Stablecoin's Crypto-Native Powers Are Formally Compromising with TradFi

Author: Haotian; Source: X, @tmel0211

Tether is undergoing an audit, and Circle ($CRCL) has plummeted, but after months of delays, the CLARITY Act has finally made substantial progress.

It seems these three events point to one truth: The original crypto-native forces backing stablecoins have officially compromised with the traditional finance bankers behind the scenes. Why do I say that?

1. Tether’s move to conduct an audit is very surprising. Paolo Ardoino has always been tough. Tether has thrived for years under regulatory pressure—being opaque and unaudited—yet still maintained its position as the global leader.

Now, proactively seeking audits from the Big Four is because they sensed that the CLARITY Act is about to be enacted. They don’t want to be downgraded to gray assets and kicked out of the game, so they had to admit defeat.

2. As for Circle ($CRCL)’s sharp decline, honestly, it’s baffling. I don’t believe it’s because Tether’s compliance threatens its dominance. As the most regulated stablecoin, theoretically, the enactment of the CLARITY Act should be its moment to shine, but instead, it fell.

The reason is that the stablecoin’s clause allowing passive interest payments to holders has strangled the main driver behind USDC’s growth. Without this, why would users move their money out of banks to buy USDC? This is a structural issue in Circle’s business model being revalued by the market.

3. As for the CLARITY Act’s “bottleneck” being resolved after months of deadlock, the conclusion is: activity rewards can be given, but earning passively is not allowed. It looks like both sides made concessions, but in reality, the bankers behind the scenes won big.

The bankers’ opposition to the bill was simple: they worry that with deposit interest rates at 0.1% and stablecoins offering 4-5% on-chain yields, once this spread is legalized, the $6.6 trillion in retail deposits will eventually move on-chain. But the compromise removed this risk.

But here’s the problem: what exactly are activity rewards, and what are the rules? Everything is vague. This is a huge negative for CEX exchanges, but might be temporarily positive for DeFi. Because in the past, exchanges used stablecoin yield farming and flexible deposits as main user retention tools. Now, with the passive interest framework restricted, compliance pressures will directly impact them.

Conversely, DeFi might exploit this loophole, because “activity-based rewards” are inherently DeFi’s turf—providing liquidity, participating in governance, executing trades—all on-chain activities. Framing these as “activity rewards” makes it much easier for DeFi to operate in this space than centralized exchanges.