around the broader financial system. Policymakers and banks worry about the impact on traditional deposits, money market funds and even monetary policy transmission. Introducing yield at the stablecoin level could accelerate capital movement away from bank accounts, while also complicating regulatory oversight. These issues have placed stablecoin rewards squarely in the crosshairs of regulators in the United States and beyond.
From the consumer perspective, the benefits are less clear than they appear. Economically, stablecoins and tokenized money market funds already share similar foundations, as both are typically backed by short dated government securities. Adding yield to stablecoins simply makes that overlap more visible to users. The key historical difference has been access. Tokenized money market funds require identity verification for each holder, while stablecoins usually only require checks at entry and exit points. Yet most users already complete identity verification through exchanges, and as onchain identity systems mature, even that gap is likely to narrow.
What consumers gain from stablecoin yield is mostly convenience. What they risk losing is more significant. Stablecoins today offer near zero cost transfers, making them highly effective for payments, remittances and settlement. If issuers begin sharing yield, they may seek to recover costs by introducing transaction fees or other charges. That shift could undermine the very utility that has driven stablecoin adoption in the first place.
At a systemic level, yield sharing blurs the lines between stablecoins, tokenized money market funds and traditional deposits. While convergence might appear efficient, it could weaken the distinct role stablecoins play as neutral settlement instruments. Rather than enhancing consumer outcomes, yield could become a competitive tool used by intermediaries to capture market share, pushing stablecoins closer to regulated investment products.
As tokenized finance expands, consumers will likely benefit most from choice and transparency rather than yield embedded in payment instruments. The stablecoin yield debate ultimately highlights a tension between innovation and utility, and raises the possibility that in trying to offer more, stablecoins may risk delivering less.
