The debate over the US CLARITY Act and the GENIUS Act is heating up as industry experts warn that prohibiting yield on regulated stablecoins could backfire. While US lawmakers aim to protect the traditional banking system, critics argue that these restrictions won’t stop the hunger for returns—it will simply push American capital toward “unregulated instruments” and offshore entities.
The Risks of Sidelining Regulated Stablecoins
According to Colin Butler, head of markets at Mega Matrix, banning compliant stablecoins from offering yield doesn’t necessarily protect the US financial system. Instead, it may sideline regulated institutions. Under current frameworks, payment stablecoins like USDC must be backed by cash or short-term Treasuries but are strictly prohibited from paying interest to holders.
This creates a significant structural imbalance. With three-month US Treasuries yielding around 3.6%, investors are increasingly frustrated with traditional bank accounts that offer near-zero returns. Butler suggests that if investors can find 4% to 5% yields through stablecoin deposits on exchanges, moving capital out of the regulated US perimeter is a rational, albeit risky, economic choice.
The concern isn’t just about domestic bank deposits; it’s about transparency. When capital moves offshore to chase yield, it enters “opaque financial structures” that sit entirely outside of US oversight. This migration makes it harder for regulators to monitor systemic risks or protect consumers if an offshore entity fails.
The Rise of “Synthetic Dollars” and Global Competition
As onshore yield options vanish, experts like Andrei Grachev of Falcon Finance warn of a surge in synthetic dollars. These are dollar-pegged instruments maintained through complex trading strategies—like delta-neutral positions using perpetual futures—rather than one-to-one fiat reserves. A prominent example is Ethena’s USDe, which operates in a regulatory gray area because it doesn’t fit the legal definition of a “payment stablecoin.”
The danger isn’t the technology itself, but the lack of disclosure. Unregulated synthetics operate without the rigorous auditing requirements that US-based issuers face. By effectively banning yield on “safe” stablecoins, the US may be inadvertently fueling the growth of these less transparent alternatives.
Furthermore, there is a geopolitical dimension to consider. While the US moves to restrict digital yields, other nations are leaning in:
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China: The digital yuan became interest-bearing earlier this year.
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Global Hubs: Singapore, Switzerland, and the UAE are actively building frameworks for yield-bearing digital assets.
Butler warns that the US is essentially giving a “gift to Beijing” by forcing global capital to choose between zero-yield American tokens and interest-bearing digital currencies from competitors. Rather than a blanket ban, many in the industry argue the US should set clear, auditable standards for yield products to maintain its lead in the global digital economy.
