CLARITY Act Rewrites DeFi's Fate: Circle Gains, DeFi Tokens Bleed

Original Author / 10x Research

Compiled by / Odaily Golem (@web 3_golem)

This article explores the impact of the CLARITY Act on DeFi and analyzes the potential risks for winners and losers in terms of investment if the bill is enacted. While there are clear structural beneficiaries, the final outcome is not one where only a single company benefits. Meanwhile, investors should also closely monitor new adverse factors that could affect the overall landscape.

The latest CLARITY proposal effectively ends the narrative of stablecoins as savings products. While profit-sharing is still permitted, the pathway to pass those profits to end-users has been severed. Coinbase can continue to profit from USDC, but it has lost its most powerful growth lever—offering yields to users—creating a structural headwind for its distribution model. Meanwhile, Circle now needs to prove its arrangements are legitimate profit-sharing, not yield circumvention, introducing higher legal risk, potential contract restructuring, and ongoing regulatory scrutiny.

At its core, this is about control over the money market. Stablecoins are strictly defined as payment instruments rather than interest-bearing assets, effectively quarantining yield within banks and regulated financial instruments (e.g., money market funds and ETFs like IQMM), representing a re-centralization of yield.

USDC Outstanding Balance vs. USDC Trading Volume

The CLARITY Act's Implementation Would Be Negative for DeFi

Although the CLARITY framework is structurally positive for Circle, supporting USDC adoption and valuation even at the cost of reduced flexibility (e.g., yield sharing, incentive mechanisms) and margin compression in the short term, it introduces significant headwinds for DeFi. Many DeFi tokens and activities may require registration and compliance review, especially where governance and fee-generation mechanisms resemble equity structures.

Some argue the CLARITY framework could benefit DeFi, as the yield ban would push users towards 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 can be used within DeFi.

UNI-USDT vs. Uniswap V3 TVL – Weak DeFi Momentum

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

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

CRCL (White) vs. UNI-USDT (Indigo) – Circle is Decoupling from DeFi

Under the CLARITY Act, the most vulnerable assets are DeFi tokens and governance tokens tied to fee revenue. DEX tokens like UNI, SUSHI, DYDX, 1INCH, and CAKE face direct risk as their governance-plus-yield models resemble equity and may require regulated front-ends. Similarly, lending and yield protocols like AAVE and COMP face scrutiny for their interest-bearing structures and yield-sharing mechanisms, which could be classified as unregistered financial products.

MKR to Benefit from the Yield Re-centralization Trend

The market appears to have largely priced in these factors, making a structural revaluation driven solely by the CLARITY Act unlikely. MKR has outperformed USDT in 2026, benefiting from its unique positioning within the evolving yield landscape. Unlike most DeFi tokens, Maker captures real yield by investing in U.S. Treasuries and other real-world assets, which is ultimately distributed to MKR holders via its surplus mechanism.

In a regulatory environment increasingly restricting stablecoin yield at the user level, value is concentrating at the issuer or protocol level, and Maker's structure already positions it to benefit from this shift. Consequently, MKR is priced more as a yield-generating "crypto market equity" than a speculative DeFi token. The MKR/USDT pair also appears to be an indicator leading CRCL.

MKR/USDT (White) vs. CRCL (Indigo)

Meanwhile, MKR stands in contrast to stablecoins like USDT, which, while massive, do not directly pass economic value to token holders. This creates a structural divergence, especially as high interest rates continue to support Maker's revenue streams.

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

More broadly, most DeFi protocols rely on USDC as collateral and settlement infrastructure. If regulation restricts how USDC can be used in DeFi, liquidity could decline, trading volume could shrink, and token valuations would face pressure.

Ultimately, the CLARITY Act may not just regulate crypto; it reshapes the entire DeFi ecosystem. Beneficiaries are likely to be compliant infrastructure providers like Circle, exchanges, and custodians (BitGo), while casualties are tokens tied to permissionless finance and fee extraction. In this context, any token that behaves like equity within a financial protocol (e.g., Uniswap) and is unregulated faces structural downside risk under such a framework.

Is Circle Still a Worthwhile Investment?

Based on the latest discussions, the CLARITY Act proposal would prohibit platforms from directly or indirectly providing yield to stablecoin holders, particularly in ways resembling bank deposits. This restriction would broadly apply to digital asset service providers, including exchanges, brokers, and their affiliates, explicitly targeting any structure "economically or functionally equivalent" to interest.

While the bill allows activity-based rewards, such as loyalty programs, promotions, or subscription plans, these rewards cannot be tied in any way to balances or transaction size to mimic interest income. In practice, this severely limits how incentives can be structured and draws a clear line: stablecoins must not function as interest-bearing deposit accounts.

Circle appears to have emerged as a structural winner, while Coinbase faces structural headwinds, with BitGo positioned in between. BitGo's market cap has fallen from around $2-2.5 billion at IPO to approximately $1.14 billion, making its valuation more attractive as a result. Based on trailing 12-month performance, the company earned about $57 million, implying a P/E ratio of 20x, which is not expensive for a regulated crypto infrastructure provider with a solid institutional foothold.

BitGo vs. Circle – BitGo's stock fell ~50% rapidly post-IPO

However, earnings quality remains a key constraint. Its reported revenue is inflated by gross trading volume, while actual profit margins are low (net profit margin below 1%), making BitGo's structure more akin to a low-margin custody and execution platform rather than a high-margin balance sheet model like Circle or Tether.

Thus, while BitGo's valuation looks more reasonable post-decline, with improved asymmetry and limited downside, it remains a low-beta infrastructure company, not a candidate for valuation re-rating. In contrast, Circle still presents a stronger investment opportunity, where regulatory shifts could materially alter its margins and valuation.

Tether hiring a top-tier (Big Four-level) auditor would mark a significant step in its institutional credibility, signaling improved transparency, governance, and readiness to operate under stricter financial regulatory frameworks. While not a guarantee of a successful listing, it clearly lowers one key listing hurdle and could foreshadow a future IPO if the regulatory environment becomes more favorable.

This move would have a direct impact on Circle: increased competition from a more institutionalized Tether could compress Circle's relative valuation premium, but it would also validate the overall stablecoin model and potentially expand the total addressable market. In this sense, a more transparent and institutionally-aligned Tether both challenges Circle's market position and strengthens the broader thesis of stablecoins becoming core financial infrastructure.

Even post-CLARITY, Circle is unlikely to match Tether's margins, but the gap could narrow significantly. Tether's higher margins stem from retaining nearly all reserve yield, facing fewer regulatory constraints, and having minimal revenue sharing. Even under a CLARITY framework limiting yield pass-through, Circle will still face higher compliance costs, stricter reserve requirements, and likely continued (though renegotiated) revenue sharing with distribution partners like Coinbase.

The CLARITY Act is clearly margin-accretive for Circle. If yield cannot be passed to users, issuers retain more economic benefit, and Circle gains stronger bargaining power in renegotiations. Combined with scale and institutional adoption, this could drive a meaningful margin expansion, gradually moving from the current low-teens percentage towards over 20%.

Circle's valuation is justified if USDC continues growing at a similar pace. Over the past 18 months, USDC's circulating supply increased by approximately $46 billion to $79 billion, indicating strong adoption. As a settlement and liquidity layer, Circle currently generates roughly $3.2 billion in gross revenue based on a 4% reserve yield, with net income around $2.0-2.3 billion after yield sharing and costs.

If USDC scales to $120-150 billion, gross revenue could increase to $4.8-6.0 billion; with margins expanding to 20-25%, net income could reach $1.0-1.4 billion. Applying a P/E multiple of 25-30x suggests a valuation range of $25-42 billion, above the current market cap of ~$24.5 billion.

However, this valuation framework is highly dependent on continued USDC growth. Recent data shows USDC supply growth has begun to stagnate, suggesting the market is already anticipating a re-acceleration. Therefore, the investment case for Circle is no longer just a valuation re-rating driven by regulatory tailwinds but increasingly growth-dependent, requiring both continued USDC expansion and improved economics to support current price levels.

10x's base case target price for the next 12 months is $120, with potential upside to $150 if USDC growth re-accelerates and margins improve significantly, but downside risk to $80 if growth stalls and the current economic profile persists.

Conclusion

The CLARITY Act accelerates the trend of stablecoins transitioning into regulated products, especially when combined with developments like the GENIUS ETF framework and Treasury-backed structures. The end result is a migration of stablecoin reserves towards regulated money market products. This dynamic is structurally positive for infrastructure players like Circle but negative for yield-dependent DeFi tokens and protocols.

Pre-CLARITY (if passed), stablecoins were hybrid instruments serving as payment tools, yield generators, and core DeFi collateral. Under the proposed framework, this model shifts fundamentally: stablecoins are defined solely as payment instruments, with yield confined to regulated products.

This creates a clear reallocation of value. Potential winners include Circle, Treasury-backed ETF structures, and custodians or other compliant financial infrastructure; on the other hand, Coinbase faces reduced monetization flexibility, while DeFi yield protocols and "earn" products face structural headwinds.

In effect, the OCC is not just limiting yield; it is redefining who gets it. The result is economic value shifting from crypto-native channels (Coinbase and DeFi) towards regulated financial infrastructure.

The primary beneficiaries of the CLARITY Act are likely Circle, MKR, and BitGo, though BitGo's margins remain low, its ~50% post-IPO decline makes its valuation more attractive. On the other side, Coinbase and a range of DeFi protocols, including 1inch, Aave, COMP, dYdX, Sushi, and Uniswap, are structurally disadvantaged. To some extent, the market has already begun pricing in these shifts, making the CLARITY Act less a new catalyst and more a reinforcement of existing trends.

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