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 present 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 truth—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 by separate merchandise, and Congress already determined they’ll. But, Treasury would possibly attempt to rewrite that.
The power to supply yield through wrappers is the place the following battle will happen. If regulators win, stablecoins grow to be neutered financial institution merchandise. If the business wins, they compete with banks on charges.
Though the regulation is completed, the principles should not. And the principles determine the whole lot.
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 laws are revealed, whichever comes first.
Federal companies have one 12 months from enactment to concern these laws.
A 3-year grace interval expires July 18, 2028. After that, US exchanges, custodians, and most DeFi entrance ends can not supply “fee stablecoins” except a permitted fee stablecoin issuer or a Treasury-blessed overseas equal points them.
Issuers underneath $10 billion can use authorized state regimes, whereas bigger issuers should migrate into the federal monitor. International 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” really means
GENIUS defines a protected class referred to 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 referred to as banks.
For the $304 billion stablecoin market, this creates a fork. US-touching liquidity migrates into bank-like wrappers, whereas the whole lot 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 pays aggressive charges, customers get high-yield financial savings accounts with on the spot settlement. That creates strain on banks really to return curiosity.
If regulators block affiliate yield, stablecoins grow to be 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 might implement GENIUS as written or twist it into financial institution protectionism that chokes something not sporting 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 concern 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 straight onto public blockchains, quite 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 international 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 biggest 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 price move and legitimacy as “regulated plumbing.” A big, compliant tier of DeFi builds on permitted stablecoins, coexisting with the permissionless international layer.
Then again, 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 comparable 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.
Because of this, 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, giant elements of DeFi both filter to permitted-stablecoin-only swimming pools for US site 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. Ultimate guidelines are launched, early approvals are granted to giant, 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 plenty 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}” changing into totally 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.
StageDate / WindowKey ActionLead Companies & MilestonesPassage (GENIUS Act turns into regulation)July 18, 2025GENIUS Act (Public Regulation 119–27) signed. Establishes “permitted fee stablecoin issuer” regime, bans yield on fee stablecoins, units 3-year distribution clock, and hardwires the efficient date as the sooner of (i) 18 months after enactment or (ii) 120 days after last regs by major regulators.Treasury + “major Federal fee stablecoin regulators” (Fed, OCC, FDIC, NCUA) are formally tasked with constructing the rulebook (Part 13).ANPRM – Implementation KickoffSept 19, 2025Treasury 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 shall 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 2026Next step: Treasury plus every major regulator publish proposed guidelines (NPRMs) translating GENIUS into concrete necessities: licensing requirements for PPSIs, capital/liquidity, reserve composition, examinations, overseas issuer “comparability,” and circumstances 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 laws” inside 1 12 months of enactment → sensible strain 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.Ultimate RulesStatutory deadline: by July 18, 2026Final laws by the “major Federal fee stablecoin regulators” + Treasury lock in who is usually a PPSI, how reserves work, supervision expectations, and the way overseas and state regimes are acknowledged. These last 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 DateEarlier of: (a) Jan 18, 2027 (18 months after enactment), or (b) 120 days after last regsGENIUS framework (and amendments) “activate” at whichever comes first. If regulators slip on last 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 grow to be extra bank-like and topic to regulation by US authorities, Bitcoin stands out because the censorship-resistant asset that continues to be outdoors this perimeter.
Brief-term liquidity is ok, as permitted stablecoins shall 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 method to step outdoors the brand new perimeter.
For Ethereum, GENIUS doubtlessly brings a brand new degree of scale if issues stay as they’re right now. Permitted issuers want 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 property.
Because of this, a two-tiered DeFi ecosystem would possibly emerge. One tier consists of permissioned, GENIUS-compliant swimming pools with institutional capital, and permissionless international 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 really constructed. By 2028, capital will move into banks, onto Ethereum, or offshore.
