It’s not even a month since Stablecoin Yields the U.S. government passed the GENIUS Act, marking a pivotal point in U.S. crypto regulations. It focused particularly on stablecoins and was designed to keep a tight leash on stablecoin issuers, prohibiting them from offering interest directly to the users. It was a way to align them with traditional financial regulations.
At the start, the act seemed like a setback for every crypto investor looking for passive income. However, stablecoins did not collapse under the weight. This new law has led to a notable rise in interest-generating stablecoins. Instead of fading away, stablecoins like USDe and USDS saw a rise in both popularity and supply. Why? Because they have adopted more decentralized models of delivering returns.
What has the GENIUS Act changed? 
The GENIUS Act demands a stern breakup between issuing stablecoins and profit-production. Earlier, issuers used to directly pay interest to the users, this, under the act, can no longer be done. This prevents stablecoins from functioning like unstructured, unregulated savings accounts. The intention behind bringing such a law is to enhance customer protection by preventing risks generated from murky practices. Thus, issuers offering passive income through DeFi protocols accelerated.
The rise of USDe and USDS
The GENIUS Act affected two stablecoins the most. These have seen explosive growth in particular. One is USDe by Ethena, which has surged 70%, reaching over 9.49 billion. The other is USDS by Mountain Protocol, which has expanded by 23%, with 4.81 billion in circulation. These two have now become the third- and fourth-largest stablecoins by market capitalization. In doing so, they have outperformed many other stablecoins that once dominated the space.
How are they yield-bearing yet compliant?
These stablecoins, instead of promising direct yield, allow users to stake or lend their coins via DeFi apps to earn passive income. This allows them to earn interest based on market activities, incentives, strategies, etc. This setup complies with U.S. regulations and allows users to navigate a way to grow their assets. According to experts, this model is more attractive for crypto users and institutions, as it is more sustainable.
How does it work in practice?
USDe specifically uses ETH eternal futures, which is a type of never-expiring derivative contract. This strategy of yield generation is a kind of trading strategy referred to as delta-neutral. Under this, long and short positions are balanced in such a way that there is no impact from price movement. It is a ‘synthetic’ yield, which comes not from lending but from a trading strategy that mimics stable income.
USDS strategizes to earn interest by investing in real-world assets such as U.S. Treasury bonds. These assets are tokenized and managed by custodians. The income generated from these treasuries is distributed to holders via decentralized smart contracts and doesn’t come from the issuer. This way, it uses on-chain systems, transparent and trackable on the blockchain.
Conclusion: A new era for yield in crypto
The yield landscape has changed, not disappeared, as a result of the GENIUS Act. In fact, it has encouraged the necessity of safer and compliant classes of stablecoins by forcing issuers to keep the creation of money and income distinct. This shift is being led by projects like USDe and USDS. They are bridging DeFi and regulation in a way that may define the next stablecoin utility era.
