Regulation’s Stealth Push: Why Income and Liquidity Are Being Forced Apart

Watch closely—regulators aren't just making rules. They're quietly reshaping how money moves.

Behind the Bureaucratic Curtain

New policies slice through traditional finance, pushing income streams and liquid assets into separate corners. No grand announcements—just subtle shifts in compliance requirements that alter market behavior overnight.

The Compliance Squeeze

Banks and funds now face stricter capital buffers and reporting thresholds. It forces institutions to choose: hold income-producing assets long-term or keep cash-like instruments ready for quick exits. Guess which one regulators prefer?

Digital Assets Dodge the Noose—For Now

Crypto platforms, with their native liquidity pools and yield farming, bypass these constraints. They blend income and liquidity seamlessly—much to the annoyance of traditional finance watching from behind regulatory fences.

Another brilliant move by the same folks who brought you 'too big to fail' and negative-yielding bonds. Because clearly, fragmenting markets always ends well.

How the GENIUS Act ring-fences liquidity

The GENIUS Act targets payment stablecoins with unprecedented precision, mandating that they must be 1:1 backed by highly liquid assets, like U.S. dollars or short-term treasuries. Reserves must be held in segregated accounts without re-hypothecation (the holding institute cannot use the funds). The act also explicitly prohibits interest or yield payments solely for holding, using, or retaining stablecoins.

With a separation of income and liquidity, we can unequivocally define stablecoins as a pure FORM of base-layer liquidity, perfect for payments, settlements, and stable value transfers. In the U.S., they are no longer a passive income vehicle, and by stripping them of their yield mechanisms, the GENIUS Act forces builders to innovate. 

For U.S.-based crypto investors, any yield-generating activity involving stablecoins must now take place on a separate layer or financial product, distinct from the stablecoin itself. Some may not be thrilled by this news, but this regulatory clarity ensures that speculative yield expectations unburden the liquidity layer. This will force disruption in one of the most widely adopted use cases for cryptocurrency. 

The Clarity Act is an architect for modular systems

Complementing the GENIUS Act is the Digital Asset Market Clarity Act of 2025 (H.R. 3633). This passed the House and is heading to the Senate, aiming to resolve the longstanding jurisdictional ambiguities between the SEC and CFTC. It introduced statutory definitions for various digital assets, notably distinguishing “digital commodities” from “investment contracts.”

From now on, digital commodities will be those that derive their value from utility within a network. Investment contracts, however, will be vehicles through which a profit expectation from the efforts of others is conveyed. The Core utility token (now a digital commodity) will be separated from any associated investment schemes or yield-generating activities (now investment contracts). This clarity will empower projects to build modular systems and go to market without worrying that the SEC may challenge their activities. 

Yield-bearing layers vs. Base-layer liquidity

There’s now a framework in place to separate the different functions of a blockchain system and regulate them accordingly. This is thanks to the Clarity Act’s provisions regarding tailored registration for digital commodity offerings and its recognition of “Decentralized Systems” and “Decentralized Finance Trading Protocols”. Consider this a kind of regulatory sandbox and definitive demarcation line between “yield-bearing layers” and “base-layer liquidity”. These are terms we will be seeing used more frequently. 

The eventual outcome of this decoupling is that transparency and proper disclosure are achieved, ensuring users (and builders) understand the risks associated with yield. Builders gain clearer pathways to design compliant products, while investors know exactly what they’re getting into. 

Predictability provides the confidence and trust to attract substantial capital, while the U.S. taking this unique stance could inspire a great deal of domestic innovation and leadership. Sure, there will be implementation challenges and friction ahead, but this is a real moment of maturation for crypto in the U.S. 

A new dawn of certainty

Experts generally echo positive sentiment about this change. Forbes, for example, has lauded the acts for providing much-needed clarity, reducing “jurisdictional turf wars,” and setting the stage for institutional engagement. Paul Grewal, Chief Legal Officer at Coinbase, noted:

“GENIUS is now the law of the land. Coinbase and crypto policy across the industry are committed to sensible rules for stablecoins and got it done. It’s been a good day.” 

Ji Hun Kim, President and Acting Chief Executive Officer, Crypto Council for Innovation, stated that the GENIUS Act “includes important consumer protections, such as segregating customer funds, bankruptcy procedures, addressing conflicts of interest, and requiring risk disclosures of operation, ownership, and structure. We strongly support these requirements that WOULD protect consumers and their funds.”

These powerful regulatory design signals are confidently reshaping digital assets, compelling necessary separations and modularity. Ultimately, they encourage much-needed innovation of the liquidity and yield-bearing layers by legally protecting them and their architectures. The Gensler era is over, as the GENIUS era begins.

Andrei Grachev is the managing partner of DWF Labs, a new-generation web3 investor and one of the world’s largest high-frequency trading entities in the digital asset space. Under his leadership, DWF Labs operates across more than 60 top exchanges, executing sophisticated trading strategies in both spot and derivatives markets, while actively investing in and supporting web3 projects globally. Andrei is also the managing partner of Falcon Finance, a next-generation synthetic dollar protocol. Falcon’s flagship asset, USDf, is an overcollateralized synthetic dollar backed by diversified crypto and real-world assets. Built for sustainable yield and capital preservation, Falcon combines transparency, institutional-grade risk management, and composability, setting a new standard for synthetic finance in a regulated future. Known for his DEEP understanding of market dynamics, infrastructure development, and digital asset economics, Andrei sits at the intersection of crypto finance and long-term ecosystem building. His work continues to shape the global conversation around stablecoins, synthetic assets, and the evolution of on-chain capital markets.