Will stablecoins be regulated like the Money Market Fund? Discussing the controversial demand from the banking sector

Regulatory battles between crypto assets and traditional banking have taken on a new dimension regarding the legal status of stablecoins. Discussions around money market funds are centered on whether these digital assets can generate returns. Major financial institutions like PNC Bank argue that a clear categorization of these crypto products is necessary.

The Dual Identity Problem of Stablecoins: Payment Instruments or Investment Products?

Bill Demchak, CEO of PNC Bank, stated that the rapidly increasing demand for interest-free stablecoins has created serious regulatory concerns. According to Demchak, interest-free stablecoins are beginning to function very similarly to money market funds. The bank’s management believes that when a financial product attempts to serve two different roles simultaneously, it is an issue that would definitely not be permitted in the traditional banking sector.

The main point Demchak emphasized during the discussions is that the design purpose of stablecoins is to facilitate faster and more efficient money transfers. However, some actors in the crypto industry have started marketing these digital assets as investment products and paying interest on interest-free ones. The question of whether stablecoins possess money market fund characteristics has been heavily debated in Washington D.C. over the past month.

Legislative Clarity Sought: GENIUS and Clarity Acts

At the heart of current policy debates are two important legislative texts: the GENIUS Act and the Clarity Act. Demchak stated during PNC Bank’s recent quarterly earnings call that the legislature is seeking clarity on whether interest paid by stablecoins is prohibited under the GENIUS Act. The Clarity Act is a proposed legal amendment designed to clarify these ambiguous points.

According to Demchak, the issue of stablecoins providing returns is still under discussion in legislative bodies, and the outcome of these debates is extremely important for the future of the crypto industry. Demchak advocates for a clear distinction between payment systems and investment products in banking, and has argued that regulations applicable to money market funds should also be applied to stablecoins.

Regulatory Perspective: Money Market Fund Standard

The CEO of PNC Bank explicitly stated that stablecoins should choose between two categories. Demchak believes that if a stablecoin opts to pay returns, it must then meet the same regulatory oversight. In this case, the digital asset would have the same status as a money market fund. Alternatively, stablecoins could remain purely as payment instruments and choose not to offer any returns.

Demchak’s stance supports the idea that stablecoins wishing to behave like advanced money market funds should undergo the same corporate governance and oversight mechanisms. From a banking perspective, this approach aims to create a fair and consistent regulatory framework for the crypto sector. According to Demchak, regulation at the money market fund level acts as an insurmountable threshold in determining which identity stablecoins will adopt.

Tensions Between Legislation and Industry

The Senate Banking Committee’s proposed amendments to market structure legislation were postponed earlier this week. One of the events leading to this delay was Coinbase withdrawing its support for the draft. The crypto exchange stated that if consumer protection and competition are to be maintained, the proposed legislation contains harmful provisions.

Demchak noted that the crypto industry has a very strong lobbying power in Washington and uses this influence to demand everything. While expressing uncertainty about developments, the PNC Bank CEO emphasized that they are closely watching how the discussions on money market fund regulations will unfold.

Differences Between Traditional Banking and Crypto

PNC Bank has taken limited steps into blockchain technology. In 2021, the bank partnered with Coinbase to offer blockchain-based payment systems and digital asset infrastructure to its corporate clients. However, it has adopted a cautious stance regarding offering retail crypto products.

This reflects the traditional financial sector’s cautious attitude toward the crypto industry. Demchak’s comments highlight that if stablecoins are to operate like money market funds, the regulatory issues involved must be addressed. Applying money market fund mechanisms to stablecoins is fundamentally based on protecting consumers and ensuring financial stability.

Conclusion: The Importance of Definition and Regulation

How stablecoins will be positioned within the regulatory framework and whether money market fund standards will be applied are becoming key issues in US financial regulation. The main theme in Demchak’s arguments is that if stablecoins want to behave like money market funds, they should be subject to the same regulatory mechanisms. This would ensure both consumer protection and fair market competition.