Who Gets the Yield? The CLARITY Act and the Battle Over Onchain Dollars

The CLARITY Act of 2025 has emerged as a pivotal piece of legislation reshaping the U.S. digital asset landscape, particularly in its treatment of stablecoin yields and institutional access to digital dollar infrastructure. By codifying regulatory boundaries and clarifying jurisdictional roles between the SEC and CFTC, the Act has sparked a contentious debate over who controls the financial value of onchain dollars. For investors, the implications are profound: the Act's restrictions on yield-bearing stablecoins, coupled with its facilitation of institutional participation, are redefining the competitive dynamics of digital finance.

Regulatory Framework: Clarity or Constraints?

The CLARITY Act (H.R.3633) and the GENIUS Act of 2025 collectively establish a dual-layered regulatory architecture for stablecoins. The CLARITY Act prohibits digital asset exchanges from offering yield on stablecoins, a move that aligns with broader efforts to prevent stablecoin holders from accessing interest-bearing returns typically reserved for traditional banking systems. Instead, the Act permits "activity-based rewards" tied to transactions, effectively channeling value creation into infrastructure providers and custodians.

Concurrently, the GENIUS Act, signed into law by President Trump, mandates that payment stablecoins be fully backed by U.S. dollars or short-term Treasuries. This requirement ensures that stablecoins function as "high-efficiency wrappers" for traditional currency, but it also bars issuers from offering interest to holders. By removing stablecoins from the SEC and CFTC's regulatory purview, the GENIUS Act has created a banking-centric framework where permitted issuers dominate the stablecoin ecosystem.

These provisions have significant investment implications. For one, they centralize control over stablecoin issuance and reserves within traditional financial institutions, which now hold a monopoly on liquidity management. This dynamic favors banks and regulated custodians, who can monetize stablecoin infrastructure through custody fees and transaction-based rewards. Conversely, decentralized platforms and DeFi protocols face constraints in generating yield, potentially stifling innovation in yield-generating models.

The Battle Over Yield: Banks vs. Platforms

The CLARITY Act's yield restrictions have intensified a long-standing conflict between traditional banks and digital asset platforms. Banks, which have historically controlled interest-bearing assets, view the prohibition on stablecoin yields as a strategic victory. By limiting stablecoin holders to non-interest-bearing balances, the Act reinforces banks' dominance in capital allocation.

Platforms, however, argue that the restrictions undermine the utility of stablecoins as programmable money. As stated by a report from the Senate Banking Committee, the Act's focus on "activity-based rewards" rather than yield dilutes the incentive for users to engage with onchain ecosystems. This tension is evident in the market: while institutional investors have flocked to regulated stablecoin wrappers and exchange-traded products (ETPs) post-CLARITY Act, retail users face fewer avenues to earn returns on their holdings.

For investors, this dichotomy creates a bifurcated market. Institutional players can now access digital dollar infrastructure through SEC-approved ETPs and custody solutions, while retail investors are funneled into yieldless stablecoins or forced to seek alternatives in unregulated DeFi markets. This regulatory arbitrage raises risks for retail participants but offers institutional investors a low-volatility, high-liquidity asset class with growing adoption.

Institutional Access: A New Era of Legitimacy

The CLARITY Act's role in legitimizing digital assets cannot be overstated. By delineating clear regulatory boundaries, the Act has enabled institutional investors to integrate stablecoins into their portfolios with greater confidence. According to KPMG's Tony Tuths, the Act's passage has accelerated institutional adoption, with major banks preparing to issue stablecoins and improve custody solutions. This trend is further supported by the SEC's approval of generic listing standards for digital-asset ETPs, which allows investors to hold exposure to digital assets through standardized, regulated vehicles.

The investment implications here are twofold. First, institutional demand for stablecoin-backed ETPs and custody services is expected to drive capital inflows into regulated infrastructure providers. Second, the Act's emphasis on cybersecurity and DeFi oversight-such as mandatory NIST-compliant protocols-reduces systemic risks, making the ecosystem more attractive to risk-averse investors.

Future Outlook: State-Level Innovation and DeFi's Resilience

While the CLARITY and GENIUS Acts have centralized stablecoin regulation at the federal level, they also leave room for state-level experimentation. The GENIUS Act explicitly permits smaller stablecoin issuers to operate under state regimes that mirror federal requirements, potentially fostering innovation in niche markets. This could lead to a patchwork of regulations, creating opportunities for agile firms to capture market share in less restrictive jurisdictions.

Meanwhile, DeFi protocols are likely to persist in offering yield through unregulated channels, despite the Act's restrictions. As noted in a Senate Banking Committee report, the legislation's focus on "cybersecurity and market structure" may not fully address the risks of decentralized lending and borrowing platforms. For investors, this duality-regulated stability versus unregulated innovation-presents a strategic choice between safety and scalability.

Conclusion

The CLARITY Act has redefined the economics of onchain dollars by centralizing stablecoin issuance and restricting yield generation. While this has bolstered institutional access and regulatory clarity, it has also created a power imbalance favoring traditional banks and custodians. For investors, the key takeaway is that the digital dollar infrastructure is now a core asset class, but its value is increasingly mediated by regulatory frameworks that prioritize stability over innovation. As the debate over yield continues, the next phase of digital finance will likely hinge on how effectively platforms can navigate these constraints while maintaining user engagement.