How will the GENIUS Act affect DeFi businesses and investors

The GENIUS Act (Guiding and Establishing National Innovation for US Stablecoins Act) is a new federal bill, proposed by Senator Bill Hagerty to regulate the dollar-pegged payment stablecoins across the United States. It was signed into law by President Donald Trump on July 18, 2025, following bipartisan approval in both the Senate and the House on July 18, 2025.

We had already explored the introduction of the GENIUS Act this year in this article. As we mentioned, it was on its way through the Senate to become the first law to regulate stablecoins in the country, and last month, we got confirmation that it would be put into effect. 

This means a framework of regulation for stablecoins, a typically unregulated financial instrument used for crypto payments worldwide, and usually backed by US Dollars and Treasury Bills. It radically transforms stablecoins from speculative crypto tools into regulated financial infrastructure.

The main provisions this new regulation enables are:

1. Issuer Framework & Increased Supervision

From now on, only "permitted payment stablecoin issuers" can lawfully issue new stablecoins. This includes subsidiaries of insured banks or credit unions, federally licensed non-bank issuers, and state-licensed issuers with issuance less than  $10 billion, which means only accredited institutions vetted by local or national governments. The framework also states that large issuers (above $10 billion in issuance) are subject to federal oversight, while smaller ones may operate under state regulation. 

2. Reserve Backing & More Transparency

The GENIUS Act clearly states that Issued stablecoins have to be backed 1:1 by cash or high-quality liquid assets, including securities such as short-dated US Treasury bills, FDIC-insured deposits, or MMFs. With the increased transparency required by this new law, reserves must be segregated, publicly disclosed monthly, and subject to independent audits, especially for issuers above $50 billion. The bill also indicates very bluntly that issuers cannot pay interest. However, third-party platforms may still offer yield through DeFi providers who are compliant with the new framework.

3. Consumer Protection & Insolvency Safeguards

Consumers are now more protected, as the law ensures stablecoin holders have a first-priority claim over the issuer’s assets if an insolvency or bankruptcy problem arises. This means holders will most probably get their money back before banks or bondholders do, ensuring increased financial protection.

4. Mandatory AML/KYC & Legal Compliance

Issuers now fall under the Bank Secrecy Act, with obligations to enforce anti-money-laundering, sanctions compliance, and transaction blocking upon lawful requests. KYC becomes more detailed. 

What changes for DeFi businesses and crypto holders

A more regulated environment for stablecoins represents both a challenge and an opportunity for crypto businesses. With clearer regulatory boundaries for stablecoins, companies now know what to expect from government regulation and supervision, and can opt to only adopt compliant and “permitted payment stablecoins”.

Since the Act mandates 1:1 backing, compliant stablecoins are less likely to depeg and lose sudden value, giving DeFi lending and borrowing markets more stability and confidence.

However, the announced prohibition on issuers paying yield means protocols must design alternative yield sources, like staking or liquidity provision. It also means there is a bigger opportunity for new players to arise and start using Decentralized payment options, with new stakeholders like banks, fintechs, and retailers entering the market.

As consumer protection increases, mass adoption might also be underway. The strict reserve backing and independent audit requirements decrease the risk of bankruptcy and scams, which gives crypto holders a new sense of security. 

With the GENIUS Act stepping into place, DeFi protocols may attract more cross-border capital as compliant stablecoins become a bridge between traditional finance and on-chain ecosystems.

What’s next for DeFi businesses

It is recommended for DeFi businesses to:

• Integrate only GENIUS Act-compliant stablecoins to avoid regulatory exclusion in the US.
• Prepare for enhanced audits, increased transparency, and potential AML/KYC for US crypto products.
• Explore new models (e.g., tokenized T-bill products) that align with the Act while generating sustainable returns.

Next steps of the GENIUS Act

The GENIUS Act creates both constraints (through compliance requirements) and new opportunities for organizations and investors (institutional liquidity, regulatory clarity) for DeFi in the US. It pushes the sector closer to regulated, institutional-grade finance, while challenging purely anonymous or non-compliant models.

This new regulation has been signed into law, but several implementation phases must take place before its provisions fully shape the market:

1. Rulemaking by Federal Regulators

The Federal Reserve, OCC, and Treasury Department must issue detailed rules and guidance on subjects such as licensing requirements for non-bank stablecoin issuers, reserve asset classifications, reporting templates, technical standards for audits, and reserve disclosures.

2. State-Federal Coordination

All states must align their supervisory frameworks with GENIUS Act requirements, especially when it comes to supervision of issuers with less than $10 billion in issuance under state licenses. They also must review their own state laws prior to the GENIUS Act, to ensure compliance with the new rules and avoid conflicting directives.

3. Transition Period for Existing Issuers

The Act includes a grace period (typically 12–18 months) for current stablecoin issuers to adapt to the new regulations, namely to apply for federal or state licenses, to adjust reserve portfolios to meet the 1:1 backing rule, and to implement the required transparency and audit measures enforced by the GENIUS Act.

4. Development of Cross-Border Standards

The US will work on reciprocal agreements with foreign regulators so overseas issuers can issue compliant stablecoins in the country’s market. This means international regulatory convergence, namely with established laws such as the EU’s MiCA framework.

5. Market Integration & Industry Adaptation

All crypto players, including but not limited to exchanges, DeFi protocols, and fintech apps, must integrate only GENIUS Act-compliant stablecoins to serve US users. This is an adaptation process that can take up to a few months.

6. Monitoring & Potential Amendments

Congress has built in a review mechanism, stating that within 2 years, regulators must report on the Act’s effects on financial stability, Treasury demand, and innovation, possibly leading to improvements and amendments.

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While the law is now in place, the next 12–24 months will be a transition phase with active rulemaking, issuer adaptation, and gradual integration into the financial system. Businesses should begin compliance planning now to avoid disruption.

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