The proposed restrictions on stablecoin yields under the US CLARITY Act risk driving capital out of regulated markets and into offshore, opaque financial structures.
Colin Butler, head of markets at Mega Matrix, said banning compliant stablecoins from offering yield would not protect the US financial system, but instead sideline regulated institutions while accelerating capital migration beyond US oversight.
“There’s always going to be demand for yield,” Butler told Cointelegraph, adding that if compliant stablecoins can’t offer it, capital will simply move “offshore or into synthetic structures that sit outside the regulatory perimeter.”
Under the recently enacted GENIUS Act, payment stablecoins such as USDC (USDC) must be fully backed by cash or short-term Treasuries and are prohibited from paying interest directly to holders. The framework treats stablecoins as digital cash, rather than financial products capable of generating yield. Butler argued that this creates a structural imbalance, particularly at a time when three-month US Treasuries yield around 3.6% while traditional savings accounts pay far less.
Butler said the “competitive dynamic for banks isn’t stablecoins versus bank deposits,” but banks paying depositors very low rates while keeping the yield spread for themselves. He added that if investors can earn 4% to 5% on stablecoin deposits through exchanges, compared with near-zero yields at banks, capital reallocation is a rational outcome.
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Yield ban could drive demand for “synthetic dollars”
Andrei Grachev, founding partner at Falcon Finance, warned that limiting onshore yield could create a vacuum filled by so-called synthetic dollars, which are dollar-pegged instruments that maintain parity through structured trading strategies rather than one-to-one fiat reserves.
“The real risk isn’t synthetics themselves – it’s unregulated synthetics operating without disclosure requirements,” Grachev said.
Butler pointed to Ethena’s USDe (USDe) as a prominent example, noting that it generates yield through delta-neutral strategies involving crypto collateral and perpetual futures. Because such products fall outside the GENIUS Act’s definition of payment stablecoins, they occupy a regulatory gray area.
“If Congress is trying to protect the banking system, they have inadvertently accelerated capital migration into structures that are largely offshore, less transparent, and completely outside US regulatory jurisdiction,” Butler said.
Banks have argued that yield-bearing stablecoins could trigger deposit outflows and weaken their lending capacity. Grachev acknowledged that deposits are central to bank funding, but said framing the issue as unfair competition misses the point.
“Consumers already have access to money markets, T-bills, and high-yield savings accounts,” he said, adding that stablecoins simply extend that access into crypto-native environments where traditional rails are inefficient.
Related: The CLARITY Act stalling is positive for the crypto industry: Analyst
Stablecoin yield bans could hurt US competitiveness
Beyond domestic concerns, Butler warned of global competitive implications. China’s digital yuan became interest-bearing earlier this year, while jurisdictions such as Singapore, Switzerland and the UAE are actively developing frameworks for yield-bearing digital instruments.
“If the US bans yield on compliant dollar stablecoins, we’re essentially telling global capital: choose between zero-yield American stablecoins or interest-bearing Chinese digital currency. That’s a gift to Beijing,” he said.
Grachev argued the US still has an opportunity to lead by setting clear standards for compliant, auditable yield products. The current CLARITY Act draft, however, risks doing the opposite by treating all yield as equivalent and failing to distinguish between transparent, regulated structures and opaque alternatives.
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