The integration of legacy finance with decentralized finance is not happening without struggle.
For those who believed that the alleged regulatory clarity and an apparent favorable administration were going to bring harmonies without friction, the latest debates on the Clarity Law show how the lobby of financial elites is bidding to maintain their privileges and how legislation is biased. But, above all, how large companies are not minding sacrificing self-custody in pursuit of massification, which makes cryptocurrencies sterile.
The clash of two worlds
The film Melancholia, directed by Lars von Trier and starring Kirsten Dunst, it tells how a family experiences the collision process between a wandering planet and Earth. A rogue planet, also known as a free planetary mass, is an object with a mass similar to that of a planet that is not gravitationally bound to a single star, so it travels freely through the galaxy until the gravity of a planet affects its orbit, which is potentially destructive.
This revolutionary collision was what many expected to happen when Bitcoin-free planetary mass collided with Traditional Finance. For years it was repeated like a BYOB mantra, be your own bank, be your own bank. The promise, even from Satoshi, was eliminate financial intermediaries and trusted third parties.
Although with Bitcoin it is still a possibility and personal choice to do without central and commercial banks almost entirely, this has remained a niche alternative. Instead of a destructive crash, rather a kind of fusion has begun between the world of Traditional Finance and supposedly decentralized Finance. Both are seeking to obtain benefits from the other, but harming each other along the way. And, above all, harming users.
As NoticiasVE has said in past editorials, banks are becoming bitcoinized. But at the same time, companies in the industry that has been built around Bitcoin technology are becoming banked.
Probably the most representative cases are those of Circle, Ripple, Paxos, BitGo and Fidelity Digital Assets being approved as banks by the United States Office of the Comptroller of the Currency. More recently, Polygon Labs became a regulated payments platform in the United States.
It’s not personal; It’s just business
This fusion between two worlds, which used to compete to the core with each other, has been the result of the regulatory turn that has taken place in the United States in favor of cryptocurrencies, or rather, of the businesses that can be done with them. In the end, everyone wants to make money; capital has triumphed over ideals.
Financial institutions have seen a new market opportunity, including assets with attractive returns within their investment portfolio, as well as integrating them for their clients within their traditional products (such as loans or international payments), and automating processes that allow them to save time, personnel and, ultimately, money.
Cryptocurrency companies, for their part, know that by regulating and obtaining licenses they can gain legitimacy to potential clients, as well as access to financing tools and advantages that, by law, are usually a banking prerogative.
Governments, at least the American one, have also found a way to benefit from the approach of this errant planet to their orbit, when before they perceived it as a threat. Whether accumulating bitcoin as a reserve asset, promoting investment and cutting-edge technological development in the world, or using stablecoins to deepen the global hegemony of the dollar, the United States understood that it is better to change everything so that nothing changes.
A lobby war
Whoever believed that we were now all friends and rowing in the same boat of financial innovation and decentralized unicorns was naive, and the discussion about the Clarity Law is the most recent evidence of this.
Brian Armstrong, CEO of Coinbase, who has never been the most cypherpunk in the industry, argued that the law would be “materially worse than the current status quo” and accused banks of wanting to kill competition via lobbying.
Just this week, Franklin Templeton’s head of innovation said that “banks are waking up to the threat of stablecoins,” and boy are they doing it. Bank of America (BoA), through statements by its CEO Brian Moynihan, expressed concerns regarding stablecoins that pay returns to their holders.
The most prominent and quantified risk is that stablecoins with yields could attract up to $6 trillion in deposits from US banks (approximately 30-35% of total deposits in US commercial banks).
Moynihan cited studies from the US Treasury Department to support this estimate, arguing that stablecoins with yields would directly compete with bank savings accounts and money market fundsoffering higher returns.
Banks pay depositors 0.1% interest. Stablecoin issuers hold Treasury bills that generate 4.5%. If stablecoins could transfer that yield to users, banks would lose the deposit war.
If consumers migrate en masse, Banks would lose a cheap source of funding (low-cost deposits), which would reduce their ability to lend.. This would raise funding costs for banks, raising interest rates for loans to consumers, small businesses, farmers and households.
The main impediment to banks (or any issuer) offering stablecoins with yields or passive interest for simply holding is an explicit prohibition in federal law, established by the GENIUS Act.
The GENIUS Act defines payment stablecoins (such as USDC or USDT) as payment instruments, not investment products or bank deposits. Therefore, in its Section 4(a)(11), it strictly prohibits permitted issuers (including bank subsidiaries) from paying any form of interest or return to holders “solely for holding, using, or retaining” the stablecoin. This applies to both domestic and foreign issuers operating in the US, and seeks to prevent stablecoins from competing directly with savings accounts or bank deposits.
The official reasoning of Congress and regulators is that stablecoins should function as “digital money” for payments and settlement, not as savings vehicles that generate returns. If passive yield were allowed, it would discourage transactional use and encourage massive holding of non-FDIC-insured balance sheets.
It is because of this threat that the banking lobby has put pressure to momentarily stop the implementation of performance in stablecoins as it was even written in the Genius Act. More than 3,200 American bankers signed a letter from the American Bankers Association pressing for it.
As the Spanish lawyer, Cristina Carrascosa, has said, “perhaps the point is not so much about trying to prohibit something that any investor can achieve through DeFi (the yield), but to demand faster deregulation in terms of product, so that Banks can also join this new technological stage based on tokenization.”
The Clarity Law goes against freedom
Beyond the interests of exchanges and bankers, although the Clarity Act is presented as a measure to offer regulatory clarity and protection, it actually represents a dangerous move towards greater surveillance and centralized control.
The text incorporates provisions that expand the special measures of the PATRIOT Act to allow the Treasury Department restrict privacy technologies such as coinjoins or payjoins if they are considered primary money laundering risks, aligning with ongoing developments such as the mixers rule and extending AML and CTF obligations to DeFi protocols.
In the area of protection for developers, the supposed safeguards of the Blockchain Regulatory Certainty Act reviewed are insufficient: although it exempts non-custodial developers from certain charges as money transmitters, it leaves the door open to serious accusations such as conspiracy to evade sanctions or commit money laundering if users use their software illicitly, with potential sentences of up to 40 years in prison.
The provisions under Responsible innovation in Decentralized Finance They could classify DeFi services as brokers if they exercise control over the software (even if they do not custody funds), imposing BSA and AML compliance. This would require reporting to the Tax Office, KYC checks for users and analysis of transactions in distributed protocols, increasing costs and operational complexity.
In short, the supposed regulatory clarity is nothing more than a euphemism to ensure that the establishment maintain its privileges, that the banks can continue to monopolize the interests and that governments deepen their capacity to monitor to cryptocurrency users.
The massification of cryptocurrencies is occurring in a detrimental sense for the true Bitcoin revolution: being the sole owner of your money. Cryptocurrency companies are choosing to give ground to achieve massification, forgetting that one of the main reasons why Bitcoin has value is because it is an uncontrollable and sovereign asset, not because it makes transactions more efficient, faster or available 24/7. To please Traditional Finance, the user loses.
The fusion between Traditional Finance and Decentralized Finance will continue; It seems unlikely that it will stop. But it will still be traumatic and combative, with a high probability that users will be the most affected. Without self-custody and sovereignty, cryptocurrencies are sterile; There will be no profound changes in the financial world.
Satoshi’s promise of being your own bank is still valid, but laws and financial intermediaries are increasingly pushing for massification to occur through them, and because more and more doors are closing to self-custody and individual sovereignty. Continuing on this course will keep humanity in the financial adolescence of always delegating responsibility for money to others to those who have historically betrayed trust.