The GENIUS Act was passed on July 18th after Congress resolved that stablecoins should be regulated.
What happens next is a two-year rules-making war that will determine whether $250 billion in existing stablecoins flows into bank-wrapped structures or debris flows into offshore silos, and whether Bitcoin and Ethereum will catch the aftermath or be buried beneath it.
Justin Slaughter, Paradigm’s vice president of regulatory affairs, said on November 6:
“A little-known fact: After the bill is passed, the real battle begins.”
His company just submitted comments on the Treasury Department’s advance notice of the proposed rulemaking. At issue is whether affiliates of stablecoin issuers will pay yield to holders through a separate product, and Congress has already ruled that they can. But the Treasury Department may try to rewrite that.
The ability to provide revenue through wrappers will be the next battleground. If regulators win, stablecoins will become a neutralized banking product. If the industry wins, it will compete with banks on interest rates.
Laws are in place, but rules are not. And the rules decide everything.
When compliance becomes mandatory
GENIUS will spend three years building the perimeter and locking the gates. The framework will become effective on the earlier of January 18, 2027, or 120 days after publication of the final regulations.
Federal agencies must promulgate these regulations within one year of enactment.
The three-year grace period expires on July 18, 2028. Thereafter, U.S. exchanges, custodians, and most DeFi front ends will no longer be able to offer “payment stablecoins” unless they are issued by a licensed payment stablecoin issuer or a foreign equivalent with the assistance of the Treasury Department.
Issuers under $10 billion can take advantage of approved state programs, while issuers above that amount must move to the federal track. Foreign issuers require an “equivalent regime” determination, OCC registration, and U.S.-held reserves.
This timeline means regulators will issue a rulebook by early 2027. By mid-2028, those who interact with U.S. customers will have to comply or leave.
What does “to the bank” actually mean?
GENIUS defines a protected category called “Payment Stablecoins” and restricts distribution in the United States to coins issued by authorized issuers.
These issuers must be bank subsidiaries, federally chartered nonbanks subject to OCC supervision, or state-chartered entities subject to strict federal oversight.
Reserves must be held in cash, bank deposits, or government bills, and rehypothecation is not permitted. Disclosure filings occur monthly and require issuers to comply with full prudential oversight as well as BSA/AML compliance.
The coin is pulled into a bank-style regulatory boundary without being called a bank.
For the $304 billion stablecoin market, this creates a fork. Liquidity affecting the US will be moved to bank-like wrappers and everything else will be fenced off.
Offshore issuers may exist all over the world, but US platforms remove them to avoid liability. $300 billion is at stake, divided between companies that meet federal standards and those that don’t.
The Battle of the Rules: Benefits, Definitions, and Scope
Slaughter’s comments focus on affiliate revenue. GENIUS prohibits issuers from paying interest, but says nothing about affiliates paying interest. Paradigm argues that the prohibition on affiliate revenue violates the plain language of the statute.
This is important because if affiliates can pay competitive rates, users can get high-yield savings accounts with instant payments. This puts pressure on banks to actually return the interest.
If regulators block affiliate yields, stablecoins will be worse off than bank deposits, with full compliance burdens but no upside.
Other battlegrounds include the definition of the term “digital asset service provider,” whether DeFi protocols are exempt from statutory carve-outs, and what constitutes an “equivalent regime” for foreign issuers.
Regulators can implement GENIUS as written, or they can spin it into bank protectionism that locks out those who don’t comply with the federal charter.
winners and losers
Large US banks and quasi-bank stablecoin issuers emerge as winners. GENIUS creates the first clear federal pathway for regulated entities to override state rules and issue dollar tokens.
Circle, Paxos, and PayPal are rushing to secure authorized publisher status. The expectation is that major banks will start taking tokenized deposits and move directly to public blockchains, rather than staying with ACH.
The US dollar and government bond markets also won. GENIUS mandates 1:1 backing for T-bills, effectively making all compliant stablecoins mini-T-bill funds. If this grows into trillions of dollars, it will further increase global demand for U.S. government bonds.
Ethereum and layer 2 blockchain capture the payment infrastructure. U.S. regulated issuers overwhelmingly choose mature EVM environments.
According to rwa.xyz, Ethereum, zkSync, and Polygon have the largest participation in the real world assets (RWA) market, amounting to $15.7 billion (44%).
Ethereum will become a neutral rail for bank-grade dollar tokens, gaining a flow of fees and legitimacy as “regulated plumbing.” DeFi’s large compliance layer is built on permissioned stablecoins and coexists with a permissionless global layer.
Meanwhile, offshore issuers lose distribution in the United States. Starting in mid-2028, U.S. platforms will no longer be able to offer “payment stablecoins” that are not issued by authorized issuers. While Tether and similar players can serve customers outside the US, they will lose seamless integration with Coinbase, Kraken, or major US facilities.
Small and experimental publishers will be crushed. Algorithmic stablecoins, under-collateralized experiments, and capital-starved startups either pivot to niche markets or shut down.
As a result, DeFi is facing fragmentation. Although GENIUS exempts underlying protocols and self-custody, what is considered a “provision” to a U.S. person will be defined by rulemaking.
If regulators expand the definition, the bulk of DeFi will either be filtered into stablecoin-only pools permitted for US traffic or flow into geofenced offshore silos.
How to reroute flows
The first phase, from now until mid-2026, is characterized as a positioning period. Issuers and banks lobby on matters such as eligible reserves, foreign comparability, affiliate yields, and definitions. Draft rules will be circulated and the industry’s wargaming compliance path will be established.
The second phase, from 2026 to 2027, will see regulatory consolidation. The final rule is released, giving early approval to large compliant entities and clarifying their names. U.S. platforms are shifting volume to “soon-to-be-allowed” coins, while non-compliant issuers are applying for U.S. users, geofencing them, or relying on offshore venues.
The third phase, from 2027 to 2028, is route strengthening. US-facing exchanges, brokers, and many DeFi front-ends primarily list permissioned stablecoins, potentially allowing for deeper liquidity on Ethereum and Layer 2 blockchains.
Non-compliant stablecoins will survive on offshore exchanges and gray market DeFi, but will lose their connection to fully regulated U.S. railroads.
The expected outcome is that a greater proportion of “crypto dollars” will be fully reserved, monitored, KYCed, and stored within or adjacent to bank balance sheets. On-chain payments are starting to look less like a pirate market and more like Fedwire with APIs.
| stage | date/window | key action | Key agencies and milestones |
|---|---|---|---|
| Passage (GENIUS Act becomes law) | July 18, 2025 | The GENIUS Act (Public Law 119-27) was signed. Establishes a “permitted payment stablecoin issuer” regime, prohibits yield on payment stablecoins, sets a three-year distribution clock, and hardwires the effective date. at an earlier date (i) 18 months after enactment, or (ii) 120 days after final regulation by the primary regulatory authority. | The Treasury Department and the “major federal payments stablecoin regulators” (FRB, OCC, FDIC, NCUA) are formally tasked with writing the rulebook (Section 13). |
| ANPRM – Implementation Kickoff | September 19, 2025 | Treasury issues Advance Notice of Proposed Rulemaking (ANPRM) Regarding the implementation of the GENIUS law. Ask detailed questions regarding issuer eligibility, reserves, foreign/comparable regimes, illicit financing, taxes, insurance, and data. This is the first shot at defining how strict or flexible GENIUS is. | Treasury lead docket TREAS-DO-2025-0037 Coordinates signals with the Federal Reserve, OCC, FDIC, NCUA, and state regulators. These agencies will initiate internal workstreams (with GENIUS implementation identified as a priority in FSOC/FDIC/NCUA speeches). |
| Proposed Rule (NPRM) | Expected first half of 2026 | Next steps: Treasury and major regulators to publish proposed rule (NPRM) translates GENIUS into concrete requirements. PPSI licensing criteria, capital/liquidity, reserve structure, testing, “comparability” of foreign issuers, and conditions for digital asset service providers. These must be developed early enough to be finalized within the statutory one-year rulemaking period. | The statute (Section 13) requires the Treasury, Federal Reserve, OCC, FDIC, NCUA, and state regulators to: “Promulgation of ordinance” within one year after enactment → Practical pressure to deliver NPRM by early 2026 and make it to finals July 18, 2026. This is the core battleground that Justin Slaughter and others are pointing to. |
| final rule | Legal deadline: Until July 18, 2026 | Final regulations by the “principal federal payment stablecoin regulator” + Treasury will solidify who can be a PPSI, how reserves will work, supervisory expectations, and how foreign and state regimes will be recognized. These final rules start a 120-day clock. accelerate GENIUS Effective Date. | The Federal Reserve, OCC, FDIC, and NCUA each finalize the regulation of issuers under their jurisdiction. Treasury will finalize cross-cutting rules (safe harbor, comparability, illicit finance). Taken together, these rules can begin the countdown to the effective date under Article 2. 20. |
| GENIUS earliest effective date | Previously: (a) January 18, 2027 (18 months after enactment), or (b) 120 days after last registration | The GENIUS framework (and modifications) are “enabled” when that happens first. If regulators ignore the final rule, the 18-month mark (January 18, 2027) will be the default effective date. If you act quickly and finalize early, the 120-day rule may move the effective date forward. | Practically speaking, this is the central point that should be emphasized in the article. It’s time for stablecoin issuance and distribution to the US to start complying with PPSI rules, and it’s time for the market to start pivoting to GENIUS compliance like banks. |
What it means for Bitcoin and Ethereum
For Bitcoin, GENIUS is a tailwind in the story. As stablecoins become more bank-like and subject to regulation by US authorities, Bitcoin stands out as a censorship-resistant asset that remains outside this line.
Short-term liquidity is not an issue, as licensed stablecoins exist in any US-regulated BTC venue. As non-compliant stablecoins shrink, some high-friction flows will pivot to the BTC pair.
In the long term, GENIUS will tame the dollar side of cryptocurrencies and make Bitcoin the cleanest way to move outside the new boundaries.
For Ethereum, if things stay as they are, GENIUS could bring a new level of scale. Permitted issuers prefer EVM chains with mature infrastructure and advanced DeFi features.
It structurally supports ETH as a gas and payments infrastructure for regulated stablecoin payments and tokenized assets.
As a result, a two-tier DeFi ecosystem may emerge. One tier consists of a permissioned GENIUS-compliant pool with institutional capital and a permissionless global pool to host any coin. Although censorship risks exist at this layer, it increases the value of reliable neutrality at the protocol level.
The other layer is formed by bank-grade $1 trillion tokens settled on Ethereum, making blockspace a valuable infrastructure.
Fighting is about more than rules. The Treasury Department, Fed, and OCC will produce those documents between now and mid-2026. By 2027, the market will know what GENIUS has actually built. By 2028, capital will flow into banks, Ethereum, or offshore.
(Tag translation) Bitcoin
