New US Stablecoin Law: Impact on DeFi Projects

By Brian Green, updated June 18, 2025

In a historic move for the crypto space, the United States has officially passed the GENIUS Act — a new US stablecoin law specifically designed to regulate stablecoins. As digital assets tied to fiat currencies grow in usage and importance, this legislation signals a turning point for the way the government oversees crypto-backed tokens.

But what does this mean for the stablecoins we all know, like USDC and USDT? And how will this affect the broader market?

Let’s break down the GENIUS Act and how it could reshape the stablecoin landscape moving forward.

What Exactly Is the GENIUS Act?

The GENIUS Act, short for General Evaluation of Nationally Issued and Utilized Stablecoins, is the first U.S. law focused specifically on the regulation of stable digital currencies. Its purpose is to bring legal certainty and ensure that these digital dollars are safe, transparent, and properly managed.

Key features of the law include:

• A licensing system for stablecoin issuers operating in or targeting the U.S. market.

• Mandatory public reports on reserves and holdings, issued monthly.

• Routine third-party audits to prove full asset backing.

• Strict rules that require 1:1 fiat collateral — no more undercollateralized or purely algorithmic stablecoins.

• Oversight from the Federal Reserve and the U.S. Treasury, including the power to pause or review any stablecoin in circulation.

USDC: A Law-Ready Stablecoin?

USDC, launched by Circle, has long emphasized transparency and regulatory cooperation. The token is already backed by cash and short-term U.S. Treasuries and provides regular reports on its reserves.

Under the new legislation, Circle appears well-positioned:

• They already follow many of the rules outlined in the GENIUS Act.

• Regulatory clarity may increase institutional trust in USDC.

• Businesses, payment platforms, and even financial institutions might prefer USDC due to its compliance-first model.

With the law in place, USDC is expected to gain more ground, especially among enterprises and regulated platforms seeking a stablecoin they can trust.

Can Tether (USDT) Keep Up?

USDT, the largest stablecoin by market cap and daily volume, faces more scrutiny. Operated by Tether Limited — based outside the U.S. — it has long been questioned for its opaque reserve disclosures and limited audits.

Here’s how the GENIUS Act could impact USDT:

• Tether must now submit to more frequent disclosures and undergo independent auditing.

• U.S.-based exchanges and firms may reduce exposure to USDT if it fails to comply.

• The law may force Tether to relocate operations or improve its transparency to maintain access to American users.

This marks a critical point for USDT. The token still dominates in markets like Asia and Latin America, but within the U.S., its role may shrink unless it adapts to the new legal environment.

What About Decentralized or Algorithmic Stablecoins?

The GENIUS Act essentially bans algorithmic stablecoins that don’t have real-world backing. Tokens like TerraUSD (UST), which collapsed in 2022, wouldn’t be permitted under this regulation.

Other decentralized projects — like DAI — may need to rethink their models if they wish to remain accessible to U.S. users. The new US stablecoin law requires clear reserve assets and a responsible issuer — something that decentralized protocols may struggle to provide without significant restructuring.

Will the Law Slow Down Innovation?

Interestingly, the GENIUS Act is not anti-crypto. It doesn’t shut down stablecoins — it opens a legal framework for legitimate growth.

Key outcomes:

• Startups now know what the rules are — encouraging more responsible innovation.

• Investors and users can have greater confidence in regulated tokens.

• Banks and fintech companies may feel more comfortable launching their own stablecoins.

In many ways, this law could serve as a green light for the next generation of regulated crypto products.

Market Impact: Shifting Trust and Capital

The immediate reaction from the market shows a growing preference for compliant tokens. Some changes already underway:

• USDC is gaining traction, especially in DeFi protocols and institutional platforms.

• New projects are building on top of regulated stablecoins, rather than issuing new ones.

• USDT dominance is slipping in some U.S. markets due to regulatory pressure.

At the same time, global usage of USDT may remain strong, particularly in regions where access to U.S. dollars is limited and regulations are looser.

Could This Lead to a Digital Dollar?

Many experts believe the GENIUS Act lays the foundation for a future U.S. central bank digital currency (CBDC). With rules now established for private stablecoins, the government can begin experimenting with its own digital dollar — likely with stricter privacy and control mechanisms.

The law could also lead to:

• More bank-issued stablecoins.

• Integration with real-time settlement systems like FedNow.

• Better infrastructure for international payments.

Final Thoughts

The GENIUS Act is more than just a policy change — it marks a major shift in how the U.S. treats digital finance. By bringing rules and accountability to the stablecoin market, it gives users and investors greater safety, while encouraging innovation within a secure framework.

USDC is set to thrive, thanks to its regulatory alignment. USDT must adapt or risk losing ground in regulated markets. And the entire industry is now entering a more mature and structured phase.

Whether you’re a trader, developer, or simply interested in the future of money, this new law is worth paying attention to. It could shape not just the crypto market — but the very way we move, save, and store value in the digital age.