Stablecoins Must Choose: Payment Instrument or Money Market Fund?

A growing tension has emerged in the crypto sector: stablecoins are attempting to fulfill two different financial functions simultaneously, and this situation is putting regulators in a difficult position. Bill Demchak, president of PNC Bank, clearly articulated this problem, emphasizing that stablecoins should either be a payment mechanism or an investment product, but cannot do both at the same time. Demchak’s remarks come amid lively debates in Washington about whether stablecoins can offer yields under the GENIUS and Clarity laws.

Stablecoins That Start Paying Interest: A New Regulatory Challenge

Demchak noted that interest-paying stablecoins are beginning to resemble traditional money market funds. Once a stablecoin starts paying interest, it ceases to be a pure payment instrument and transforms into an investment product. “If they truly want to pay interest, then they need to go through the same regulatory process,” he said, which involves strict rules standard for banks and other financial institutions.

According to Demchak’s observations, these products were initially designed to make money transfers more efficient. They were not launched, marketed, or regulated as investment vehicles. However, the moment they start offering returns, the situation changes completely. “While this is still under discussion, these types of stablecoins are not designed or regulated as investment products,” he stated.

PNC Bank CEO’s Views: Two Functions Cannot Be Achieved Simultaneously

Demchak explained the core of the issue with a simple formula: stablecoins should either be a money market fund or a payment instrument. “If you want to be a money market fund, fine, be a money market fund. If you want to be a payment mechanism, then be a payment mechanism. But money market funds should not also be payment mechanisms and should not pay interest,” he said.

From this perspective, the banking sector’s expectation is clear: without regulatory oversight, a financial product should not fall into two different categories. Demchak emphasized the banks’ open stance regarding compliance with the traditional financial system: “Banks think like this: a clear distinction must be made. A definitive line should be drawn between payment mechanisms and investment products.”

Challenges Faced by Legislators

The postponement of the Senate Banking Committee’s regulations on market structure legislation earlier this week deepened uncertainty in the industry. After this decision, Coinbase withdrew its support for the bill, claiming there are provisions that could harm consumers and competition.

Demchak pointed out the industry’s influence over Washington, saying, “The crypto industry’s lobbying is very strong, and they have a ‘we want everything’ attitude.” However, the ongoing struggle in Washington revolves around certain terms in the GENIUS Law. The Clarity Law, in practice, seeks to clarify how stablecoin interest, which is prohibited under the GENIUS Law, will be defined within the regulatory framework.

Tensions Between Traditional Finance and Crypto

This debate raises the question of how regulators will control stablecoins, whose boundaries between payments and investments are increasingly blurred. Historically, PNC Bank has made limited investments in blockchain technology. In 2021, it collaborated with Coinbase to explore blockchain-based payments for institutional clients but avoided offering retail crypto products.

This situation clearly highlights the ongoing tension between traditional banks and crypto firms. Banks argue that financial products offering returns should be subject to the same regulatory standards, while the crypto sector demands a more flexible framework. Demchak’s warning indicates that this contradiction is becoming increasingly critical: it has become necessary to clearly define the identity of stablecoins.