GENIUS Act Bans Interest-Bearing Stablecoins, Redefines Market Rules

The GENIUS Act, recently passed with bipartisan support, introduces significant regulatory measures aimed at preventing technology giants and major banks from dominating the stablecoin market. According to Circle Chief Strategy Officer Dante Disparte, the act includes a clause that mandates non-bank entities issuing dollar-pegged tokens to establish a standalone entity, clear antitrust hurdles, and face oversight from a Treasury Department committee. This structure is designed to ensure that the stablecoin market remains competitive and fair, benefiting both consumers and the U.S. dollar.

Disparte highlighted that the GENIUS Act provides a clear regulatory framework for stablecoins, which has been a long-sought goal for the cryptocurrency industry. The act preserves existing state money-transmitter laws for issuers with assets under $10 billion but requires a national trust-bank charter for those exceeding this threshold. Additionally, the law bans interest-bearing stablecoins and introduces stringent disclosure standards, along with criminal penalties for unbacked tokens. This move is expected to eliminate risky experiments similar to the Terra stablecoin collapse.

The ban on yield-bearing stablecoins is a significant aspect of the GENIUS Act. Critics argue that this ban could hinder consumer adoption and give an advantage to overseas issuers. However, Disparte contends that yield is a secondary-market innovation better handled by decentralized finance (DeFi) protocols once the base layer is secure. This perspective is supported by analysts who predict that the ban could redirect investor demand toward Ethereum-based DeFi platforms, potentially leading to a surge in institutional capital flowing into DeFi.

The GENIUS Act's passage marks a pivotal moment for the stablecoin market, providing a much-needed regulatory framework that could foster innovation while protecting consumers. The act's stringent requirements for issuers and its ban on interest-bearing stablecoins are designed to create a stable and secure environment for digital currencies. As the market adapts to these new regulations, it remains to be seen how these changes will impact the broader cryptocurrency landscape and the role of stablecoins within it.