The GENIUS Act and the Clock That’s Ticking
The law at the center of all this is the GENIUS Act—Generational Enabling of Novel Instruments for United States—signed in July 2025. It was supposed to be a breakthrough: a clear framework for payment stablecoins that would legitimize the sector while protecting traditional banks from sudden deposit flight.
Treasury Secretary Scott Bessent now has until July 2026 to write the final rules. That’s just over a year away, and the two sides are still miles apart.
Banks warn that if stablecoins can pay interest, consumers and businesses will move their money out of checking and savings accounts in massive numbers. That could destabilize liquidity ratios and make it harder for the Fed to control inflation or respond to recessions.
Crypto advocates say a blanket ban would freeze the entire sector at the “cash-equivalent” stage—essentially turning stablecoins into nothing more than digital checking accounts. Meanwhile, other countries are racing ahead with smarter, more flexible rules. If the U.S. overregulates, the argument goes, innovation will simply move offshore.
What Was Actually Proposed
Banks didn’t just ask for a ban—they proposed criminal penalties for issuers who offer any form of holder reward. That includes loyalty points, fee rebates, or anything else that might look like an incentive.
Crypto firms came to the table with a compromise: cap yield at the federal funds rate plus 50 basis points. That would allow modest returns without triggering mass deposit flight. Banks rejected the idea outright, calling it “unenforceable.”
Behind the scenes, the White House Crypto Policy Council has been running the numbers. According to their technical paper, consumer stablecoin balances could hit $1 trillion by 2028 if modest yields are allowed. If rewards are banned entirely, that figure drops to just $180 billion.
What Happens Next—and What It Means for You
This isn’t just a Washington policy fight. The uncertainty is already reshaping markets.
Venture capital funding for U.S. stablecoin startups dropped 28 percent last quarter, according to PitchData. Investors are sitting on the sidelines until they know whether these companies will be allowed to compete. Meanwhile, on-chain data shows a 14 percent increase in U.S. dollar liquidity moving into euro-denominated DeFi pools since early January. If the U.S. won’t allow yield, people are finding it elsewhere.
If a ban goes through, analysts expect a two-tiered market to emerge: tightly regulated, non-yielding stablecoins for domestic payments, and offshore tokens offering rewards for everything else. That would look a lot like what happened after strict mining rules hit Venezuela—domestic activity collapsed while neighboring countries boomed.
On the other hand, if some kind of compromise allows capped rewards, it could unlock a new wave of institutional adoption. Tokenized treasury markets, yield-bearing payment rails, and programmable money could all become viable at scale. The U.S. would stay competitive. Innovation would stay onshore.
Three Possible Off-Ramps
Policy insiders say there are three realistic ways this could resolve before the July 2026 deadline.
First, Congress could amend the GENIUS Act to distinguish between passive interest and promotional rewards. That would create room for limited, transparent yield without opening the floodgates.
Second, regulators could adopt a tiered approach—letting banks issue higher-yield stablecoins under stricter capital rules. Banks have privately admitted this would be expensive, but it’s better than losing deposits altogether.
Third, if talks stay deadlocked, crypto firms might sue. Their argument would be that banning yield violates First Amendment protections for software code as speech. It’s a long shot, but not without precedent.
Each path has risks. But one thing is clear: the market won’t wait forever. If the U.S. doesn’t figure this out soon, the digital dollar may end up being built somewhere else.
