Will the CLARITY Act Kill Stablecoins?

July 23, 2026 | Over the past year, a number of readers of The Institutional Risk Analyst have asked us about stable coins and the connection to the Treasury market.  The short answer is that stable coins were initially touted by members of the Trump Administration as a means to increase purchases of Treasury securities, but we discounted such prognostications.

Treasury Secretary Scott Bessent, for example, argued that the "tenfold" growth of stablecoins would create massive new private-sector demand for U.S. government debt. Because stablecoins are typically backed by reserves, an expanding ecosystem directly translates to heavy purchasing of short-term Treasury bills, right? Bessent believed incredibly that growth in stablecoins would help lower government borrowing costs and rein in the national debt. Neither of these things happened.

Bessent stated early in the Trump Administration that expanding the stablecoin market will create a "surge in demand for US Treasuries, which back stablecoins," but he was clearly mistaken. Other luminaries like Goldman Sachs CEO David Solomon predicted a stablecoin gold rush. Nope.

In fact, growth in stablecoins has slowed dramatically as the value of bitcoin and other speculative tokens has plummeted. Notice that Bessent has not had much to say on the subject of stablecoins recently as Treasury yields have steadily risen. Indeed, the exuberant enthusiasm toward crypto tokens and stablecoins has largely evaporated in recent months, at least so far as Wall Street firms are concerned.

To us, a stable coin is simply a prepaid gift card with a new tech wrapper.  You give the issuer of the stablecoin your fiat dollar and they give you a token called a “stablecoin” which they promise to redeem at the same value. You may be required to pay a fee for the purchase of the stablecoin. The issuer takes your cash and invests the proceeds in Treasury securities, Ginnie Mae MBS or bank deposits to fulfill the promise to redeem at par. 

As you can see, the issuer of the stablecoin does buys high-quality liquid assets (HQLA), but does this result in a net increase in Treasury purchases overall? Probably not. The cash used to buy the stablecoin likely came from a bank, so when the funds were withdrawn from the bank to buy the stablecoin, the bank sold HQLA. 

A reader of The IRA asked: “Can you shed light on something disturbing I recently heard about? Because world governments are not buying and/or have sold massive amounts of  US Treasuries, the big one being China, stablecoins will be issued so that anyone will be able to purchase US Treasuries, thru the banks.”

The short answer is no. The CLARITY Act's (Digital Asset Market Clarity Act) proposed stablecoin provisions ban passive, bank-like interest payments on stablecoins. To protect the traditional banking sector from deposit flight, it prohibits intermediaries from offering yields that are "economically or functionally equivalent" to interest-bearing bank deposits, while permitting activity-based rewards.

Early on, the SEC determined that a stablecoin that offered a set yield was a security and required a registration statement. As we noted last September (“Trading Points: Klarna & Figure IPOs”), Figure Technology Solutions (FIGR) created an SEC-registered stablecoin that bears interested, which is of course a security.  Such instruments will be banned if the CLARITY Act becomes law.

Because passive yield on platforms is restricted under the CLARITY Act, investors looking for yields on digital dollars are expected to shift capital toward regulated investment vehicles like tokenized Treasury products and money market funds. Of course, the dollar was the first digital currency, but the massive hype around crypto tokens and stablecoins has obscured this basic fact. 

Our advice to our readers is that if you want to earn a yield on HQLA, buy Treasury securities directly or via a registered money market fund, or a deposit from an FDIC insured bank. There are many other securities that offer safe yield, but to us buying a stablecoin is a waste of money unless there is some price incentive offered up front. 

So for example, if Amazon (AMZN) offers you a stablecoin at a discount and w/o fees for purchases on their portal, then that may be an attractive offering. Again, the only use case for stablecoins that makes any sense to us is as a prepaid gift card. Purchasing tokenized assets like Treasury securities is a crap shoot, in our view, where the credit standing of the counterparty issuing the token is paramount. 

On July 11, the 21st Century ROAD to Housing Act (H.R. 6644) became law without the President’s signature. The bill includes a prohibition on the issuance of another act of idiocy known as a central bank digital currency (CBDC) until December 31, 2030. 

Since the dollar was the first CBDC, a legal prohibition makes enormous sense and should be made permanent. CBDC’s illustrates how inane the discussion of stablecoins and other tokens has become, since both ideas have little practical application beyond earning profits for the promoters.

The CLARITY Act shifts the stablecoin use case primarily toward payments and commercial transactions rather than passive savings, fulfilling a big demand from the banking industry. It restricts the payment of yield or interest simply for holding stablecoins, but explicitly permits rewards tied to active usage like transfers, merchant payments, and loyalty programs – a/k/a gift cards. 

With or without the CLARITY Act, the payments use case for stablecoins is fast being eroded by innovations in rapid cash transfer networks for dollars. As the payment use case for stablecoins evaporates, the only purpose for these tokens will be money laundering.  Indeed, when you examine the CLARITY Act closely, the big question is why the crypto industry would support it at all.

As we predicted years ago, the CLARITY Act formally designates digital asset intermediaries as Bank Secrecy Act (BSA) financial institutions. This legally mandates that digital commodity brokers, dealers, and exchanges enforce rigorous Anti-Money Laundering (AML), Customer Identification Programs (CIP), and Know-Your-Customer (KYC) controls. Somewhere, Satoshi Nakamoto is laughing.

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