The CLARITY Act Rewrites the DeFi Death Ledger: Circle Gains, DeFi Tokens Bleed Out

_Original author / _10x Research

Translation / Odaily Planet Daily Golem (@web 3_golem)

This article discusses the impact of the CLARITY Act on DeFi and analyzes the potential winners and losers in investing if the bill is enacted. While there are clear structural beneficiaries, the final outcome is not limited to just one company benefiting. Meanwhile, investors should also closely monitor new adverse factors that could influence the overall landscape.

The latest CLARITY proposal effectively ends the narrative of stablecoins as savings products. Although profit sharing is still permitted, the pathway to pass earnings to end users has been cut off. Coinbase can continue to profit from USDC, but it has lost its strongest growth lever—offering yields to users—which poses a structural obstacle to its distribution model. At the same time, Circle now needs to prove that its arrangements are legal profit sharing rather than yield evasion, bringing higher legal risks, potential contract restructuring, and ongoing regulatory scrutiny.

Essentially, this is about control over the money market. Stablecoins are strictly defined as payment tools, not interest-bearing assets, effectively isolating yields within banks and regulated financial instruments (such as money market funds and ETFs like IQMM), leading to a re-consolidation of earnings.

USDC Outstanding Balance and USDC Trading Volume

Implementation of the CLARITY Act would be detrimental to DeFi

Although the CLARITY framework structurally favors Circle, supporting USDC adoption and valuation—even at the cost of reduced flexibility (e.g., yield sharing, incentives) and short-term margin compression—it also introduces significant resistance to DeFi. Many DeFi tokens and activities may need to undergo registration and compliance checks, especially where governance and fee-generation mechanisms resemble equity structures.

Some believe the CLARITY framework could benefit DeFi because the yield ban might push users toward DeFi lending. However, this view assumes DeFi remains unaffected by regulation. In reality, the CLARITY framework is likely to extend to front-end interfaces and restrict how stablecoins are used within DeFi.

UNI-USDT vs. Uniswap V3 TVL—DeFi momentum waning

10x’s view is that DeFi is not a beneficiary but a loser. Structurally, this is bearish for DeFi tokens, as reduced flexibility, increased compliance, and potential restrictions on stablecoin use will pressure liquidity, activity, and ultimately valuation.

The key overlap is with stablecoins. Circle (CRCL) and Uniswap heavily depend on USDC as core liquidity for trading and settlement. For Uniswap, stricter regulation could pressure front-end interfaces, token listings, and liquidity incentive mechanisms, and may introduce KYC and compliance layers. This would directly impact fee income, token circulation speed, and permissionless access, potentially leading to decreased trading volume, reduced composability, and shrinking liquidity pools.

CRCL (white) vs. UNI-USDT (indigo)—Circle decoupling from DeFi

Under the CLARITY Act, the most affected assets are DeFi and governance tokens linked to fee income. DEX tokens like UNI, SUSHI, DYDX, 1INCH, and CAKE face direct risks because their governance-plus-yield models resemble equity and may require regulated front-ends. Similarly, lending and yield protocols like AAVE and COMP are under scrutiny due to their interest accrual structures and profit-sharing mechanisms, which could be classified as unregistered financial products.

MKR to benefit from the trend toward yield re-centralization

The market has largely digested these factors, so a purely CLARITY-driven structural revaluation is unlikely. MKR outperformed USDT in 2026, thanks to its unique position amid evolving yield landscapes. Unlike most DeFi tokens, Maker earns actual yields by investing in U.S. Treasuries and other real-world assets, with these earnings ultimately distributed to MKR holders through surplus mechanisms.

In an environment where user-level stablecoin yields are increasingly restricted by regulation, value is shifting toward issuers or protocol layers, and Maker’s structure allows it to benefit from this shift. Therefore, MKR’s valuation is more seen as a “crypto market equity” capable of generating yields rather than a speculative DeFi token. MKR/USDT also appears to be a leading indicator validating CRCL.

MKR/USDT (white) vs. CRCL (indigo)

Meanwhile, MKR contrasts sharply with stablecoins like USDT, which, despite their large scale, do not directly transfer economic value to token holders. This creates a structural difference, especially as Maker’s income stream is supported by high interest rates.

Importantly, MKR is more of an exception. While most DeFi tokens face adverse effects from tighter regulation and stablecoin use restrictions, Maker’s early integration of real-world assets and its semi-compliant structure position it as a beneficiary of the yield re-centralization trend.

More broadly, most DeFi protocols rely on USDC as collateral and settlement infrastructure. If regulation restricts USDC’s use in DeFi, liquidity could decline, trading volume decrease, and token valuations come under pressure.

Ultimately, the CLARITY Act may not only regulate cryptocurrencies but also reshape the entire DeFi ecosystem. Beneficiaries could include compliant infrastructure providers like Circle, exchanges, and custodians (BitGo), while tokens associated with permissionless finance and fee extraction face structural headwinds. In this context, any tokens that behave like equity within financial protocols (e.g., Uniswap) and are unregulated will face structural downside risks under this framework.

Is Circle still a good investment?

According to recent discussions, the CLARITY bill proposal will prohibit platforms from directly or indirectly offering yields to stablecoin holders, especially those resembling bank deposit yields. This restriction will broadly apply to digital asset service providers, including exchanges, brokers, and their affiliates, explicitly targeting any structures “economically or functionally equivalent to” interest.

While activity-based rewards—such as loyalty programs, promotions, or subscriptions—are permitted, these rewards cannot be linked to balances or trading volume in any way that mimics interest income. In practice, this significantly limits incentive structures and draws a clear line: stablecoins cannot operate as interest-bearing deposit accounts.

Circle appears to have become a structural winner, while Coinbase faces structural resistance, and BitGo remains in between. BitGo’s market cap has fallen from about $2-2.5 billion at IPO to roughly $1.14 billion, but its valuation has become more attractive as a result. Based on the past 12 months’ performance, the company earned about $57 million, with a P/E ratio of 20, which is not expensive for a regulated, institutional-grade crypto infrastructure provider.

BitGo vs. Circle—BitGo’s stock price plummeted 50% after IPO

However, profit quality remains a key constraint. Its reported revenue is inflated by total transaction volume, but actual profit margins are very low (net profit margin below 1%), making BitGo’s structure closer to low-margin custody and execution platforms rather than high-margin asset-liability models like Circle or Tether.

Thus, although BitGo’s valuation has become more reasonable after the decline and its asymmetry has improved, its downside potential remains limited. It is still a low-beta infrastructure company rather than a candidate for valuation revaluation. In contrast, Circle still offers stronger investment prospects, as regulatory changes could significantly alter its profit margins and valuation.

Tether’s hiring of top-tier (Big Four level) auditors marks an important step in its institutional credibility, indicating improvements in transparency, governance, and readiness to operate under stricter financial regulation. While this does not guarantee a successful IPO, it clearly lowers one of the key listing hurdles and could signal future listing potential if the regulatory environment becomes more favorable.

This move will directly impact Circle: Increased competition from a more institutionalized Tether could compress Circle’s relative valuation premium, but it will also validate the overall effectiveness of the stablecoin model and potentially expand its market size. In this sense, a more transparent, institutionally aligned Tether will challenge Circle’s market position while reinforcing the broader argument that stablecoins are a core financial infrastructure.

Even after the CLARITY Act, Circle is unlikely to reach Tether’s profit margins, but the gap could narrow significantly. Tether’s higher margins are due to retaining nearly all reserve income, facing fewer regulatory restrictions, and having a very low revenue-sharing ratio. Under the CLARITY framework that limits yield transfers, Circle will still face higher compliance costs, stricter reserve requirements, and possibly continue (albeit renegotiated) revenue sharing with distribution partners like Coinbase.

The CLARITY Act could clearly boost Circle’s profit margins. If yields cannot be transferred to users, issuers will retain more economic benefits, strengthening Circle’s bargaining power in renegotiations. Coupled with scale and institutional adoption, this could drive margins from the current double digits to over 20%.

If USDC continues to grow at a similar pace, Circle’s valuation remains justified. Over the past 18 months, USDC’s circulation increased by about $46 billion to $79 billion, indicating high adoption. As a settlement and liquidity layer, Circle currently earns about 4% on reserves, generating roughly $3.2 billion in gross revenue, with net income around $2-2.3 billion after profit sharing and costs.

If USDC expands to $120-150 billion, gross revenue could rise to $4.8-6 billion; with margins of 20-25%, net income could reach $1-1.4 billion. Applying a P/E ratio of 25-30, the valuation range would be approximately $250-420 billion, above the current market cap of about $245 billion.

However, this valuation heavily depends on USDC’s continued growth. Recent data shows USDC supply growth has begun to plateau, indicating market expectations of a slowdown. Therefore, investing in Circle is no longer just a valuation re-rating driven by regulatory tailwinds but increasingly reliant on sustained growth; USDC’s ongoing expansion and economic benefits must be realized to justify current prices.

10x’s base target price for the next 12 months is $120. If USDC growth accelerates again and margins improve significantly, it could rise to $150; but if growth stalls and the economic environment remains weak, there’s a risk of dropping to $80.

Summary

The CLARITY Act accelerates the transition of stablecoins toward regulated products, especially when combined with developments like the GENIUS ETF framework and Treasury-backed structures. The ultimate result is a shift of stablecoin reserves into regulated money market products. This dynamic is structurally positive for infrastructure players like Circle but adverse for DeFi tokens and protocols that rely on yield.

Before the CLARITY Act (if enacted), stablecoins were a hybrid tool—serving as payment instruments, generating yields, and acting as core collateral in DeFi. Under the proposed framework, this model undergoes a fundamental change: stablecoins are defined solely as payment tools, with yields limited to regulated products.

This causes a clear redistribution of value. Potential winners include Circle, Treasury-backed ETF structures, custodians, and other compliant financial infrastructure; losers are Coinbase’s monetization flexibility and DeFi yield protocols and “earn” products, which face structural headwinds.

In fact, the Office of the Comptroller of the Currency (OCC) not only restricts yields but also redefines who can earn them. The result is a transfer of economic value from native crypto channels (Coinbase and DeFi) to regulated financial infrastructure.

The main beneficiaries of the CLARITY Act are likely to be Circle, MKR, and BitGo—though BitGo’s low profit margins and the roughly 50% post-IPO decline in its valuation make it more attractive. Conversely, Coinbase and a range of DeFi protocols—including 1inch, Aave, COMP, dYdX, Sushi, and Uniswap—are structurally disadvantaged. To some extent, markets are already digesting these changes; the CLARITY Act is less a new catalyst than an enhancement of existing trends.

Performance of Major DeFi Cryptocurrencies Year-to-Date—Winners and Losers