US stablecoin yield ban could push capital offshore, experts warn
Proposed limits on stablecoin yields in the US CLARITY Act could steer funds away from regulated markets and toward offshore or synthetic dollar products, according to industry participants.
Colin Butler, head of markets at Mega Matrix, said that prohibiting yield on compliant stablecoins would not enhance financial stability and would instead reduce the role of regulated entities while accelerating capital flows beyond US oversight. He noted that demand for yield is persistent and, if restricted onshore, would likely shift to offshore venues or structures 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 US Treasuries and are barred from paying interest directly to holders. The framework treats these tokens as digital cash rather than yield-bearing financial instruments. Butler said this creates a structural mismatch, citing three-month US Treasuries yielding about 3.6% while traditional savings accounts offer far lower rates.
He added that the primary competitive issue is not stablecoins versus bank deposits, but banks retaining the yield spread while paying depositors minimal interest. Butler said that if investors can earn 4% to 5% on stablecoin balances through exchanges compared with near-zero bank yields, reallocating funds would be a rational decision.
Yield restrictions could boost demand for synthetic dollars
Andrei Grachev, founding partner at Falcon Finance, said limiting onshore yield could create space for “synthetic dollars” — instruments pegged to the dollar via structured trading strategies rather than one-to-one fiat reserves. He emphasized that the concern centers on unregulated synthetic products that operate without disclosure requirements.
Butler cited Ethena’s USDe (USDe) as an example, explaining that its yield is generated through delta-neutral strategies using crypto collateral and perpetual futures. Because such products fall outside the GENIUS Act’s definition of payment stablecoins, they sit in a regulatory gray area.
He added that efforts to protect the banking system may inadvertently push capital into less transparent, largely offshore structures beyond US jurisdiction. While banks have warned that yield-bearing stablecoins could draw deposits away and constrain lending, Grachev said deposits are important to bank funding but argued that consumers already have access to money markets, T-bills and high-yield savings. In his view, stablecoins extend similar access to yield within crypto-native channels where traditional rails are less efficient.
Stablecoin yield limits may weigh on US competitiveness
Butler also pointed to international dynamics. China’s digital yuan became interest-bearing earlier this year, and jurisdictions including Singapore, Switzerland and the UAE are developing frameworks for yield-bearing digital instruments.
Source: Senator Cynthia Lummis
He said preventing yield on compliant dollar stablecoins could encourage global capital to favor interest-bearing alternatives outside the United States. Grachev said the US could still lead by establishing clear standards for compliant, auditable yield products, but warned that the current CLARITY Act draft risks treating all yield as equivalent, without differentiating between transparent, regulated structures and opaque alternatives.
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