Trump Signs GENIUS Act Banning Yield-Bearing Stablecoins

President Donald Trump has signed the GENIUS Act into law, effectively banning yield-bearing stablecoins in the US. This new regulation came into effect as of July 19, 2025, marking a significant shift in the regulatory landscape for digital assets. The GENIUS Act prohibits US-based entities from offering yield on stablecoins without full regulatory authorization, impacting both institutions and retail investors. This move is expected to significantly affect US dollar-denominated stablecoins, shifting focus towards decentralized finance (DeFi) solutions.

The GENIUS Act sets initial guardrails and consumer protections for stablecoins, which are designed to maintain a constant value, typically pegged to the U.S. dollar. These digital assets have seen a surge in use, particularly among crypto traders moving funds between tokens. The industry hopes that stablecoins will eventually become a mainstream method for sending and receiving payments instantly. The new law requires stablecoins to be backed by liquid assets, such as U.S. dollars and short-term Treasury bills, and mandates that issuers disclose the composition of their reserves monthly. This transparency is intended to enhance the credibility of stablecoins and make them more appealing to banks, retailers, and consumers for instant fund transfers.

The GENIUS Act also restricts the issuance of stablecoins to a set of authorized firms, including subsidiaries of existing banks and non-bank firms permitted by federal or state authorities. This provision aims to ensure that only reputable entities can issue stablecoins, thereby reducing the risk of fraud and financial instability. One notable aspect of the GENIUS Act is the prohibition on members of Congress and their families from profiting off stablecoins. However, this restriction does not extend to the president, allowing for potential conflicts of interest. The act was signed at a ceremony attended by industry leaders, government officials, and lawmakers, underscoring the bipartisan support for the legislation.

The passage of the GENIUS Act is a significant victory for crypto supporters, who have long advocated for a regulatory framework to legitimize the industry. The act is expected to pave the way for stablecoins to become an everyday method for making payments and moving money, potentially boosting demand for U.S. Treasuries and strengthening the dollar's status as the global reserve currency. The GENIUS Act is expected to significantly impact US dollar-denominated stablecoins, shifting focus towards decentralized finance (DeFi) solutions. Cryptocurrency analyst Nic Puckrin noted the potential for Ethereum-based DeFi to attract investors as an alternative source of passive income. Christopher Perkins, President of CoinFund, remarked, "The dollar is a non-yielding depreciating asset. DeFi is precisely where you can earn yield to preserve value. Therefore, I believe the summer of stablecoins will turn into the summer of DeFi." Opinions suggest a potential rotation into DeFi ecosystems like Ethereum, Aave, and Compound.

Historically, major regulatory changes, such as the GENIUS Act, have driven liquidity towards decentralized financial solutions, highlighting the resilient adaptability of DeFi protocols in preserving investor value. As regulatory clarity increases, compliant frameworks may attract more institutional investment while pushing non-compliant yield-bearing products out of US markets. This shift could lead to a potential rise in DeFi protocol TVL as users seek on-chain yield alternatives. The GENIUS Act represents a major step forward in the regulation of cryptocurrencies and stablecoins, setting the stage for further innovation and adoption in the digital asset space. Despite criticisms about potential loopholes, the act is expected to pave the way for stablecoins to become an everyday method for making payments and moving money, potentially boosting demand for U.S. Treasuries and strengthening the dollar's status as the global reserve currency.