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The Blockchains that Stand to Benefit from Regulatory Clarity

Expected regulatory changes, including the CLARITY Act and guidance from the SEC, will likely unlock blockchain use cases like tokenized assets and decentralized finance (DeFi). This rising tide could eventually lift all boats across the digital assets industry. But for the time being, a small number of blockchains dominate this activity, including Ethereum, Solana, BNB Chain, and Canton Network. Institutional capital will target these networks first, in our view.

Exhibit 1 shows the breakdown of relevant activity by network.

Tokenized assets: Ethereum is the market leader for assets with full on-chain functionality, followed by BNB Chain and Solana. The Canton Network has also carved out a dominant position using an alternative network architecture.

Stablecoins: Stablecoins are at the heart of on-chain finance. Whether measured by supply or transaction volume, Ethereum, Solana, and BNB Chain stand out.

DeFi: There are many measures of DeFi activity, but, based on total value locked (TVL) and application activity, the leaders are again Ethereum, Solana, and BNB Chain.

There are several other blockchains driving growth in tokenized assets and DeFi, including hybrid networks like Avalanche and Ethereum L2s (Base, Arbitrum), specialized blockchains like Hyperliquid, and stablecoin-focused networks like Tron. We believe each of these networks should benefit from regulatory clarity1 as well.

Key Takeaway: As regulatory clarity improves, institutional capital will likely target the leading chains for tokenized assets and DeFi. Today, these are Ethereum, Solana, BNB Chain, and Canton Network.

Exhibit 1: A few networks dominate onchain finance today

1. Bitcoin, the largest blockchain network by market capitalization, does not natively support smart contracts and has a more limited Layer 2 network ecosystem. Nonetheless, it will likely also benefit from regulatory clarity, in our view, as the industry’s most secure asset and leading collateral.

Stablecoins Gaining on Money Fund Leaders

This month, the supply of stablecoins climbed to more than $320 billion. Demand for digital dollars on blockchain infrastructure is now approaching the scale of the largest government money market funds (Exhibit 1).

Government money market funds invest primarily in short-term US Treasuries and closely related assets (e.g., repurchase agreements). They are designed to have low credit risk, high liquidity, and maintain a stable $1 net asset value, or NAV.

Most stablecoins work in a similar way.1 Stablecoin issuers hold US Treasury bills and related instruments in reserve to back a digital token designed to remain “stable” at $1. The GENIUS Act, passed by Congress last year, mandates specific reserve requirements and auditing rules for US stablecoins that resemble the practice used by government-only money market funds. One key difference: stablecoins do not pay interest, so higher interest rates may have a meaningful impact on issuer revenue.

Key Takeaway: As stablecoin demand grows, stablecoin issuers like Tether and Circle have become increasingly important players in US money markets.

Exhibit 1: Stablecoins are approaching the size of the largest government money market funds

Tether, which issues the largest US Dollar stablecoin USDT, also holds precious metals, Bitcoin, and other assets in its reserves. Cash and cash equivalents account for 74% of its reserves as of March 31, 2026. USDT is not GENIUS Act-compliant and will not be considered a US payment stablecoin. Tether issues a different stablecoin, USAT, designed to be compatible with US regulations. Certain other stablecoins are backed by onchain collateral. About 99% of stablecoin supply is US Dollar-denominated.

A Step Closer to Full CLARITY: What’s Next?

The CLARITY Act cleared one important hurdle on May 14 as the Senate Banking Committee voted to advance it to the full Senate. The vote was 15–9, with two Democrats1 joining the Republican majority. The widely anticipated CLARITY Act provides a comprehensive rulebook for digital asset markets in the US, from token classifications to registration requirements for intermediaries, and more. The legislation follows last year’s GENIUS Act, which created a new US regulatory framework for stablecoins.

So what’s next?

While Polymarket and Kalshi contracts put the odds of passage this year at ~70% (Exhibit 1), there are still a few hurdles to clear before CLARITY can become law.

The bill will need to be merged with related legislation developed by the Senate Agriculture Committee (which oversees the CFTC) and reconciled with the House version of CLARITY that passed last July. The bill needs at least 60 votes to be approved in the full Senate. Republicans currently control 53 seats, meaning at least 7 Democrats would need to be on board. We believe that’s possible: the GENIUS Act cleared the Senate with 66 votes including 18 Democrats.

Key Takeaway: The CLARITY Act has cleared a key hurdle in the Senate Banking Committee on a bipartisan vote. Odds of passage this year are high, in our view, but the bill will require bipartisan support to clear the full Senate and become law.

Exhibit 1: Polymarket and Kalshi give CLARITY Act ~70% odds for this year

Senators Gallego (AZ) and Alsobrooks (MD).

Higher-for-Longer Rates: Three Key Implications for Crypto

As US inflation accelerates—due in large part to higher energy costs1—Kevin Warsh, the incoming Chair of the Federal Reserve, will have little choice but to hold rates steady, in our view. The market currently sees no rate cuts until September 2027. Such a higher-for-longer scenario will have many implications for crypto assets. We detail the three we believe are most relevant:

1. Debasement trades face headwinds. Like gold, Bitcoin is a non-interest-bearing currency that competes with the Dollar and other fiat currencies. Higher real interest rates (nominal rate minus inflation) raise the opportunity cost of holding zero-yield alternatives, creating headwinds for ownership. That said, we remain optimistic about the outlook for Bitcoin for a variety of reasons—including CLARITY Act progress—and believe that positive regulatory developments will offset these headwinds.

2. Tokenization of fixed income assets accelerates. Interest rates on dollar-denominated fixed-income securities are generally higher than comparable yields in DeFi2. If crypto-native investors can get higher yields on tokenized bonds, issuers may work to bring even more assets on-chain.

3. Stablecoin issuers see revenue boost. Circle and other stablecoin issuers hold interest-bearing assets but do not (and cannot under the GENIUS Act) pay interest on their digital dollar tokens. Therefore, higher interest rates have translated into higher revenues (see chart below). We estimate that every 25bp increase in short-term rates raises Circle’s revenue by about $190 million3.

Key Takeaway: Key impacts of higher-for-longer Fed policy rates on crypto? Likely headwinds for debasement trades, acceleration of the tokenization of fixed income assets, and higher revenues for stablecoin issuers.

Exhibit 1: Higher rates have translated into higher revenues for stablecoin issuers

The US Consumer Price Index (CPI) has increased to an annual rate of nearly 4% due to higher gasoline prices. The underlying “core” measures (which exclude food and energy prices) are also running above target: +2.7% for the core CPI and +3.3% for the Fed’s preferred core PCE measure. Source: Bloomberg, Grayscale Investments, Data as of May 12, 2026. Core PCE for April 2026 estimated based on CPI data.

For example, USDC lending rates on Aave are ~3.6% compared to short-maturity corporate bond yields of ~4.5%. Source: Aave, Bloomberg. Short-dated corporate bond yields based on Bloomberg 1-3yr Corporate Index yield-to-worst. Data as of May 12, 2026. Index returns are presented for illustrative purposes only and exclude management fees and expenses. Indexes are unmanaged, and investors cannot invest directly in an index.

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Assuming the change in rates is equivalent across all reserve portfolio assets and that rates remain at that level for one year.