The GENIUS Act turned regulation on July 18 after Congress settled that stablecoins ought to be regulated.
What occurs subsequent is a two-year rulemaking warfare that determines whether or not $250 billion in current stablecoins flows into bank-wrapped constructions or fragments into offshore silos, and whether or not Bitcoin and Ethereum seize the fallout or get buried underneath it.
Justin Slaughter, Paradigm’s VP of regulatory affairs, said on Nov. 6:
“Little recognized reality—after the laws is enacted, the true battle begins.”
His agency simply filed feedback on the Treasury’s advance discover of proposed rulemaking. The central struggle is whether or not associates of stablecoin issuers pay yield to holders via separate merchandise, and Congress already determined they’ll. But, Treasury may attempt to rewrite that.
The flexibility to supply yield by way of wrappers is the place the following battle will happen. If regulators win, stablecoins develop into neutered financial institution merchandise. If the business wins, they compete with banks on charges.
Though the regulation is finished, the principles should not. And the principles determine all the things.
When compliance turns into obligatory
GENIUS builds a fringe over three years, then locks the gates. The framework takes impact on Jan. 18, 2027, or 120 days after the ultimate rules are revealed, whichever comes first.
Federal companies have one yr from enactment to subject these rules.
A 3-year grace interval expires July 18, 2028. After that, US exchanges, custodians, and most DeFi entrance ends can’t provide “fee stablecoins” except a permitted fee stablecoin issuer or a Treasury-blessed overseas equal points them.
Issuers underneath $10 billion can use accredited state regimes, whereas bigger issuers should migrate into the federal observe. Overseas issuers want “comparable regime” determinations, OCC registration, and US-held reserves.
This timeline signifies that regulators will publish the rulebook by early 2027. By mid-2028, anybody touching US clients will both comply or exit.
What “into banks” truly means
GENIUS defines a protected class known as “fee stablecoins” and restricts US distribution to cash issued by permitted issuers.
These issuers should be financial institution subsidiaries, federally licensed nonbanks supervised by the OCC, or state-qualified entities underneath tight federal oversight.
Reserves should be held in money, financial institution deposits, or T-bills, with no rehypothecation allowed. Disclosures submissions are made month-to-month, and issuers should be compliant with full prudential supervision, in addition to BSA/AML compliance.
The cash are pulled right into a banking-style regulatory perimeter with out being known as banks.
For the $304 billion stablecoin market, this creates a fork. US-touching liquidity migrates into bank-like wrappers, whereas all the things else will get fenced off.
Offshore issuers can exist globally, however US platforms will drop them to keep away from legal responsibility. There may be $300 billion at stake, break up between entities that meet federal requirements and people that don’t.
The rulemaking struggle: yield, definitions, and scope
Slaughter’s remark zeroes in on affiliate yield. GENIUS prohibits issuers from paying curiosity however says nothing about associates doing so. Paradigm argues that banning affiliate yield would violate the statute’s plain language.
This issues as a result of, if associates will pay aggressive charges, customers get high-yield financial savings accounts with instantaneous settlement. That creates stress on banks truly to return curiosity.
If regulators block affiliate yield, stablecoins develop into worse than financial institution deposits, with a full compliance burden, however no upside.
Different battlegrounds embody the definition of the time period “digital asset service supplier” and whether or not DeFi protocols are exempt from statutory carve-outs, in addition to what constitutes a “comparable regime” for overseas issuers.
Regulators may implement GENIUS as written or twist it into financial institution protectionism that chokes something not carrying a federal constitution.
Winners and losers
Giant US banks and quasi-bank stablecoin issuers emerge as winners. GENIUS creates the primary clear federal pathway for regulated establishments to subject greenback tokens with preemption over state guidelines.
Circle, Paxos, and PayPal rush to safe permitted issuer standing. The expectation is that main banks will launch tokenized deposits and transfer immediately onto public blockchains, fairly than staying behind with ACH.
The US greenback and Treasury market additionally win. GENIUS mandates one-to-one backing in T-bills, making each compliant stablecoin successfully a mini T-bill fund. If this scales into the trillions, it deepens world demand for US debt.
Ethereum and layer-2 blockchains seize settlement infrastructure. US-regulated issuers overwhelmingly select mature EVM environments.
Based on rwa.xyz, Ethereum, zkSync, and Polygon have the most important participations on the real-world asset (RWA) market, amounting to $15.7 billion (44%).
Ethereum turns into the impartial rail for bank-grade greenback tokens, gaining payment movement and legitimacy as “regulated plumbing.” A big, compliant tier of DeFi builds on permitted stablecoins, coexisting with the permissionless world layer.
Alternatively, offshore issuers lose US distribution. After mid-2028, US platforms will be unable to supply any “fee stablecoin” that’s not issued by a permitted issuer. Tether and related gamers can serve non-US clients however lose seamless integration with Coinbase, Kraken, or main US venues.
Smaller or experimental issuers get crushed. Algorithmic stablecoins, undercollateralized experiments, and thinly capitalized startups both pivot into area of interest markets or shut down.
In consequence, DeFi faces a break up. GENIUS exempts underlying protocols and self-custody, however rulemaking will outline what counts as “providing” to US individuals.
If regulators stretch definitions, massive elements of DeFi both filter to permitted-stablecoin-only swimming pools for US visitors or drift into geofenced offshore silos.
How flows reroute
The primary section, from now to mid-2026, is characterised as a positioning interval. Issuers and banks foyer over eligible reserves, overseas comparability, affiliate yield, and definitions. Draft guidelines flow into, and business war-games compliance paths.
The second section, spanning 2026 and 2027, is when regulatory sorting takes place. Last guidelines are launched, early approvals are granted to massive, compliant entities, and names are revealed. US platforms migrate quantity towards “soon-to-be permitted” cash, whereas noncompliant issuers file, geo-fence US customers, or lean into offshore venues.
The third section, spanning from 2027 to 2028, is the hardening of routes. US-facing exchanges, brokers, and lots of DeFi entrance ends primarily record permitted stablecoins, with potential for deeper liquidity on Ethereum and layer-2 blockchains.
Noncompliant stablecoins persist on offshore exchanges and gray-market DeFi however lose connectivity to totally regulated US rails.
The anticipated result’s a bigger share of “crypto {dollars}” turning into absolutely reserved, supervised, KYC’d, and sitting inside or adjoining to financial institution stability sheets. On-chain settlement begins to look much less like a pirate market and extra like Fedwire with APIs.
| Stage | Date / Window | Key Motion | Lead Businesses & Milestones |
|---|---|---|---|
| Passage (GENIUS Act turns into regulation) | July 18, 2025 | GENIUS Act (Public Legislation 119–27) signed. Establishes “permitted fee stablecoin issuer” regime, bans yield on fee stablecoins, units 3-year distribution clock, and hardwires the efficient date because the earlier of (i) 18 months after enactment or (ii) 120 days after remaining regs by main regulators. | Treasury + “main Federal fee stablecoin regulators” (Fed, OCC, FDIC, NCUA) are formally tasked with constructing the rulebook (Part 13). |
| ANPRM – Implementation Kickoff | Sept 19, 2025 | Treasury points Advance Discover of Proposed Rulemaking (ANPRM) on GENIUS Act implementation. It asks detailed questions on issuer eligibility, reserves, overseas/comparable regimes, illicit finance, tax, insurance coverage, and information—that is the opening shot in defining how strict or versatile GENIUS will likely be. | Treasury leads docket TREAS-DO-2025-0037 and alerts coordination with Fed, OCC, FDIC, NCUA, and state regulators. These companies start inside workstreams (FSOC/FDIC/NCUA speeches flag GENIUS implementation as a precedence). |
| Proposed Guidelines (NPRMs) | Anticipated 1H 2026 | Subsequent step: Treasury plus every main regulator publish proposed guidelines (NPRMs) translating GENIUS into concrete necessities: licensing requirements for PPSIs, capital/liquidity, reserve composition, examinations, overseas issuer “comparability,” and situations for digital asset service suppliers. These should come early sufficient to finalize throughout the statutory one-year rulemaking window. | Statute (Sec. 13) requires Treasury, Fed, OCC, FDIC, NCUA, and state regulators to “promulgate rules” inside 1 yr of enactment → sensible stress to get NPRMs out in early 2026 so finals can land by July 18, 2026. That is the core battleground Justin Slaughter & others are pointing to. |
| Last Guidelines | Statutory deadline: by July 18, 2026 | Last rules by the “main Federal fee stablecoin regulators” + Treasury lock in who could be a PPSI, how reserves work, supervision expectations, and the way overseas and state regimes are acknowledged. These remaining guidelines additionally begin the 120-day clock that may speed up GENIUS’s efficient date. | Fed, OCC, FDIC, NCUA every finalize regs for issuers underneath their jurisdiction; Treasury finalizes cross-cutting guidelines (protected harbors, comparability, illicit finance). Collectively, these guidelines are what can begin the effective-date countdown underneath Sec. 20. |
| Earliest GENIUS Efficient Date | Earlier of: (a) Jan 18, 2027 (18 months after enactment), or (b) 120 days after remaining regs | GENIUS framework (and amendments) “activate” at whichever comes first. If regulators slip on remaining guidelines, the 18-month mark (Jan 18, 2027) turns into the default efficient date. In the event that they transfer quick and finalize early, the 120-day rule can pull the efficient date ahead. | Virtually: that is the pivot level your article ought to spotlight—when stablecoin issuance and U.S.-facing distribution should start lining up with PPSI guidelines, and when markets begin rerouting towards bank-like, GENIUS-compliant |
What it means for Bitcoin and Ethereum
For Bitcoin, GENIUS is a story tailwind. As stablecoins develop into extra bank-like and topic to regulation by US authorities, Bitcoin stands out because the censorship-resistant asset that is still exterior this perimeter.
Brief-term liquidity is ok, as permitted stablecoins will likely be in all places US-regulated BTC venues are. If noncompliant stablecoins shrink, some high-friction flows will pivot to BTC pairs.
In the long run, GENIUS domesticates the greenback aspect of crypto, making Bitcoin the cleanest strategy to step exterior the brand new perimeter.
For Ethereum, GENIUS probably brings a brand new degree of scale if issues stay as they’re in the present day. Permitted issuers favor EVM chains with mature infrastructure and deep DeFi capabilities.
That’s structurally supportive of ETH as fuel and settlement infrastructure for regulated stablecoin funds and tokenized belongings.
In consequence, a two-tiered DeFi ecosystem may emerge. One tier consists of permissioned, GENIUS-compliant swimming pools with institutional capital, and permissionless world swimming pools internet hosting any coin. Censorship threat exists on this tier, however that will increase the worth of credible neutrality on the protocol degree.
The opposite tier is fashioned by bank-grade, trillion-scale greenback tokens deciding on Ethereum, making blockspace a beneficial infrastructure.
The struggle is over the principles. Treasury, the Fed, and the OCC write them between now and mid-2026. By 2027, the market learns what GENIUS truly constructed. By 2028, capital will movement into banks, onto Ethereum, or offshore.
