The GENIUS Act restricts Big Tech and banks from controlling stablecoins through structural and regulatory barriers.
The law bans interest-bearing stablecoins and criminalizes unbacked tokens like Terra, impacting yield-based models.
Decentralized finance platforms may benefit as institutional demand shifts due to yield bans in regulated stablecoins.
A new U.S. law is reshaping the digital dollar landscape by setting limits on who can issue stablecoins. The Guiding and Establishing National Innovation for US Stablecoins (GENIUS) Act introduces harsh structural and regulatory conditions for both technology companies and banks. Passed in the House with powerful bipartisan support, the legislation aims to create legal clarity while preserving consumer protection and market integrity.
Rules Limit Big Tech and Bank Involvement
Circle’s Chief Strategy Officer, Dante Disparte, stated that the GENIUS Act includes provisions to prevent tech firms and large banks from dominating the stablecoin sector. A specific clause, referred to by Disparte as the “Libra clause,” requires non-bank stablecoin issuers to form independent entities.
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These entities must meet antitrust standards and undergo review by a Treasury-led committee with veto authority over launches. Banks must also follow strict guidelines. Financial institutions issuing stablecoins are required to operate through legally distinct subsidiaries. Additionally, they must keep the issued coins on separate balance sheets without engaging in lending, leverage, or risk-taking.
Structural Demands Set Clear Limits
Disparte confirmed that the act's framework is more conservative than deposit-token models promoted by institutions like JPMorgan. Under these new rules, stablecoin activity becomes isolated from broader bank operations. He added that this approach aims to safeguard the dollar and benefit U.S. consumers and market participants.
Issuers holding less than $10 billion in assets may continue under existing state-level money-transmitter laws. However, once that threshold is passed, a national trust bank charter becomes mandatory. This condition introduces a compliance barrier intended to limit unchecked expansion without oversight.
Law Bans Yield on Stablecoins
The GENIUS Act also introduces a full ban on interest-bearing stablecoins. The move eliminates any yield incentives traditionally used to attract users. Unbacked tokens, similar to the failed Terra project, are now outlawed under criminal penalty provisions in the law.
Critics have noted that the yield ban by GENIUS Act may hinder adoption by U.S. users, especially those seeking returns. Despite this, the law treats yield as a separate financial layer meant to operate through decentralized platforms, not through base stablecoin infrastructure.
Following the ban on yield, industry analysts report a possible shift toward decentralized finance (DeFi) platforms. DeFi protocols on Ethereum may become the primary destination for investors looking to earn passive returns. Institutions with fiduciary duties may find DeFi protocols more suitable, given the absence of yield within regulated stablecoins. The GENIUS Act marks a regulatory turning point in the U.S. approach to digital currency.
