Stablecoin Regulatory Countdown: How Will the GENIUS Act's Coming into Effect Affect USDC, USDT, and the Crypto Ecosystem?

On July 18, 2025, the President of the United States signed the "Guiding and Establishing the American Stablecoin National Innovation Act"—i.e., the GENIUS Act—into law. This act marks the first time the U.S. has established a comprehensive federal regulatory framework for dollar-denominated payment stablecoins. According to the act, federal banking regulators and the Treasury Department must issue final implementation rules within one year after the act takes effect, i.e., by July 18, 2026. Now, the countdown is less than 25 days.

The stablecoin market is at an all-time high. As of June 24, 2026, the total market capitalization of global stablecoins has reached $301.3 billion, a historic high. Dollar-denominated stablecoins account for 99.5% of this total, with Ethereum hosting 57.5% of stablecoin activity. Tether (USDT) leads with a market cap of approximately $140 billion, followed by Circle (USDC) at around $40 billion. Meanwhile, the cryptocurrency market is experiencing sharp volatility—Bitcoin fell below $60,000 on June 24, hitting an intraday low of $59,018, a new yearly low.

At a time of record market cap but low market sentiment, the implementation rules of the GENIUS Act are about to be finalized. Who will benefit from this regulatory reshaping? Who will be forced out? Analyze from four dimensions: the legislative framework, compliance paths for major issuers, the impact on the DeFi ecosystem, and exchange response strategies.

Core Framework of the GENIUS Act: Who Can Issue Stablecoins?

The most fundamental change brought by the GENIUS Act is the creation of a specialized license category called "Permitted Payment Stablecoin Issuer" (PPSI). After the act takes effect, only PPSIs can legally issue payment stablecoins in the U.S., with all other entities excluded from the market.

There are three paths to becoming a PPSI:

Federally Qualified Issuer: Subsidiaries of insured depository institutions or non-bank entities licensed by the OCC can obtain approval through the federal pathway. The federal path is mandatory for issuers with an issuance scale exceeding $10 billion.

State Qualified Issuer: Non-bank issuers incorporated under state law can issue payment stablecoins as state-qualified PPSIs, provided the state regulatory regime meets federal substantive equivalence standards.

Foreign Issuer: Foreign payment stablecoin issuers, subject to technical capability to comply with relevant statutes and reciprocal arrangements, may offer or sell their stablecoins to U.S. persons through digital asset service providers.

Regarding asset reserves, the act requires a 1:1 backing with high-quality liquid assets, prohibits algorithmic stablecoins, and sets capital, liquidity, and anti-money laundering compliance requirements. Additionally, the act explicitly prohibits issuers from directly paying interest or programmatic yields to stablecoin holders.

Compliance Game for Major Issuers: Divergent Paths for USDC and USDT

For the two largest stablecoin issuers—Circle (USDC) and Tether (USDT)—the GENIUS Act brings vastly different challenges.

Circle (USDC): As a domestic U.S. issuer, Circle has long proactively embraced regulation. USDC has maintained communication with multiple federal regulatory agencies, and its reserve asset transparency leads the industry. The GENIUS Act's federal framework is more of a "known compliance cost" than an "existential threat" for Circle. Circle is fully capable of completing its PPSI application before enforcement begins in January 2027.

Tether (USDT): As a foreign issuer registered in the British Virgin Islands, USDT faces more severe structural challenges. With a market cap of approximately $140 billion, USDT far exceeds the $10 billion federal regulatory threshold. Under the GENIUS Act, U.S. persons may not purchase stablecoins from foreign issuers without holding a U.S. license.

Tether has taken countermeasures—launching USAT, a U.S.-domiciled stablecoin designed to comply with GENIUS Act federal regulations, issued through a U.S. chartered bank and supervised by a Washington-approved custodian. However, U.S. Senator Jack Reed has introduced legislation requiring all dollar-backed foreign stablecoins to undergo audits regardless of where the company is located. Reed noted that Tether is not the only foreign issuer, but given its size and growing footprint, Congress must urgently address this matter.

For USDT, the core uncertainty lies in: Will the provisions for foreign issuers be further tightened? If Congress passes Reed's proposal, USDT will face stricter audit and disclosure requirements and may even be effectively excluded from the U.S. market.

Chilling Effect on the DeFi Ecosystem: Warnings from Paradigm and Hyperliquid

The potential impact of the GENIUS Act on the DeFi ecosystem has become one of the most contentious topics in the industry.

On April 8, 2026, FinCEN and OFAC jointly issued a proposed rule requiring PPSIs to maintain AML/CFT and sanctions compliance programs. The proposed rule treats stablecoin issuers as financial institutions under the Bank Secrecy Act, requiring them to implement compliance programs, customer due diligence, and suspicious activity reporting. The public comment period ended on June 9, 2026.

The core controversy is: Should the AML obligations of issuers extend to secondary market activities?

On June 9, 2026, Paradigm and the Hyperliquid Policy Center jointly sent a letter to FinCEN and OFAC, issuing a stern warning on this matter. The two organizations pointed out that applying issuer rules to secondary market activities offers limited value to regulators and may instead generate "large volumes of noise, high false-positive rates, and low-value suspicious activity reports."

More critically, this approach would create a "chilling effect"—preventing issuers from deploying to permissionless blockchains, ultimately "driving U.S.-regulated stablecoins out of DeFi." Paradigm and Hyperliquid argued that regulators should distinguish between primary issuance (where the issuer has a direct relationship with the customer) and secondary market activities (where stablecoins circulate through wallets, DeFi applications, and validators, beyond the issuer's direct control).

The essence of this dispute is: Where is the boundary of regulation? If stablecoin issuers must be responsible for every transfer of their stablecoins in the secondary market, issuers will be forced to choose between deploying only on permissioned blockchains or exiting the DeFi ecosystem entirely. For DeFi protocols on permissionless public chains like Ethereum and Solana, this means a potential loss of core liquidity.

Role of Crypto Exchanges: Compliance Dividends and Operational Challenges

For crypto exchanges, the GENIUS Act presents both challenges and opportunities.

Rising Compliance Costs: As key hubs for stablecoin circulation, exchanges will be directly affected by PPSI compliance requirements. If FinCEN and OFAC's proposed rule ultimately includes secondary market activities in issuers' AML obligations, exchanges will face stricter transaction monitoring and reporting requirements. Paradigm noted that this approach could shift the compliance burden from issuers to exchanges and wallet service providers.

Competitive Advantage of Compliant Stablecoins: With the GENIUS Act framework taking effect, compliant stablecoins will gain significant institutional advantages. Traditional financial institutions—such as Mastercard, which announced in June 2026 the expansion of settlement support for regulated stablecoins—are accelerating the integration of compliant stablecoins into the traditional financial system. Exchanges that prioritize supporting stablecoins with PPSI licenses will gain a first-mover advantage in attracting institutional clients.

Dual Federal-State System: The GENIUS Act preserves the role of state regulation—issuers with an issuance scale below $10 billion may opt for state-level oversight. On June 16, 2026, a bipartisan group of senators led by Senator Cynthia Lummis sent a letter to the Treasury Department, emphasizing that the federal framework should not undermine state authority. This means exchanges may need to adapt to both federal and state compliance systems, increasing operational complexity.

Conclusion: Winners and Losers in the Era of Regulatory Clarity

The implementation rules of the GENIUS Act will be finalized within 25 days, with enforcement taking effect in January 2027. In this reshuffling of stablecoin regulation, the outlines of winners and losers are becoming clear.

Winners: Compliant issuers that complete PPSI applications first will gain a first-mover advantage; exchanges that support compliant stablecoins will win the trust of institutional clients; institutions with real-time data infrastructure will transition seamlessly when reporting requirements take effect.

Losers: Foreign issuers that fail to complete compliance transitions in time face restricted market access; DeFi protocols burdened with excessive compliance obligations for secondary market activities may lose core liquidity; institutions that delay building compliance infrastructure will fall behind in the competition.

The stablecoin market has reached a historic high of $301.3 billion in market cap. Regulatory clarity is not the end of the market, but the beginning of market maturity. For participants who can complete compliance transitions amid this institutional change, a larger market awaits ahead.

FAQ

When does the GENIUS Act officially take effect?

The GENIUS Act was enacted on July 18, 2025. Implementation rules must be published by July 18, 2026, with enforcement starting in January 2027.

What impact does the GENIUS Act have on DeFi?

If FinCEN extends issuers' AML obligations to secondary markets, DeFi protocols may lose stablecoin liquidity. Paradigm and Hyperliquid have jointly written to regulators opposing this approach.

What preparations do crypto exchanges need to make?

Exchanges should prioritize supporting stablecoins with PPSI licenses, while strengthening transaction monitoring and reporting capabilities to adapt to potentially tightened compliance requirements.