Proposed restrictions under the US CLARITY Act are raising concerns that capital could exit regulated markets in search of higher yield opportunities elsewhere.
Industry participants warn that banning yield on compliant stablecoins may undermine regulatory goals rather than strengthen financial stability.
The restrictions are seen as potentially accelerating the shift of investor funds into offshore and opaque financial structures.
Colin Butler, head of markets at Mega Matrix, said banning compliant stablecoins from offering yield would sideline regulated institutions rather than protect the system.
There’s always going to be demand for yield, and if compliant stablecoins can’t offer it, capital will move offshore or into synthetic structures outside the regulatory perimeter.
Colin Butler said.
The recently enacted GENIUS Act classifies payment stablecoins as digital cash and prohibits them from paying interest to holders.
Under this framework, stablecoins such as USDC must be fully backed by cash or short-term US Treasuries.
Butler argued that the structure creates imbalance as short-term Treasuries yield around 3.6% while most savings accounts offer far lower returns.
He said banks benefit from keeping yield spreads while depositors receive minimal interest.
Butler added that earning 4% to 5% through stablecoin-related products makes capital reallocation a rational decision for investors.
Analysts say yield restrictions could fuel demand for so-called synthetic dollars.
Synthetic dollars are typically dollar-pegged instruments that rely on structured trading strategies instead of direct fiat backing.
Andrei Grachev, founding partner at Falcon Finance, warned that the main risk lies in unregulated synthetic products operating without disclosure.
The real risk isn’t synthetics themselves, but unregulated synthetics with no transparency requirements.
Andrei Grachev said.
Butler cited Ethena’s USDe as a notable example of a yield-generating product operating outside payment stablecoin definitions.
Such products generate yield through crypto collateral and derivatives strategies, placing them in regulatory grey areas.
Congress may be accelerating capital migration into offshore and less transparent structures.
Butler said.
Banks have argued that yield-bearing stablecoins could trigger deposit outflows and weaken lending capacity.
Grachev said consumers already access yield through money markets, Treasury bills, and high-yield savings accounts.
He added that stablecoins simply extend this access into crypto-native environments where traditional systems are inefficient.
Butler also warned that yield bans could weaken US competitiveness in global digital finance.
He noted that China’s digital yuan now offers interest, while Singapore, Switzerland, and the UAE are developing yield-friendly frameworks.
Banning yield on dollar stablecoins hands an advantage to foreign digital currencies.
Butler noted.
Grachev said the US could still lead by defining clear standards for transparent and auditable yield products.
He warned that the current CLARITY Act draft risks pushing innovation and capital beyond US regulatory reach.