The GENIUS Act has ushered in a pivotal new era for stablecoin regulation in the United States, yet its true impact will be determined not by the law itself, but by an intense, multi-year rulemaking battle. With billions of dollars in the stablecoin market at stake, the impending regulations will dictate whether these digital assets integrate into traditional banking structures or fragment into offshore markets, profoundly reshaping the cryptocurrency landscape.
The Defining Regulatory Showdown
While the GENIUS Act became law in July, the real contest lies in the regulatory agencies' interpretation and implementation over the next two years. At the heart of this struggle is the critical question of "affiliate yield": whether entities affiliated with stablecoin issuers can pay interest to holders through separate products. Congress allowed this, but regulators may attempt to restrict it. Should regulators prevail, stablecoins could become "neutered bank products" with heavy compliance burdens but no competitive interest rates. Conversely, an industry victory would allow stablecoins to offer high-yield savings accounts with instant settlement, directly challenging traditional banks. The rulemaking process will also clarify definitions for "digital asset service providers," exemptions for DeFi protocols, and criteria for "comparable regimes" for foreign issuers.
Reshaping the Stablecoin Ecosystem
The GENIUS Act introduces a framework for "permitted payment stablecoin issuers" (PPSIs), requiring them to be bank subsidiaries, federally licensed nonbanks, or tightly supervised state-qualified entities. These PPSIs must back their stablecoins one-to-one with cash, bank deposits, or T-bills, without rehypothecation, and adhere to stringent prudential supervision and AML/BSA compliance. This creates a fork in the stablecoin market: US-facing liquidity will migrate into these bank-like structures, while non-compliant assets will be fenced off from US platforms. Major US banks and regulated stablecoin issuers like Circle, Paxos, and PayPal are positioned to win, leveraging the act's clear federal pathway. The US dollar and Treasury market will also benefit from mandated T-bill backing. Ethereum and leading Layer-2 blockchains are set to become crucial settlement infrastructure for these regulated tokens, attracting institutional capital and solidifying their role as "regulated plumbing."
A Phased Transformation and Broader Implications
The transition will unfold in three phases: an initial positioning period (now to mid-2026) where industry lobbies and rules are drafted, followed by regulatory sorting (2026-2027) as final rules are released and compliant entities emerge. By 2027-2028, the market will harden, with US-facing platforms predominantly listing permitted stablecoins. Offshore issuers like Tether, along with smaller or experimental stablecoins, face losing US distribution and integration, potentially pivoting to non-US markets. DeFi, while exempt at the protocol level, faces a split, with US traffic filtering to permitted-stablecoin-only pools. For Bitcoin, GENIUS acts as a narrative tailwind, solidifying its position as the censorship-resistant asset outside the regulatory perimeter. Ultimately, this framework is expected to channel a larger share of "crypto dollars" into fully reserved, supervised, and KYC'd environments, transforming on-chain settlement into a more regulated, bank-like system.
