The GENIUS Act, which became law in July 2025, marks a significant shift in the regulatory landscape for stablecoins. This legislation demarcates the line between stablecoins used for transactions and yield products regarded as investments. The primary aim is to ensure that payment stablecoins function similarly to cash. This means they should be fully reserved, auditable, and easily redeemable, without functioning as vehicles for earning interest simply by holding them. The intention is to clarify the role of stablecoins in the financial ecosystem, ensuring that projects developing yield-bearing stablecoins align with these new guidelines.
#What Exactly Are Yield-Bearing Stablecoins?
In recent times, yield-bearing stablecoins have emerged as a distinctive financial product. They seek to achieve two objectives: maintaining a stable value near $1 while also providing returns to holders. Typically, these projects employ a dual-asset approach. One asset is a stablecoin pegged to the USD while the other is a yield-bearing token that embodies the claims on the stablecoin and its accrued returns.
To utilize these products, users typically mint a USD-pegged stablecoin and then stake it within a savings or vault contract. In exchange, they receive a yield-bearing token that grows in value over time, reflecting the accrued yield rather than providing traditional interest. The returns originate from various strategies employed by the protocol. Some protocols leverage crypto-native arbitrage, while others invest in real-world assets such as short-term U.S. Treasuries.
#Which Yield-Bearing Stablecoin Projects Stand Out Today?
Several prominent projects illustrate the landscape of yield-bearing stablecoins.
Falcon Finance
In Falcon Finance, users create synthetic USD, known as USDf, and can stake it to receive sUSDf. This yield-bearing token benefits from a rising value that represents accruing yield.
Falcon Finance is distinguished by its strong commitment to transparency and strategic diversification. It offers a public dashboard detailing reserves, supporting structures, and regular third-party audits. Additionally, Falcon employs multiple yield strategies, including cross-exchange arbitrage and trading during volatile market conditions.
Ethena
Ethena introduces a unique concept with its delta-neutral synthetic dollar, called USDe. This stablecoin maintains its value through strategic hedging across spot and futures markets, designed to generate returns while remaining close to $1. The yield-bearing token, sUSDe, capitalizes on rewards mainly derived from funding and basis spreads, alongside benefits from backing with liquid assets.
Sky Protocol
Sky Protocol operates with USDS and the yield-bearing token sUSDS. The sUSDS serves as a vault token deposited into the Sky Savings Rate, which reflects a decentralized finance-native savings mechanism.
#What Does the GENIUS Act Mean for Payments Stablecoins?
With the introduction of the GENIUS Act, there is a strong push to define and differentiate payment stablecoins. The law delineates that any stablecoin seeking classification as a payment stablecoin can no longer offer yield or interest to holders. This stipulation effectively bans the provision of issuer-paid interest within this category, compelling projects like Tether and Circle to comply strictly with the new regulations.
Moreover, the GENIUS Act standardizes expectations for what constitutes a "safe" stablecoin. It necessitates a backing reserve ratio of 1:1, composed solely of high-quality liquidity assets. By elevating custody and reporting standards, the new law repositions stablecoin issuers akin to financial institutions, introducing anti-money laundering rules.
#How Will Yield-Bearing Stablecoins Adapt?
The GENIUS Act does not eliminate yield within the blockchain ecosystem; rather, it transposes it. The law distinguishes between liquidity and income, necessitating structures that define yield beyond direct payment stablecoins. This creates opportunities for third-party service providers to establish yield programs, albeit with interpretative challenges.
This reapportioning of yield encapsulates underlying assets without violating the GENIUS Act's stipulations.
#Are Falcon Finance, Ethena, and Sky Protocol Compliant with the GENIUS Act?
The GENIUS Act neither outright bans nor legalizes yield-bearing stablecoin protocols. The consensus is that while these protocols manage yield products, they do not fall under the direct classification of compliant payments stablecoins. Their molds allow yield distributions through wrapper tokens that fulfill the separation aimed at stabilizing the payment token ecosystem.
#What’s the Bottom Line?
The GENIUS Act represents a fundamental shift in how yield-bearing stablecoins are structured within the financial regulatory framework in the U.S. As this legislation unfolds, it becomes clear that the perception of a yield-bearing stablecoin is evolving into a distinct type of financial instrument. The leading projects that specialize in yield-bearing mechanisms effectively align with these new definitions while separating them from the core function of payment stablecoins.