GENIUS Act Bans Yield-Bearing Stablecoins, Mandates U.S. Treasury Backing
Congress is set to vote on the GENIUS Act, following its bipartisan Senate approval in June. Former President Trump urged House Republicans to approve the stablecoin regulation by Tuesday, though members may delay the vote. The GENIUS Act will impose full reserve requirements in cash and short-term U.S. Treasuries and ban yield-bearing stablecoins and embedded interest. Only around 15% of existing payment stablecoins would meet the new compliance standards. DeFi protocols must shift to transparent yield sources—such as delta-neutral strategies, arbitrage, and open liquidity pools—instead of embedding yield. Tying reserves to 93-day Treasury bills links stablecoin liquidity to the U.S. debt market, which could stabilize the system long term but introduce volatility during rate shocks. Traders should prepare for higher compliance costs, a migration of liquidity into Treasuries, and the revaluation of yield-dependent DeFi projects. Political debate and potential conflicts of interest add short-term uncertainty to stablecoin regulation.
Neutral
The GENIUS Act offers long-term benefits by clarifying stablecoin regulation and tying reserves to U.S. Treasuries, which could enhance market stability and institutional confidence. However, banning embedded yield and imposing full reserve rules will raise compliance costs and shift liquidity into short-term Treasuries, potentially reducing DeFi yields and causing short-term volatility. Political debate and conflict-of-interest concerns add uncertainty ahead of the vote. Traders can expect a neutral impact overall: improved transparency and risk management balanced by higher costs and liquidity shifts.