Written by: Haotian
Tether is getting audited, Circle ($CRCL) has plummeted, but the CLARITY Act has seen substantive progress after being stalled for months.
These three events seem to point to one truth: The Crypto-native forces that stablecoins originally relied upon have formally compromised with the old-banker dudes behind TradFi. Why is that?
1) Tether undergoing an audit is very, very unexpected. Paolo Ardoino has always been tough. Tether has been "pronounced dead" under regulatory pressure for so many years, yet it still became the world's number one despite being opaque and unaudited.
Now, proactively seeking an audit from a Big Four firm is because it has sniffed out in advance that the CLARITY Act is about to be enacted. To avoid being downgraded to a grey asset and kicked off the table, it has no choice but to take the initiative and back down.
2) Frankly, the plummet of Circle ($CRCL) is baffling. I don't think it's due to the impact of Tether's move towards compliance threatening its leading position. As the stablecoin most welcomed by regulators, theoretically, the enactment of the CLARITY Act should be its moment to shine, but it actually fell instead.
The reason is that the clause prohibiting stablecoins from offering passive interest to holders has killed the strongest driver that fueled USDC's growth in the past. Without this, why would users move their money out of banks to convert it into USDC? This is essentially the market repricing the structural issues in Circle's business model.
3) As for the CLARITY Act, after being "strangled" for months, a compromise result suddenly emerged. The conclusion is: activity-based rewards are allowed, but you can't earn money by just sitting idle. It looks like both sides took a step back, but in reality, the old-banker dudes have won big.
The bankers' logic for opposing the bill's passage has been simple: they worry that once the interest rate differential between banks' 0.1% deposit rates and stablecoins' 4-5% on-chain yields is legalized, the $6.6 trillion in retail deposits will eventually migrate on-chain. The compromise clause has defused this bomb.
But here's the question: what exactly are activity-based rewards, and what are the reward rules? These are all grey areas. This is absolutely a major negative for CEX exchanges, but might be a short-term positive for DeFi? Because in the past, exchanges offering stablecoin wealth management products, with returns on demand deposits, were a primary means of user retention. Now, with the passive interest framework restricted, compliance pressure will directly hit them.
On the contrary, DeFi might exploit loopholes because the definition of "activity-based rewards" is naturally DeFi's home turf. Activities like providing liquidity, participating in governance, and executing trades are inherently on-chain behaviors, making it much easier to fit into the "activity-based rewards" box than for CEXs.
