Original Author / 10xResearch

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

This article discusses the impact of the CLARITY Act on DeFi and analyzes the potential risks that winners and losers may face in investments if the act is enacted. While there are clear structural beneficiaries, the ultimate outcome is that not just one company is able to benefit. Meanwhile, investors should also closely watch for new adverse factors that could affect the overall landscape.

The latest CLARITY proposal actually ends the narrative of stablecoins as a savings product. While profit sharing is still allowed, the path for passing the profits to end-users has been cut off. Coinbase can continue to profit through USDC, but it has lost its strongest growth lever—providing yield to users, which poses structural resistance to its distribution model. Meanwhile, Circle now needs to prove that its arrangement is a legitimate profit-sharing rather than a method to circumvent yield, which brings higher legal risks, potential contract restructuring, and ongoing regulatory scrutiny.

Essentially, this relates to control over the money market. Stablecoins are strictly defined as payment tools rather than income-generating assets, effectively segregating yields within banks and regulated financial instruments (such as money market funds and ETFs, like IQMM), representing a reconcentration of yields.

USDC outstanding balance versus USDC trading volume

The Implementation of the CLARITY Act Will Be Unfavorable for DeFi

Although the CLARITY framework is structurally beneficial for Circle, supporting the adoption and valuation of USDC, even at the cost of reduced flexibility (e.g., profit sharing, incentive mechanisms) and margin compression in the short term, it poses significant resistance to DeFi. Many DeFi tokens and activities may require registration and compliance scrutiny, especially if governance and fee-generating mechanisms are similar to equity structures.

Some argue that the CLARITY framework may benefit DeFi as the yield ban could prompt users to turn to DeFi lending. However, this view is predicated on the assumption that DeFi is unaffected by regulatory influence. In reality, the CLARITY framework is likely to extend to the front-end interface and limit the ways stablecoins are used in DeFi.

UNI-USDT compared to Uniswap V3 TVL—DeFi momentum weakening

The viewpoint of 10x is that DeFi is not a beneficiary but rather a loser. Structurally, this is bearish for DeFi tokens, as reduced flexibility, increased compliance, and possible restrictions on stablecoin usage all exert pressure on liquidity, activity, and ultimately valuations.

The critical overlap is in stablecoins. Circle (CRCL) and Uniswap heavily rely on USDC as the core liquidity for trading and settlements. For Uniswap, stricter regulation may exert pressure on the front-end interface, token listings, and liquidity incentive mechanisms, possibly introducing KYC and compliance layers. This will directly impact fee revenue, token circulation speed, and permissionless access, potentially leading to decreased trading volume, reduced composability, and shrinking liquidity pools.

CRCL (white) compared to UNI-USDT (indigo)—Circle is decoupling from DeFi

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

MKR Will Be a Beneficiary in the Trend of Yield Re-Centralization

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

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

MKR/USDT (white) compared to CRCL (indigo)

Meanwhile, MKR stands in stark contrast to stablecoins like USDT, which, although large-scale, do not directly pass economic value to token holders. This creates a structural difference, particularly in a sustained high-interest environment that supports Maker's income flow.

Importantly, MKR is more of an exception. While most DeFi tokens face the adverse effects of 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 depend on USDC as collateral and settlement infrastructure. If regulations restrict the use of USDC in DeFi, liquidity may decrease, trading volume may diminish, and token valuations may come under pressure.

Ultimately, the CLARITY Act may not only regulate cryptocurrencies; it could reshape the entire DeFi ecosystem. The beneficiaries may be compliance infrastructure providers like Circle, exchanges, and custodians (BitGo), while victims are the tokens associated with permissionless finance and yield extraction. In this context, any token acting like equity in financial protocols (such as Uniswap) and is unregulated will face structural downside risk under this framework.

Is Circle Still Worth Investing In?

According to the latest discussions, the CLARITY Act proposal will prohibit platforms from directly or indirectly providing yields to stablecoin holders, especially through yield structures akin to bank deposits. This restriction will 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 act allows activity-based rewards, such as loyalty programs, promotional campaigns, or subscription plans, these rewards must not in any way be tied to balances or transaction volumes in a way that simulates interest earnings. In practice, this greatly limits the construction of incentive mechanisms and clearly delineates a line: stablecoins may not operate as interest-bearing deposit accounts.

Circle seems to have emerged as a structural winner, while Coinbase faces structural resistance, and BitGo stands somewhere in between. BitGo's market capitalization has fallen from roughly $2 to $2.5 billion at IPO to about $1.14 billion, but this has made its valuation more attractive. Based on past 12 months' performance, the company earned about $57 million, with a price-to-earnings ratio of 20 times, which is not an expensive valuation for a regulated and institutionally poised crypto infrastructure provider.

BitGo compared to Circle—BitGo’s stock price plunged 50% shortly after its IPO

However, revenue quality remains a critical constraint. Its reported revenue is inflated due to the influence of total trading volume, while actual profit margins are very low (net profit margin below 1%), placing BitGo’s structure closer to a low-margin custodial and execution platform than to high-margin balance sheet models like Circle or Tether.

Therefore, although BitGo's valuation is becoming reasonable after its decline, and asymmetries have improved with limited downside, it remains a low beta infrastructure company rather than a candidate for revaluation. In contrast, Circle still holds stronger investment opportunities, with regulatory policy changes potentially significantly altering its profit margins and valuations.

Tether hiring top (Big Four) audit firms will mark an important step for its institutional credibility, indicating enhancements in transparency, governance standards, and readiness to operate under stricter financial regulatory frameworks. While this does not guarantee a successful public listing, it clearly lowers one of the critical listing thresholds, and it may signal future listing possibilities if the regulatory environment becomes more favorable.

This move will directly impact 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 engaged Tether will not only challenge Circle's market position but also reinforce the broader argument of stablecoins becoming core financial infrastructure.

Even after the CLARITY Act, Circle is unlikely to achieve profit margins on par with Tether, but the gap between them may significantly narrow. Tether’s higher profit margins are due to retaining almost all reserve income, fewer regulatory restrictions, and very low revenue-sharing ratios. Even under the CLARITY framework, which limits yield transfers, Circle will still face higher compliance costs, stricter reserve requirements, and potentially continued (though renegotiated) revenue-sharing with distribution partners like Coinbase.

The CLARITY Act clearly has the potential to enhance Circle's profit margins. If yields are not transferable to users, issuers will gain more economic benefits, and Circle's bargaining power in renegotiations will also increase. Combined with scale and adoption by institutional users, this could drive a significant increase in profit margins from the current single-digit percentages to over 20%.

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

If USDC scales up to $120 billion to $150 billion, gross income could rise to $4.8 billion to $6 billion; if profit margins improve 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 approximately $25 billion to $42 billion, above the current market capitalization of about $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 expect a slowdown in the growth rate. Thus, Circle's investment is no longer solely driven by positive regulatory factors for valuation revaluation but increasingly relies on growth; both the continued expansion of USDC and improvements in economic efficiency need to be realized to support the current stock price levels.

10x expects a base target price of $120 over the next 12 months, which may rise to $150 if USDC growth accelerates again and profit margins improve significantly; however, if growth stagnates and the current economic situation persists, there is a risk of downside to $80.

Summary

The CLARITY Act accelerates the trend of stablecoins transitioning to regulated products, especially when combined with developments like the GENIUS ETF framework and treasury-backed structures. The end result is a shift of stablecoin reserves towards regulated money market products. This dynamic is structurally favorable for infrastructure participants like Circle but poses adverse impacts on DeFi tokens and protocols dependent on yield.

Prior to the enactment of the CLARITY Act (if passed), stablecoins acted as a hybrid instrument, serving both as a payment tool and a yield-generating asset, while also being the core collateral for DeFi. Under the proposed framework, this model undergoes a fundamental shift: stablecoins are defined solely as payment tools, with yields restricted to regulated products.

This leads to a noticeable reallocation of value. Potential winners include Circle, treasury-backed ETF structures, and custodial or other compliant financial infrastructures; on the other side, Coinbase’s monetization flexibility diminishes, while DeFi yield protocols and “earn” products face structural resistance.

In reality, the Office of the Comptroller of the Currency (OCC) not only limits yields but also redefines who can earn yields. The result is a transfer of economic value from cryptocurrency-native channels (Coinbase and DeFi) to regulated financial infrastructures.

The main beneficiaries of the CLARITY Act may include Circle, MKR, and BitGo; although BitGo's profit margins remain very low, its approximately 50% decline post-IPO has made its valuation more attractive. On the flip side, Coinbase and a series of DeFi protocols, including 1inch, Aave, COMP, dYdX, Sushi, and Uniswap, are structurally at a disadvantage. To some extent, the market has already begun to absorb these changes; the CLARITY Act is less of a new catalyst and more of a reinforcement of existing trends.

Performance of major DeFi cryptocurrencies year-to-date—winners and losers

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