- Critics raised concerns about how the GENIUS Act would outlaw yield-bearing stablecoins.
- Experts also aired the same sentiment on the registration requirements of the bill.
The GENIUS Act has passed the Senate with an impressive bipartisan vote of 68-30. The landmark law has the potential to boost the stablecoin sector’s growth from its current $251 billion market cap to $2 trillion in 2028 if it passes this year. However, several analysts warned that it could effectively ban interest-bearing stablecoins in the US while registration requirements would not apply to automated processes.
GENIUS Act on Yield-Bearing Stablecoins
The pseudonymous Pumpius on X, a self-proclaimed Bitcoin (BTC) OG (who claimed to have bought it in 2013), warned that the present provisions of the GENIUS Act serve to protect traditional banks and other traditional finance (TradFi) institutions at the expense of decentralized finance (DeFi). He stated that the bill sets the stage for potentially penalizing issuers of yield-bearing stablecoins.
Pumpius explained that the legislature had clearly drawn the lines between “digital dollars” and bank-like investment products. The bill’s emphasis on “payment stablecoins” presents these digital assets as mere cash equivalents, not investment vehicles.
The move would prevent stablecoin issuers in the US from offering interest-bearing products, which could potentially challenge TradFi due to their higher payouts. This could render the stablecoin projects of Anchor, Curve, Frax, and others “legally indefensible.”
With these in mind, Pumpius expects the next wave of shutdowns to occur due to compliance failures rather than market crashes. The rules would only allow issuers to derive yields from “real performance, not baked-in bribes.”
A related article from the National Law Review confirmed that the GENIUS Act prohibits stablecoin issuers from paying any form of interest or yield for holders. Its current version is also unsure about the treatment of “non-payment stablecoins,” including algorithmic stablecoins. Hence, it instructed the US Treasury to study how they can be integrated into the regulatory framework.
“The legislation would also prohibit stablecoin issuers from paying any form of interest or yield to holders solely in connection with holding stablecoins, effectively barring yield-bearing stablecoins,” the NLR wrote. “Additionally, the Act directs Treasury to study ‘non-payment stablecoins,’ including algorithmic stablecoins that rely solely on other digital assets created by the same originator to maintain their fixed price, suggesting these types of stablecoins fall outside the current regulatory framework.”
Registration Challenges
The analysis echoes the concerns raised by the Digital Currencies Governance Group (DCGG) regarding the Markets in Crypto-Assets (MiCA) regulation. The organization had previously argued that excessive regulation in the space could stifle innovation.
Additionally, DCGG highlighted that registration requirements would be challenging to impose on stablecoins that operate entirely on automated processes, such as those governed by smart contracts. It pointed out that the regulation does not truly grasp the workings of the DeFi sector, which was evident when it required issuers to establish and register a legal entity for their projects regardless of their infrastructure or protocols.
“If there is a project where no effective control over the issuance process can be pinned to one entity, then no legal entity should be required to be created,” said the group.
Final Thoughts
The GENIUS Act is undoubtedly a huge step forward for the stablecoin industry. However, the crafters of the law must take heed of the concerns of the industry to balance its regulation and establish a clear distinction among stablecoin projects while promoting innovation.
