The Stablecoin Yield Ban: A Looming $6 Trillion Capital Flight from US Banks

The U.S. digital asset regulatory landscape is at a crossroads, with the CLARITY Act of 2025 and its restrictions on stablecoin yields sparking fierce debate over systemic financial risks and the future of banking. As stablecoin transaction volumes surged to $46 trillion in 2025-up from $7.4 trillion in 2022-the sector's rapid growth has intensified scrutiny over its potential to destabilize traditional financial systems. At the heart of this tension lies the CLARITY Act's prohibition on interest or yield payments for permitted payment stablecoins, a provision designed to prevent stablecoins from competing with bank deposits. However, this regulatory intervention has triggered warnings of a $6 trillion capital flight from U.S. banks, raising urgent questions about the balance between innovation and financial stability.

Regulatory Framework and Market Dynamics

The CLARITY Act, passed by the House in July 2025, seeks to clarify jurisdictional boundaries between the SEC and CFTC while classifying digital assets into distinct regulatory categories. A cornerstone of the legislation is its restriction on stablecoin yields, which prohibits issuers from offering interest to holders for simply holding the asset. This measure aims to mitigate the risk of stablecoins substituting for bank deposits, a scenario that could exacerbate liquidity crises by siphoning funds from traditional institutions. Complementing this effort, the GENIUS Act-enacted in July 2025- mandates that stablecoins be fully backed by high-quality assets like cash or U.S. Treasuries, further reinforcing regulatory safeguards.

Despite these measures, the Senate Banking Committee's proposed amendments to the CLARITY Act have introduced new complexities. The revised "Digital Asset Market Clarity Act," part of the broader Responsible Financial Innovation Act (RFIA) draft, seeks to address decentralized finance (DeFi) risks and enhance cybersecurity protocols for trading platforms. However, critics argue that the amendments lack robust investor protections, with former SEC Chief Accountant Lynn Turner warning of a potential "next FTX" without stronger safeguards.

Capital Flight Projections and Banking Sector Vulnerabilities

The most contentious issue remains the yield ban's potential to trigger a mass exodus of deposits from traditional banks. Bank of America estimates that up to $6 trillion in deposits could shift to stablecoin ecosystems if yield-bearing alternatives remain unregulated. This projection is rooted in the growing adoption of stablecoins for cross-border payments, remittances, and treasury management, with stablecoins now accounting for 40% of all crypto trading volume. The Federal Reserve has highlighted the risks of such a shift, noting that concentrated, uninsured deposits could amplify liquidity pressures and funding costs for banks, particularly smaller institutions reliant on stable deposit bases.

The GENIUS Act's prohibition on stablecoin yields has further exacerbated this dynamic. While the law aims to prevent destabilizing competition with banks, it has inadvertently created a "yield gap" that incentivizes capital to flow toward offshore or less-regulated stablecoin markets. This risk is compounded by the fact that 99% of stablecoins are pegged to the U.S. dollar, making them a natural substitute for traditional deposits in a low-interest-rate environment.

DeFi Innovation and Regulatory Stalemate

The CLARITY Act's yield restrictions have also sparked a broader debate about the future of DeFi. Proponents of innovation, including industry leaders like Brian Armstrong of Coinbase, argue that the ban stifles technological progress and drives users to opaque offshore platforms. Conversely, traditional banks and regulators view yield-bearing stablecoins as a systemic threat, with Bank of America CEO Brian Moynihan joining a chorus of critics warning of the $6 trillion risk.

This regulatory stalemate reflects a fundamental tension: while the CLARITY Act and GENIUS Act aim to preserve the existing financial order, they risk stifling the very innovation that has driven stablecoin adoption. The Senate Banking Committee's proposed amendments, which include enhanced cybersecurity measures and transparency requirements for digital asset service providers, attempt to reconcile these competing priorities. However, the absence of a clear path for yield-bearing stablecoins-whether through the CLARITY Act or the PARITY Act-leaves the sector in a state of uncertainty.

Investment Implications and Systemic Risks

For investors, the implications of the CLARITY Act's yield ban are twofold. First, the potential $6 trillion capital flight could erode profitability for traditional banks, particularly regional institutions with limited access to alternative funding sources. Second, the regulatory uncertainty surrounding stablecoins and DeFi may deter institutional participation, slowing the broader adoption of digital assets as financial infrastructure.

Conversely, the push for regulatory clarity-exemplified by the GENIUS Act and global frameworks like the EU's MiCA- suggests that stablecoins will remain a critical component of the global payments ecosystem. This duality presents a paradox: while stablecoins are increasingly becoming the "quiet backbone of global payments," their regulatory constraints could limit their long-term utility.

Conclusion

The CLARITY Act's yield restrictions and the looming $6 trillion capital flight risk underscore a pivotal moment in the evolution of digital assets. As Congress navigates the competing demands of financial stability, innovation, and consumer protection, the final shape of the legislation will have profound implications for both traditional banks and the crypto ecosystem. For investors, the key takeaway is clear: the regulatory landscape for stablecoins remains fluid, and the interplay between policy, market dynamics, and technological innovation will define the next phase of the digital asset revolution.