U.S. GENIUS Act Redefines Stablecoins, Bans Yield and Reshapes DeFi

The U.S. Congress is poised to pass the GENIUS Act, potentially the most impactful crypto legislation of the decade. The bill provides regulatory clarity for fiat-backed stablecoins, granting legal status to payment-focused tokens—so long as they meet strict requirements like full cash and short-term Treasury backing, GAAP audits, and reserve segregation. However, only about 15% of current stablecoins would qualify.

Most notably, the Act bans interest-bearing stablecoins, drawing a hard line between payments and yield-generating assets. DeFi protocols offering yield through stablecoins—either directly or via pseudo-savings platforms—will fall outside compliance. The law aims to protect traditional banks from capital flight by disallowing passive returns on digital dollars, preserving the structure of U.S. credit markets.

This regulatory pivot has deeper implications. Compliant stablecoins must be backed by short-term U.S. Treasuries, integrating DeFi liquidity more tightly into America’s monetary system. While stabilizing in normal conditions, it also introduces systemic risk: rate shocks could trigger sudden liquidity crunches as flows reverse.

Still, some see the Act as a positive evolution. Without embedded yield, DeFi must build transparent, externally sourced returns using strategies like arbitrage and risk-managed liquidity pools. Compliance will become a competitive edge, opening doors to institutional capital for protocols with clear AML, whitelisting, and audit practices.

The GENIUS Act doesn't kill DeFi—but it ends the illusion of effortless, opaque yield. In doing so, it may force the sector to mature faster, demanding real risk frameworks and sustainable income models. Long term, this law could become a foundational step toward integrating decentralized finance with traditional markets—on fully legal terms.