Since the GENIUS Act came into effect in the United States on July 18, 2024, there has been a significant increase in the circulating supply of yield-bearing stablecoins. This legislation prohibits issuers from offering direct yields on stablecoins, which has driven the growth of tokens that generate returns through staking mechanisms in decentralized protocols. Ethena USDe (USDe) and Sky’s USDS (USDS) have particularly stood out, experiencing notable increases in supply and market capitalization.

Context and Scope of the GENIUS Act

The GENIUS Act (Generating Efficiencies and Nurturing Innovation in US Stablecoins) is a regulation passed in July 2024 that establishes new rules for the issuance and management of stablecoins in the United States. One of its key provisions prohibits issuers from paying direct interest or yields to stablecoin holders, aiming to reduce regulatory risks and protect retail investors from unsustainable high-yield schemes.

This regulatory framework seeks to provide greater clarity to the stablecoin industry amid a global context of increasing financial oversight. However, it has prompted some projects to adopt alternatives to maintain the attractiveness of their tokens, such as the use of staking within decentralized protocols.

Growth of USDe and USDS Supply After the Regulation

Since the enactment of the GENIUS Act, the total supply of certain stablecoins that offer yield through staking has grown significantly:

• USDe (Ethena): Circulating supply increased by 70%, reaching approximately $9.49 billion. This positions USDe as the third-largest stablecoin by market capitalization.
• USDS (Sky): Supply increased by 23%, strengthening its presence in the yield-bearing stablecoin market.

Both stablecoins have avoided offering direct interest, instead leveraging staking within their ecosystems to generate returns for users. This model has attracted investors interested in stablecoins that maintain price stability while offering passive income.

Impact on Ethereum, Bitcoin, and Other Cryptocurrencies

The rise of yield-bearing stablecoins influences the broader crypto ecosystem, particularly networks that support smart contracts and DeFi protocols.

Ethereum and DeFi

Ethereum hosts the majority of staking protocols. The increased activity of USDe and USDS drives higher demand for native tokens and gas to interact with smart contracts. This may lead to greater network activity and potentially higher transaction fees. It also reinforces Ethereum’s position as the leading platform for decentralized finance (DeFi).

Bitcoin and Interoperability

Bitcoin does not natively support complex smart contracts, so its direct impact is limited. However, the growing preference for yield-bearing stablecoins may encourage the development of Layer 2 projects or cross-chain solutions that connect Bitcoin to these ecosystems, boosting interoperability and adoption.

Other Blockchain Networks

Protocols such as Solana, Avalanche, and Polygon could also benefit if they implement similar yield-bearing stablecoin models, increasing competition and diversity in the market.

Regulatory Challenges and Associated Risks

The GENIUS Act represents progress in the regulation of stablecoins in the U.S., but also raises future challenges:

• Regulatory adaptation: The existence of staking-based yield-bearing stablecoins suggests that issuers are seeking legal alternatives to offer returns. This could prompt regulators to revise or expand the law to cover such indirect mechanisms.
• Risks for users: While staking can generate returns, it involves risks related to protocol volatility, smart contract vulnerabilities, and potential future regulatory restrictions.
• Impact on innovation: Restrictive regulation may limit certain DeFi initiatives, but could also promote safer, more transparent models that contribute to market maturity.

Issuers and users must stay informed on regulatory changes and carefully evaluate opportunities against inherent risks.

Summary

Following the implementation of the GENIUS Act, the supply of yield-bearing stablecoins has grown notably, with Ethena’s USDe and Sky’s USDS leading the way. These stablecoins use staking to offer yield without violating the regulation, boosting their capitalization and adoption. This trend has important implications for Ethereum and the DeFi ecosystem, and could influence the regulatory and technological evolution of cryptocurrencies. Risk assessment and regulatory monitoring are essential for users and investors.