- The GENIUS Act introduces strict controls to prevent large technology and financial firms from dominating the U.S. stablecoin market.
- The law requires both non-bank and bank stablecoin issuers to use independent, low-risk entities for issuing tokens.
- Interest-bearing stablecoins are banned, with strict standards and criminal penalties for unbacked tokens.
- The Act passed in the House with bipartisan support and sets clear national guidelines for issuers above $10 billion in assets.
- Analysts expect investors and institutions to turn to decentralized finance (DeFi) platforms for yield due to the ban on interest from stablecoins.
The U.S. House of Representatives passed the GENIUS Act last week, creating new federal rules for stablecoin issuers and limiting the influence of major technology and Wall Street firms in the stablecoin market. The law aims to set clear standards for companies issuing digital tokens tied to the U.S. dollar, according to Circle Chief Strategy Officer Dante Disparte.
Under the new legislation, any non-bank company wanting to issue a U.S. dollar-backed stablecoin must form a separate entity specifically for this purpose. These issuers also face antitrust reviews and a committee led by the Treasury Department, which has the power to block launches. Disparte called this measure a “Libra clause,” referring to past attempts by tech giants to enter the stablecoin market. Banks that want to issue stablecoins must also use legally distinct subsidiaries and cannot use the coins for lending, leverage, or other risk-prone activities.
“It creates clear rules that I think in the end the biggest winners are the US consumers and market participants and frankly the dollar itself,” Disparte stated on the Unchained podcast. He explained the GENIUS Act is more restrictive than proposals from traditional financial players like JPMorgan.
The new regulations received support from more than 300 House members, including 102 Democrats. Also known as the Guiding and Establishing National Innovation for US Stablecoins Act, it keeps existing state laws for issuers below $10 billion in assets but requires larger ones to obtain a federal trust-bank charter.
The law bans interest-bearing stablecoins, imposes strong disclosure requirements, and introduces criminal penalties for unbacked tokens—aimed at preventing collapses like the Terra ecosystem. While critics say the ban on yield may limit adoption and favor overseas competitors, Disparte argued that yield opportunities can still exist via decentralized finance once regulations are in place.
Analysts, including Nic Puckrin and Christopher Perkins of CoinFund, expect this shift will move both retail and institutional investors toward DeFi platforms on Ethereum, where they can potentially earn returns by interacting directly with decentralized protocols instead of traditional stablecoins.
The GENIUS Act also affects institutional investors, many of whom require yield options to meet fiduciary duties for generating returns. This could result in more investment in DeFi, as suggested by market analysts. Further details about applications for related financial products and warnings from officials, such as the Bank of England governor, were also noted in the legislative discussions.
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