Interest payments on stablecoins dominate policy discussions, but in our executive summary of 'Bridging worlds: Tokenization connects digital and physical assets,' we discuss why investors need to focus on the process, not the product.
September 10, 2026
Atul Bhatia, CFA Fixed Income Portfolio StrategistPortfolio Advisory Group–U.S.
It has been just over a year since the Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act became law. That legislation laid out a regulatory framework for stablecoins, or electronic tokens designed to maintain parity with traditional currencies. Since its passage, the conversation on the rules has focused on a provision prohibiting stablecoin issuers from paying interest.
Proponents of that limitation argue that it is an important safeguard against possible runs on traditional banks, while opponents point out the negative impact on stablecoin adoption.
As we argue in our recent special report, however, this debate seems to us largely misplaced. Interest payments on stablecoins are, we believe, a tangential issue at most in terms of banking stability. Instead, what we think is revolutionary about stablecoins is the launch of a tokenized version of a mainstream asset. That, we think, is where investors need to focus their attention, not on the minutiae of interest paying policy.
Stablecoins began as a liquidity and temporary holding vehicle for cryptocurrency investors. The purpose of the coin was merely to hold its value, so investors could stay in the crypto ecosystem and not have to return to standard banks. The promise was that a dollar stablecoin would maintain a one-to-one valuation with the real-world dollar, a condition known as parity.
Despite a few well-publicized failures, money continued to flow into stablecoins, with the asset class growing from approximately $5 billion in 2019 to nearly $300 billion today. That growth drew regulatory attention, culminating in the GENIUS Act.
The Act includes a series of requirements for stablecoins, including pre-approval of issuers, a strict one-to-one reserve requirement and a very restrictive list of permitted investments. Issuers are required to hold highly liquid, short-maturity investments with low credit risk.
The combination of liquidity and low credit risk makes stablecoins a potential competitor to traditional bank accounts. The potential for substitution drove the GENIUS Act’s prohibition on interest payments. The concern was that in times of banking crisis, the existence of an interest-paying substitute could spark or accelerate a run by depositors.
While the theory appears sound, there are serious practical difficulties with the argument:
In short, while we believe the bank run argument has sound theoretical underpinnings, it flies in the face of actual depositor behavior across multiple banking crises.
Rather than the minutiae of interest rate payments, what we find interesting about stablecoins is their role as a tokenized version of a mainstream financial asset. Without interest, we can think of stablecoins as a tokenized dollar; with interest, we can think of them as a tokenized government money market fund.
There are various definitions of tokenization, but the hallmark is the representation of ownership of physical assets in a blockchain/digitally verified form. What this means is that anyone with access to the digital ledger can instantly know who owns what, and that ownership can be securely and almost instantly transferred to anyone.
That may not sound revolutionary, but it effectively severs the current trade-off between establishing certainty of ownership and the efficiency of transferring assets.
Take real estate, for instance. There, certainty of ownership is prioritized through a central register, scrupulously controlled by government officials with multiple confirmations before any change is registered. It’s safe, but it comes at the cost of slow, inefficient and expensive transfer procedures.
On the other side, we have the market for borrowing against receivables, which operates largely on emailed spreadsheets. It’s extremely fast and efficient, but the documents provide no certainty of ownership, allowing the same collateral to be pledged to multiple lenders.
The strength of tokenization is that it solves for both clarity and efficiency. Blockchain ledgers provide certainty of ownership; digital platforms provide for efficient transfer. Because the register is central and public, malicious actors can’t resell the same asset multiple times, but legitimate transactions are processed rapidly.
Tokenization has already begun to play a role in how banks settle certain transactions, a process that we believe will continue to expand. Not only is it more cost-efficient to settle on blockchain, but shorter settlement times also reduce intraday counterparty risk, giving investors and regulators reasons to smile.
Beyond financial settlements, we expect tokenization growth to continue in three main areas:
The primary obstacle to tokenization, in our view, is updating legal frameworks so that blockchain registers are legally enforceable in the physical world. Given the benefits of the process, we believe it is a question of when, not if.
At first glance, stablecoins appear to be about facilitating digital payments and a move beyond online banking into something approaching virtual currency. While that is a fair summary of what the product could be, we think it misses the forest for the trees. We think the true impact of stablecoins will be in moving the concept of tokenization into the mainstream. For more on this topic, see our full report, Bridging worlds: Tokenization connects digital and physical assets.
RBC Wealth Management, a division of RBC Capital Markets, LLC, registered investment adviser and Member NYSE/FINRA/SIPC.
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