Author: Zuo Ye Web3
Stablecoins generate interest, liquidity circulates.
The legislation is progressing smoothly and is expected to bring multiple benefits to stablecoins, tokenization, and DeFi development by mid-year. However, the prohibition on passively generating interest for stablecoins also makes the future of on-chain uncertain .
This is not an unfounded worry. From ETFs and DAT to Wall Street's RWA, there is a constant struggle for pricing power in crypto. Compliance often means acknowledging the established framework and extinguishing the flame of grassroots innovation in the name of stability.
ETFs sacrificed BTCFi, DAT created a systemic crisis, and RWA rejected existing public chains.
The Clear Act, on the surface, compresses arbitrage opportunities for offshore dollar stablecoins such as $USDT, but in reality, by splitting and combining payments and returns, the United States is attempting a new model for dollar circulation beyond gold, oil, and credit.
The story of stablecoin payments has essentially come to an end; the chapter of stablecoins generating interest is about to begin.
Three out of three, pay with stablecoins
“
Setting my heart on money learning pleasure more than Thee.
I've always wondered how the Genius Act actually made the narrative of "paying stablecoins" a reality.
As Wall Street giants lay out their tokenization strategies on the eve of the passage of clear legislation, this doubt is growing. Yes, I'm not wrong, they are setting up tokenization businesses in order to generate interest on stablecoins.
On May 8, BlackRock announced plans to launch two new TMMFs (tokenized money market funds) in addition to BUILD: BSTBL and BRSRV.
On May 13, JPMorgan Chase launched its second TMMF, the JLTXX series, in addition to MONY.
Furthermore, BlackRock explicitly stated that the new product is designed to meet the growing needs of stablecoin issuers, and JPMorgan Chase also emphasized compliance with the Genius Act's eligibility requirements.
A closer look at the provisions reveals that the Genius Act does indeed add provisions for tokenization, allowing tokenized forms of US Treasury bonds and the US dollar to be used as reserves for stablecoin issuance.
This doesn't explain the relationship between stablecoins, tokenization, and payments; we need to explore that further.
Under the Genius Act, stablecoin issuance qualifications are allocated to the OCC's federal chartered banking mechanism. These banks are not allowed to accept deposits and must have sufficient reserves, and cannot steal credit business from commercial banks.
In this context, policy created market demand , and stablecoin issuers either built their own reserves, such as USDT and USDC, which bought US Treasury bonds in large quantities, surpassing many sovereign nations.
Alternatively, they can directly purchase RWA assets such as TMMF, which is crucial for stablecoins like USDS/sUSDS that rely on profit sharing to attract users.
Eliminates the complicated process of subscribing to and redeeming US Treasury bonds;
On-chain profit sharing and real-time interest generation are more in line with our habits.
According to data from @ElectricCapital, 98% of BlackRock's BUIDL shares were subscribed by various interest-bearing stablecoin issuers.
Moreover, the most ingenious part is that retail investors cannot directly purchase tokenized products; the policy shapes the market structure , which is the secret to how the brilliant bill can create "payment stablecoins".
A law cannot be enforced by market participants through coercion alone; otherwise, USDT would not have remained underground for so many years. Only by following market trends can one achieve maximum results with minimal effort.
Image caption: TMMF supports stablecoin payments.
Data source: @ElectricCapital
Although BlackRock's tokenized products circulate on-chain, they cannot be purchased without permission and still need to comply with KYC, qualified investor and other review conditions, and are basically sold to B-end customers.
You cannot monitor decentralized individual transactions, just as the US government cannot monitor the circulation of US dollar cash, but monitoring a few giants is easy.
By recognizing tokenized assets, the United States has cleverly constructed a viable framework between stablecoin issuers, Wall Street giants, and regulators, ensuring that stablecoins received by users can only be used for payments because they cannot generate interest.
A brilliant bill that links stablecoins with tokenization answers the question raised earlier, making stablecoins the final retail layer of US Treasury bonds.
In the past, the US dollar relied on the credit mechanism of commercial banks; in the future, the US dollar will rely on the intermediary role of tokenized companies.
Arbitrage opportunities, stablecoin interest-bearing
“
Caring for worldly things more than God.
If the Genius Act acknowledges that tokenization has created stablecoins for payments, then the Clarity Act restricts the development of stablecoins that generate interest through tokenization.
The importance of earning interest does not lie in the banking industry's concern about deposit outflows; opening an account with JPMorgan Chase is difficult, and making money with Coinbase is difficult.
Observe that under the Clarity Act, if users choose to stake their assets for interest, ideally, the only source of interest for stablecoin issuers can be US Treasury products .
However, this also raises new issues. In a sense, stablecoins like Sky/Ethena that issue on-chain do not need to obtain an OCC banking license first, so new arrangements need to be made for interest generation, especially DeFi interest generation.
Excessive regulatory costs are the fundamental reason why Congress has made "lenient" arrangements for DeFi development. In addition, the US dollar needs stablecoins for distribution.
Image caption: Giants vie for clear legislation
Image source: @zuoyeweb3
This distribution falls into two main categories: one is the B-end customer acquisition path between giants, and the other is on-chain and cross-regional C-end arbitrage issuance.
Among the giants, the bet is on the strictness of the "prohibition of passive interest generation," and the role of intermediaries will also differ accordingly. If DeFi is also restricted, the consortium blockchain model may be revived. If it is relatively lenient, then it can cooperate more deeply with on-chain stablecoins.
Furthermore, the intermediary model of giants is difficult to bypass. Ondo and others choose to act as retail distribution layers for giants, while OSL and others choose the overseas compliant USD stablecoin track.
Extending this further, Sky added diversified "RWA" to the USDS reserves, which is essentially leveraged arbitrage, subtly converting full reserves into partial reserves.
A key next demand is how to boost stablecoin yields on top of US Treasury bonds, which requires more complex financial engineering designs. This is where various DeFi yield strategies come in.
It can be seen that the interest-bearing mechanism targets offshore USD stablecoins such as $USDT, allowing BlackRock's TMMF to replace its position as a buyer of government bonds.
New arbitrage opportunities will emerge for on-chain USD and compliant offshore USD. Since they cannot reliably earn large-scale US Treasury yields, they must continuously promote utilization growth, thereby indirectly promoting the circulation of USD and stable purchases of US Treasury bonds.
Between tightening and loosening, users will try to use stablecoins as much as possible because holding them will depreciate, while the interest generated from using them will flow back into the US financial system, since the underlying asset is US Treasury bonds.
This is the true purpose of the Clear Act: to create individual demand for the US dollar globally. Stablecoin issuance requires US Treasury bonds, and stablecoin interest generation also requires US Treasury bonds , ultimately completing the cycle.
Conclusion
To transcend the limitations of sovereign states, it is necessary to rely on paying for this rigid demand.
However, promoting the adoption of stablecoins must rely on a direct mechanism like yield.
Both the Genius Bill and the Clarity Bill focus on the entanglement of stablecoins and interest-bearing activities. They cannot control DeFi and cross-regional arbitrage, which is why Wall Street is needed to act as an intermediary to manage yields. This can also give us peace of mind that regardless of whether the Clarity Bill is passed as scheduled, the arbitrage mechanism will never sleep.
