GENIUS Act Helps Stablecoins, but Not DeFi Loans
The Fed rules under the GENIUS Act give stablecoins more clarity, but according to Ajna, DeFi loans remain vulnerable because of governance and bad oracles.
Key Takeaways
- The GENIUS Act and Fed rules require stablecoin issuers to hold reserves, publish monthly reports, and honor redemptions within two business days.
- Ajna says these rules do not solve DeFi lending, because governance and price feeds can affect loan terms and liquidations.
- For investors, the risk remains that stricter stablecoin rules do not protect against mistakes in onchain lending protocols.
The new U.S. rules for stablecoins give institutions more clarity, but according to Ajna, they do not solve the biggest problem in DeFi lending. Mike Hathaway and Joseph Quintilian say that a fully backed stablecoin offers no protection if the terms of a loan can still be changed later through a governance vote or if a price feed breaks.
New Rules for Stablecoins
The Federal Reserve recently set two rules to carry out the GENIUS Act, the U.S. law for stablecoins. It says issuers must hold reserves, publish reports every month, and honor redemptions within two business days. The law itself took effect on July 18, 2025, and is meant to provide a clearer framework for stablecoins in the United States.
According to the authors, that framework is welcome, especially because stablecoins are being used more and more for payments and other institutional uses. But once those dollars end up in DeFi loans, a different risk starts. There, an oracle can set the price for liquidations, while token holders can still vote later on the protocol’s rules.
Where the Risk Is
Hathaway and Quintilian warn that this combination of price feeds and governance is exactly what makes the system more fragile. If the same small group of decision-makers or the same feed makes a mistake, it can ripple through multiple markets at once. They point to recent incidents at Stream Finance, Moonwell, Aave, and Vesu, where bad input led to losses or liquidations.
Their main point is simple: a lending desk cannot properly judge a loan if the terms can still change after it has been issued. In their view, the risk should therefore not only be about the quality of the stablecoin itself, but also about who can change the lending protocol’s rules.
Why This Matters for Investors
For European crypto investors, this matters because the debate shows that regulation at one layer of the market does not automatically provide protection at another layer. Even if stablecoins are more tightly supervised soon, onchain lending markets will still depend on their own rules, price feeds, and governance structure. That makes the difference between the stablecoin issuer and the protocol where that token is used especially important. Earlier, the SEC already showed how governance tokens are judged differently when decision-making is truly spread across many holders, but that nuance quickly disappears once a small board or a vulnerable feed can steer the outcome.