How Does GENIUS Act Regulate Yield-Bearing Crypto Assets?

Summary

• The GENIUS Act, signed into law in July 2025, draws a hard line between payment and yield-bearing stablecoins, requiring the former to function as fully reserved settlement instruments. 
• It effectively prohibits issuers of payment stablecoins from paying interest directly to holders. The law also standardizes safety requirements via liquid reserves, grants token holders priority claims on reserves, strengthening protections in insolvency scenarios, and stronger custody, reporting, and AML requirements for issuers. 
• Yield isn’t eliminated, it’s pushed into wrapper or dual-token structures, where the base settlement token stays non-yielding and a separate “staked” token captures returns via price appreciation.  
• Falcon Finance is an example of this approach, using USDf (non-yielding) plus sUSDf (yield layer) alongside transparency disclosures, attestations, and diversified collateral, including RWAs like tokenized gold, stocks, onchain government bonds. 

Introduction

The signing of the GENIUS Act in July 2025 marked a watershed moment for the digital asset market, effectively drawing a definitive line between stablecoins used for payments and those designed for investment. For years, the industry operated in a gray area where the distinction between digital cash and investment products was blurred. The new legislation clarified this by mandating that payment stablecoins function strictly as stable, fully reserved settlement instruments.

What Is a Yield-Bearing Stablecoin?

A hybrid financial product, a yield-bearing stablecoin is designed to maintain a stable $1 unit of account while simultaneously distributing returns to its holders. To navigate the complexities of both technology and regulation, most leading projects utilize a dual-asset architecture:

1. The settlement layer: a USD-pegged token or synthetic dollar intended to stay at $1.
2. The yield layer: a separate yield-bearing token (often its “staked” version) that represents a claim on the underlying stablecoin, plus any accumulated returns.

Rather than paying traditional interest, these protocols typically reflect yield through the appreciation of the yield-bearing token’s price relative to the base stablecoin. The underlying revenue is generated through diverse strategies, ranging from crypto-native arbitrage and derivatives funding spreads to backing tokens with real-world assets like short-term U.S. Treasuries.

Regulatory Line in the Sand

The core of the GENIUS Act is a prohibition on payment stablecoins paying interest. If an asset seeks the legal protections and distribution advantages of being a payment stablecoin, akin to digital cash, it cannot offer yield to its holders. This effectively mandates that widely used settlement stablecoins like USDT or USDC do not bear interest.

Beyond yield restrictions, the law standardizes the “safety” of the base layer:

• One-to-one reserves. Settlement stablecoins must be backed by high-quality, liquid assets such as Fed balances or short-term Treasuries.
• Insolvency protection. Holders of tokens officially designated in the U.S. as stablecoins are granted priority claims on reserves, ensuring they are treated as owners of the underlying assets rather than general creditors in a bankruptcy scenario.
• Institutional standards. Stablecoin issuers must comply with robust custody, reporting, and anti-money laundering (AML) requirements.

How Falcon Finance Aligns with the New Regulation

Under the framework of the GENIUS Act, Falcon Finance’s architecture is strategically positioned to navigate the new distinction between payment stablecoins and investment products. The protocol’s dual-asset design (USDf synthetic dollar and its yield-bearing counterpart, sUSDf) directly mirrors the regulatory requirement to separate settlement liquidity from interest-bearing instruments.

The Act prohibits issuers of payment stablecoins from paying interest to holders. Falcon Finance is designed to align with the emerging regulatory framework by ensuring that its base settlement asset, USDf, remains a non-yielding vehicle. Yield is instead isolated within the sUSDf wrapper token. This structure ensures that the base layer remains simple and robust, while risks associated with yield strategies are made explicit through a separate staking token.

Furthermore, Falcon’s operational model aligns with the emphasis on transparency and asset quality:

1. Diversified collateral. The protocol utilizes a wide range of backing assets, including blue-chip cryptocurrencies, stablecoins, and real-world assets (RWAs) like tokenized gold and Treasuries.
2. Institutional disclosure. Falcon Finance provides a public transparency dashboard that breaks down reserves, backing ratios, and strategy allocations in real-time.
3. Verified attestations. To meet the elevated reporting standards of the new law, the protocol publishes recurring third-party attestations to verify its reserve backing.

By relocating yield into a dedicated staking instrument rather than the base currency, Falcon Finance provides a “yield experience” that is within the new legal boundaries established for cryptocurrencies.

The Relocation of Yield

Overall, the GENIUS Act does not ban yield, it relocates it. By pushing returns into “wrapper” tokens like sUSDf, the law ensures that risks are explicit and the base payment layer remains robust.

Legal experts suggest that while an issuer cannot pay interest on a payment stablecoin, third-party service providers and DeFi “wrapper” structures can still build yield-bearing products around these assets. This creates an investment experience where the return is structured as a separate claim on an underlying pool of assets, rather than interest paid directly on the medium of exchange.