Stablecoins didn’t just “grow up.” They escaped their original job.
What started as a plumbing layer between crypto and fiat has turned into real financial infrastructure. Settlement rails. Liquidity engines. In some countries, straight-up savings accounts with a dollar sign slapped on them.
That’s why the proposed yield restrictions under the US CLARITY Act matter more than policymakers seem to realize. This isn’t a narrow crypto rule tweak. It’s a structural decision about how — and where — digital dollars are allowed to compete.
And from where I’m sitting, the incentives are pointing in the wrong direction.
Why Regulators Want to Kill Stablecoin Yield (And Why It’s Not Crazy)
Under the GENIUS Act, payment stablecoins are defined as fully backed instruments — cash and short-dated Treasuries only. Digital cash. Nothing more.
Once you accept that framing, the logic follows cleanly:
If it’s cash, it shouldn’t pay interest.
If it pays interest, it starts to look like a deposit.
If it looks like a deposit, it competes with banks.
Regulators don’t like that chain reaction. They’re worried about deposit flight, balance-sheet pressure, and a shadow banking system hiding inside payment rails.
On paper, that’s internally consistent.
In the real world? It falls apart fast.
The Yield Problem Regulators Can’t Wish Away
Colin Butler’s point — and it’s the one that actually matters — is simple enough to be uncomfortable:
People don’t stop chasing yield just because you tell them to.
Right now, three-month Treasuries are throwing off around 3.6%. Meanwhile, a lot of retail bank accounts are still paying next to nothing. That spread doesn’t vanish because Congress passes a bill.
I’ve seen this movie before. Every time regulators wall off a “safe” channel, capital doesn’t retreat. It reroutes.
We’ve watched it happen with:
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leverage caps birthing shadow banking,
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capital controls driving offshore dollarization,
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derivatives limits pushing risk into darker corners.
Stablecoins are walking straight into the same trap.
Synthetic Dollars Are the Escape Hatch
If you ban yield on compliant stablecoins, you don’t kill yield. You outsource it.
That’s where synthetic dollars come in.
Ethena’s USDe is the cleanest example. No one-to-one fiat backing. Instead, it holds its peg through delta-neutral trading — crypto collateral on one side, perpetuals on the other. The yield comes from funding rates, not Treasuries.
From a user’s perspective, it does exactly what a yield-bearing stablecoin would do. From a regulator’s perspective, it sits in a gray zone that’s harder to supervise and easier to misprice.
Here’s the uncomfortable part:
If regulators squeeze the transparent version of digital dollars, demand will flow to the opaque one. Every time.
That’s how you end up with a two-tier system:
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Regulated stablecoins that are safe, clean, and boring.
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Offshore synthetics that are messy, leveraged, and way more attractive.
Guess where the capital goes.
Banks Aren’t Really Competing With Stablecoins — They’re Competing With Themselves
Banks keep framing yield-bearing stablecoins as a direct threat to deposits. I don’t buy that framing.
The real issue isn’t stablecoins stealing deposits. It’s banks paying depositors scraps while pocketing the Treasury yield spread themselves.
Stablecoins just make that imbalance obvious.
From a capital allocation standpoint, moving money toward higher-yield, low-risk instruments isn’t destabilizing. It’s rational. What’s destabilizing is pretending users won’t notice the math.
If banks want to keep deposits, they’ll have to compete on price. Not lobby regulators to freeze alternatives.
Stablecoins Aren’t “Crypto Tools” Anymore
This is the part Washington consistently underestimates.
Stablecoins are already being used for:
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cross-border settlement,
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corporate treasury ops,
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remittances,
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DeFi liquidity,
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informal dollarization in emerging markets.
In a lot of places, a stablecoin wallet is the bank account. For those users, yield isn’t a speculative bonus. It’s the difference between value preservation and slow bleed.
By banning yield on the most regulated form of digital dollars, the US is kneecapping the version that’s easiest to audit — while leaving riskier substitutes untouched.
That’s backwards.
The Dollar Has Digital Competition Now — Whether We Like It or Not
This isn’t just domestic policy. It’s geopolitical.
China’s digital yuan already experiments with interest features. Jurisdictions like Singapore, Switzerland, and the UAE are actively designing frameworks for yield-bearing digital assets.
If the choice becomes:
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zero-yield US-compliant stablecoins, or
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interest-bearing digital currencies elsewhere,
global capital won’t hesitate.
The dollar’s dominance has never been automatic. It’s always depended on liquidity, innovation, and incentives lining up. Digital finance doesn’t change that. It accelerates it.
Regulation That Simplifies Risk Usually Moves It Somewhere Worse
The CLARITY Act tries to reduce risk by flattening categories. All yield = bad. All interest = destabilizing.
That kind of simplification feels safe. It rarely is.
There’s a massive difference between:
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transparent, reserve-backed yield,
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and leveraged, strategy-driven yield with no disclosure.
Treating them the same doesn’t eliminate danger. It pushes it out of sight.
That’s the paradox Andrei Grachev is warning about. The real threat isn’t synthetic dollars. It’s synthetic dollars operating without rules because the regulated path was blocked.
We’ve Been Here Before — And We Learned the Wrong Lesson
Money market funds went through this exact cycle.
They paid better than deposits. Regulators tolerated it. Then 2008 exposed the cracks. The response wasn’t an outright ban — it was disclosure, buffers, and tighter rules.
Demand didn’t disappear. It was shaped.
Stablecoins are at the same fork in the road.
This Is a Design Problem, Not a Moral One
The real question isn’t “should stablecoins pay yield?”
It’s how yield should exist inside a regulated system.
There are options:
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capped yields tied to reserve quality,
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mandatory transparency on yield sources,
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capital buffers for issuers,
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integration with existing banking and securities law.
All of those preserve oversight while acknowledging reality.
A blanket ban does the opposite. It makes compliance a disadvantage.
The Part Nobody Wants to Say Out Loud
If the US blocks yield on compliant stablecoins while the rest of the world experiments, the outcome isn’t stability. It’s fragmentation.
Innovation moves offshore. Oversight weakens. The dollar’s digital presence fractures.
Capital doesn’t wait for permission.
It just leaves.
And once that infrastructure is built elsewhere, getting it back is a lot harder than stopping it in the first place.
Disclaimer
This article is for informational and educational purposes only and does not constitute financial, investment, trading, or legal advice. Cryptocurrencies, memecoins, and prediction-market positions are highly speculative and involve significant risk, including the potential loss of all capital.
The analysis presented reflects the author’s opinion at the time of writing and is based on publicly available information, on-chain data, and market observations, which may change without notice. No representation or warranty is made regarding accuracy, completeness, or future performance.
Readers are solely responsible for their investment decisions and should conduct their own independent research and consult a qualified financial professional before engaging in any trading or betting activity. The author and publisher hold no responsibility for any financial losses incurred.