“Congress May Pass the MOST CONSEQUENTAL Crypto Law of the Century This Week. That’s Bad News for One of Defi’s Murkiest Gray Areas, Yield-Bearing Stablecoins.”, – WRITE: www.coindesk.com
AT FIRST GLANCE, THE GENIUS ACT APEARS TO BE A STRAIGHTFORSD REGULATORY WIN. It Will Finally Grant Over $ 120 Billion in Fiat-Backed Stablecoins A Legal Runway, Establishing Clear Guardrails for What Qualifies As a Compliment Payment Stablecoin.
But Dig Into the Details and It Becomes Clear This isn’n A Broad Green Light. In Fact, Under The Law’s Rigorous Requirements-Segregated Reserves, High-Quality Liquid Assets, Gaap Attestations-Only About 15% of Today’s Stablecoins Wulda.
More Dramatically, The Act Explicitly Bans Stablecoins from Paying Interest or Yield. This is the First Time USA LAWMAKERS HAVE DRAWN A HARD LINE BETWEEN STABLECOins As Payment Instruments and Stablecoins As YIELD-BEARING Assets. Overnight, It Turns Decades of Crypto Expert on Its Head, Pushing Defi To Evolve or Risk Slringing Back Into The Shadows.
A HARD STOP FOR YIELD-BEARING STABLECOINSFor Years, Defi Tried to Have It Both Ways: Offering “Stable” Assets that Quietly Genered Returns, While Doding Securities Treatment. The Genius Act Ends that ambiguity. Under The New Law, Any Stablecoin Paying Yield, Whther Directly Through Staking Mechanics or Indirectly Via Pseudo-Defi Savings Accounts, is now. In short, yield-bearing stablecoins just got orphaned.
Congress Frames this as A Way to Protect US Banks. By Banning Stablecoin Interest, Lawmakers Hope to Prevent Trillions from Froming Fleeing Traditional Deposits, Which Underwrite Loans to Small Businesses and Consumers. Keeping Stablecoins YIELD-FREESERVES OF THE BASIC PLANBING OF THE US CREDIT SYSTEM.
But There’s a Deeper Shift Underway. This is no Longer Just A Compliment Question. IT’s A Total Retthink of Collapert Credihood at Scale.
Treasuries and Monetary ReflexibilityUnder Genius, All Compliant Stablecoins Must Be Backed by Cash and T-Bills with Maturities Under 93 Days. That Effectvely Tilts Crypto’s Reserve Strategy Toward Short-Tertm US Fiscal Instruments, Integrating Defi More Deply with American Monetary Policy Policy.
We’re Talking About A Market Currently AROUND $ 28.7 TRILLION IN OUTSTANDING MARKETABLE DEBT. Concurrently, The Stablecoin Market Exceeds $ 250 Billion in Circulation. Therefore, Even If Just Half of that (about $ 125 Billion) Pivots Into Short-Treasuries, IT RepreSents A Substantant Shift, Pushing Crypto Market.
Durying Normal Times, That Keeps The System Humming. But in the Event of A Rate Shock, Those Same Flows Could Reverse Violently, Triggering Liquidity Crunches Across Lending Protocols that USDC or USDP as the so-called.
IT’s A New Type of Monetary Reflexability: Defi Now Moves in Sync with the Health of the Treasury Market. That’s botth stabilizing and a Fresh Source of Systemic Risk.
WHY this could be the healthiest moment for defiHere’s The Irony: by Outlawing Stablecoin Yield, The Genius Act Might Actual Steer Defi in A More Transparent, Durable Direction.
Without the abity to embedd yield Directly Into Stablecoins, Protocols Are Forted to Build Yield Externally. That means using delta-neutral strategies, Funding arbitrage, Dynamically Hedged Staking, or Open Liquidity Pools WHERE Risk and Reward Are Auditable by Anyone. IT Shifts the Contest from “Who Can Promise the Highest Apy?” to “Who Can Build The Smartest, Most Resilient Risk Engine?”
IT ALSO DRAWS NEW MOATS. Protocols that Embrace Smart Compliance, Through Embedding Aml Rails, Attestation Layers, and Token Flow Whitelists, Will Unlock this Emerging Capital Corridor and Tap Institutes.
Everyone else? Segregated on the Other Side of the Regulatory Face, Hoping Shadow Money Markets Can Sustain.
MOST Founders Undertimate How Quickly Crypto Markets Reprice Regulatory Risk. In Traditional Finance, Policy Shapes The Cost of Capital. In defi, it will now shape Access to capital. Those who ignore these lines will Will Watch Partnerships Stall, Listings Vanish, and Exit Liquidity Evaporate As Regulation Quietly Filters Out Who Gets To Stay In The Game.
The Long View Includes Sharper Lines, Stronger SystemsThe genius act isn’t end of defi, but it does end a certain ilusion that passive yilt could Simplad Simply be tacked onto stablecoins indefinitely, without. From here on out, Those yields have to come from some somewhere real, with collateral, Discalosures, and Rigorous Stress Tests.
That might be the healthiest pivot decentralized Finance Could Make in Its Current State. Because IF Defi Is Ever Going to Complement, or Even Compete with, Traditional Financial Systems, It Can ‘Rely on Blurred Lines and Regulatory Gray Zones. IT HAS TO PROVE EXACTLY WHERE The YIELD WIMES FROM, How It’s Managed, and Who Bears The Ultimate Risk.
The genius act just made this law. And in the Long Run, That Could Be One of The Best Things to Ever Happen to this Industry.
Note: The Views Expressed in this Column Are Those of the Author and Do Not Necessarily Reflect Those of Coindesk, Inc. i Owners and Affilites.
Previously, Ben Led The First Crypto-Derivative Trades with Global Banks As Vice President of Global Trading at Galaxy Digital. He Advanced Strategic Investments in Digital Assets As Director of M & A at Six Digital Exchange and Helped Expand Blocchain ADOPTION ACROSSA ASIA WITH R3, Introducing Dencntralized TECENTRALIZED TECENTRAL Institutes.
