CLARITY Act rewrites the DeFi death register: Circle takes the lion's share, DeFi tokens bleed out

_Original Author / _10x Research

Compiled by / Odaily Planet Daily Golem (@web 3_golem）

This article explores the impact of the CLARITY Act on DeFi and analyzes the potential risks that winners and losers may face in investment if the act is implemented. While there are clear structural beneficiaries, the ultimate outcome is not that only one company can benefit. Meanwhile, investors should closely monitor new adverse factors that may affect the overall landscape.

The latest CLARITY proposal effectively ends the narrative of stablecoins as savings products. While profit-sharing remains allowed, the pathway to pass profits on to end users has been cut off. Coinbase can continue to profit through USDC, but it has lost its strongest growth leverage — providing yield to users, which poses structural resistance to its distribution model. Meanwhile, Circle now needs to prove that its arrangements are legitimate profit-sharing rather than yield avoidance, bringing higher legal risks, potential contract restructuring, and ongoing regulatory scrutiny.

Essentially, this concerns control over the money market. Stablecoins are strictly defined as payment tools rather than interest-bearing assets, effectively isolating yields within banks and regulated financial instruments (such as money market funds and ETFs, like IQMM), representing a re-centralization of yields.

USDC Outstanding Balance vs. USDC Trading Volume

Implementation of the CLARITY Act will adversely affect DeFi

Although the CLARITY framework is structurally beneficial to Circle, supporting the adoption and valuation of USDC, even at the cost of reduced flexibility (e.g., profit-sharing and incentive mechanisms) and margin compression in the short term, it poses significant resistance to DeFi. Many DeFi tokens and activities may need to undergo registration and compliance checks, particularly where governance and fee generation mechanisms resemble equity structures.

Some argue that the CLARITY framework may benefit DeFi, as the yield ban could drive users toward DeFi lending. However, this viewpoint assumes that DeFi is unaffected by regulation. In reality, the CLARITY framework is likely to extend to front-end interfaces and restrict how stablecoins are used in DeFi.

UNI-USDT Comparison vs. Uniswap V3 TVL — DeFi Momentum Weakens

10x believes that DeFi is not the beneficiary but rather the loser. Structurally, this is bearish for DeFi tokens, as reduced flexibility, increased compliance, and potential restrictions on the use of stablecoins all exert pressure on liquidity, activity, and ultimately valuation.

The key overlap lies in stablecoins. Circle (CRCL) and Uniswap both heavily rely on USDC as the core liquidity for trading and settlement. For Uniswap, stricter regulation may pressure the front-end interface, token listings, and liquidity incentive mechanisms, potentially introducing KYC and compliance layers. This will directly affect fee revenues, token circulation speed, and permissionless access, and may result in decreased trading volume, reduced composability, and shrinking liquidity pools.

CRCL (White) vs. UNI-USDT (Indigo) — Circle is decoupling from DeFi

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

MKR will benefit from the trend of yield re-centralization

The market seems to have largely priced in these factors, so a structural revaluation driven solely by the CLARITY Act is unlikely to occur. MKR is expected to outperform USDT in 2026, thanks to its unique positioning in the evolving yield landscape. Unlike most DeFi tokens, Maker generates real yields by investing in U.S. Treasury bonds and other real-world assets, which are ultimately distributed to MKR holders through a surplus mechanism.

In a regulatory environment where stablecoin yields are increasingly constrained at the user level, value is being concentrated at the issuer or protocol level, and Maker’s structure has allowed it to benefit from this shift. Thus, MKR’s pricing is more viewed as a “cryptocurrency market equity” capable of generating yield rather than a speculative DeFi token. MKR/USDT also appears to be an indicator of leading CRCL.

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

Meanwhile, MKR stands in stark contrast to stablecoins like USDT, which, while large in scale, do not directly pass economic value to token holders. This creates a structural difference, especially as high interest rates continue to support Maker’s income stream.

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

More broadly, most DeFi protocols rely on USDC as collateral and settlement infrastructure. If regulations limit how USDC can be used in DeFi, liquidity may decline, trading volume will decrease, and token valuations will come under pressure.

Ultimately, the CLARITY Act may not only regulate cryptocurrencies; it may also reshape the entire DeFi ecosystem. Beneficiaries may include compliant infrastructure providers like Circle, exchanges, and custodians (like BitGo), while losers will be tokens associated with permissionless finance and fee extraction. In this context, any token that behaves like equity within financial protocols (like Uniswap) and is unregulated will face structural downside risks under this framework.

Is Circle still worth investing in?

According to recent discussions, the CLARITY Act proposal will prohibit platforms from directly or indirectly providing yields to stablecoin holders, particularly in ways that resemble bank deposit yields. This restriction will broadly apply to digital asset service providers, including exchanges, brokers, and their affiliates, and explicitly targets any structure “economically or functionally equivalent to” interest.

While the act allows for activity-based rewards, such as loyalty programs, promotions, or subscription plans, these rewards cannot be linked in any way to balances or trading volumes, thereby mimicking interest earnings. In practice, this greatly limits how incentive mechanisms can be constructed and clearly delineates a boundary: stablecoins cannot operate as interest-bearing deposit accounts.

Circle seems to have become a structural winner, while Coinbase faces structural headwinds, and BitGo is in between. BitGo’s market capitalization has dropped from about $2 billion to $2.5 billion at IPO to approximately $1.14 billion, making its valuation more attractive. Based on the past 12 months, the company has earned about $57 million, with a price-to-earnings ratio of 20 times, which is not expensive for a regulated crypto infrastructure provider with a solid institutional investor position.

BitGo vs. Circle — BitGo’s Stock Price Dropped 50% Shortly After IPO

However, the quality of earnings remains a key limiting factor. Its reported revenue is inflated by total trading volume, while actual profit margins are very 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 has become more reasonable post-drop, and asymmetry has improved, the downside potential remains limited. It is still a low beta infrastructure company rather than a candidate for a valuation re-rating. In contrast, Circle still presents stronger investment opportunities, as changes in regulatory policy could significantly alter its profit margins and valuation.

Tether hiring a top-tier (Big Four) auditing firm would mark an important step in its institutional credibility, indicating improvements in transparency, governance, and readiness to operate under a stricter financial regulatory framework. While this does not guarantee successful listing, it clearly lowers one of the critical barriers to going public and may signal the possibility of a future listing if the regulatory environment becomes more favorable.

This move will have a direct impact on Circle: increased competition from a more institutional Tether may compress Circle’s relative valuation premium, but it will also validate the overall effectiveness of the stablecoin model and potentially expand its addressable market size. In this sense, a more transparent and institutionally aligned Tether will challenge Circle’s market position while reinforcing the broader argument for stablecoins as core financial infrastructure.

Even after the CLARITY Act, Circle is unlikely to achieve the same profit margins as Tether, but the gap between them may significantly narrow. Tether’s higher profit margins are due to its retention of nearly all reserve earnings, facing fewer regulatory restrictions, and a very low revenue-sharing ratio. Even within the CLARITY framework that limits yield transfer, Circle will continue to face higher compliance costs, stricter reserve requirements, and potentially continue (albeit with renegotiation) revenue sharing with distribution partners like Coinbase.

The CLARITY Act will clearly enhance Circle’s profit margins. If yields cannot be transferred to users, issuers will gain more economic benefits, and Circle’s bargaining power in renegotiations will also be strengthened. Combined with scale and institutional user adoption, this could drive significant increases in profit margins from the current low double digits to above 20%.

If USDC continues to grow at a similar pace, Circle’s valuation is reasonable. Over the past 18 months, USDC’s circulation has increased by about $46 billion to reach $79 billion, indicating high adoption rates. As a settlement and liquidity layer, Circle currently generates about $3.2 billion in gross revenue based on a 4% reserve yield, with net income around $2 billion to $2.3 billion after deducting profit-sharing and costs.

If USDC expands in scale to $120 billion to $150 billion, gross revenue could increase to $4.8 billion to $6 billion; if profit margins rise to 20% to 25%, net income could reach $1 billion to $1.4 billion. With a price-to-earnings ratio of 25 to 30 times, its valuation range would be about $25 billion to $42 billion, higher than the current market capitalization of approximately $24.5 billion.

However, this valuation framework is highly dependent on the continued growth of USDC. Recent data shows that USDC supply growth has begun to stagnate, indicating that the market has started to anticipate that its growth rate will accelerate again. Thus, Circle’s investment is no longer merely driven by regulatory positive factors leading to valuation re-ratings, but increasingly depends on growth, requiring continued expansion of USDC and improvement in economic benefits to support current stock price levels.

10x expects a fundamental price target of $120 in the next 12 months; if USDC growth accelerates again and profit margins significantly improve, it could rise to $150; but if growth stagnates and current economic conditions persist, there is a risk of falling to $80.

Summary

The CLARITY Act accelerates the trend of stablecoins transitioning to regulated products, particularly when combined with developments like the GENIUS ETF framework and Treasury-backed structures. The ultimate result is the transfer of stablecoin reserves to regulated money market products. This dynamic is structurally beneficial for infrastructure participants like Circle, but poses adverse impacts for yield-dependent DeFi tokens and protocols.

Before the CLARITY Act (if passed), stablecoins were a hybrid tool, serving both as payment instruments and yield-generating assets, while also being core collateral for DeFi. Under the proposed framework, this model has undergone a fundamental shift: stablecoins are defined solely as payment tools, with yields limited to regulated products.

This has resulted in 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’s monetization flexibility is reduced, while DeFi yield protocols and “earn” products face structural headwinds.

In fact, the Office of the Comptroller of the Currency (OCC) has not only restricted yields but also redefined who can receive them. The result is an economic value transfer from cryptocurrency-native channels (Coinbase and DeFi) to regulated financial infrastructure.

The main beneficiaries of the CLARITY Act may be Circle, MKR, and BitGo, although BitGo’s profit margins remain low, its post-IPO drop of about 50% has made its valuation more attractive. Conversely, Coinbase and a range of DeFi protocols, including 1inch, Aave, COMP, dYdX, Sushi, and Uniswap, are structurally disadvantaged. To some extent, the market has begun to price in these changes; the CLARITY Act is more a reinforcement of existing trends than a new catalyst.

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