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If you’ve been worried about what the GENIUS Act can inadvertently do to DeFi lending, don’t. Stablecoins are the quiet workhorses of crypto. They’re not flashy, they don’t swing 30% in a day, and they rarely make headlines — unless something goes wrong. But behind the scenes, they power nearly every major function in decentralized finance.
Summary
- Stablecoins are the backbone of crypto, whether borrowing, trading, or providing liquidity, stablecoins enable nearly every major use case, quietly powering the ecosystem.
- The GENIUS Act is a breakthrough: passed in July 2025, it creates the first U.S. federal framework for fiat-backed stablecoins, establishing licensing, reserve, AML/KYC, and audit requirements.
- This benefits DeFi more than it hurts it, by making stablecoins more transparent and credible, the law strengthens DeFi lending infrastructure and boosts institutional confidence, without directly regulating protocols.
- Regulation isn’t the end of crypto freedom; it’s the foundation for growth. The GENIUS Act helps DeFi scale sustainably, with resilient, compliant rails that can support real-world adoption and volume.
Need to borrow against your crypto holdings? You’re likely getting a loan in a stablecoin. Providing liquidity? You’re pairing with a stablecoin. Swapping tokens? You’re probably routing through a stablecoin pool.
Stablecoins were never particularly “hot” or “trendy,” with the market paying more attention to other verticals that promised to provide endless returns or build generational wealth overnight. But the truth of the matter is that they are probably the “hottest” thing on the market right now. Let me show you why.
Currently, the stablecoin market cap stands at over $273 billion. The world’s major companies, like PayPal, Walmart, and Amazon, are engaging with stablecoins, with some of them thinking about issuing their own. The USD Coin (USDC) issuer Circle’s IPO that went live in June was so successful that it prompted other crypto companies to consider going public. Even the U.S. president’s DeFi company, World Liberty Financial, has its own stablecoin called USD1.
For years, stablecoins have fueled crypto activity, but they’ve existed in a legally gray area. Until now.
Enter the GENIUS Act
Passed by Congress and signed by President Trump on July 17, 2025, the Guiding and Establishing National Innovation for U.S. Stablecoins Act is the first federal legislation in the U.S. to create a formal regulatory framework for stablecoins.
At its core, the GENIUS Act introduces a legal basis for stablecoins that are fully collateralized 1:1 with fiat (typically U.S. dollars or other highly liquid assets), issued by non-bank entities legally operating in the United States, and licensed under a new federal “GENIUS license” or equivalent state frameworks.
It also sets clear, enforceable rules for reserve requirements, anti-money laundering procedures, and KYC compliance, as well as public disclosures and regular audits of reserves. Trump called this legislation a “new, exciting frontier” for crypto. Crypto builders agree, but not in the way one might think.
Not so grim for the DeFi lending land
I’ve seen comments and opinions that are not very excited about this legal development. And I understand why: Regulation doesn’t sound very ‘crypto land-y.’ And there’s especially a lot of frustration around what this could mean for DeFi lending, once one of the most popular areas of crypto.
Here’s the thing: the GENIUS Act doesn’t regulate DeFi, at least directly, that is. But it does handle the questions around the quiet infrastructure behind nearly every major DeFi lending protocol.
DeFi lending protocols depend on stablecoins for collateral, liquidity, and settlement. If those stablecoins aren’t credible, the whole system gets shaky. By setting strict requirements for reserves, audits, and compliance, the GENIUS Act gives DeFi access to a more secure and transparent type of stablecoin.
In practice, this could mean stronger collateral quality across lending markets, better protection for users in case an issuer fails, and clearer legal standing, making DeFi more attractive to institutions and serious builders. This doesn’t just reduce systemic risk — it helps DeFi mature into a more trustworthy and scalable alternative to traditional finance.
Sure, this law doesn’t solve everything. It doesn’t address algorithmic or crypto-backed stablecoins. It leaves wiggle room around terms like “timely redemption.” And it doesn’t directly govern how DeFi protocols use these assets. But it’s a big step in the right direction. And it’s much more than the industry had till July 17.
The bottom line
The GENIUS Act is about more than regulating stablecoins; it also lays the groundwork for a more stable, credible, and scalable DeFi ecosystem. By giving legal clarity and enforceable standards to fiat-backed stablecoins, it supports innovation without smothering it. Users get safer, more reliable tools. And the infrastructure that powers open finance gets a much-needed upgrade.
DeFi remains DeFi, but now with a more resilient, more compliant infrastructure underneath it. That makes the entire space more robust, not just for early adopters and builders, but for the next wave of users entering web3.
Because here’s the truth: freedom in finance only matters if it’s built on something stable. The GENIUS Act doesn’t restrict decentralization — it helps ensure it doesn’t collapse under its own weight. It’s not about limiting innovation. It’s about making sure the foundation doesn’t crack the moment real volume, real users, or real pressure shows up.
