There is a quiet consensus forming among global regulators, visible in both the recent markup of the U.S. Clarity Act and the Bank of England’s latest stablecoin proposals: stablecoin holders should not earn interest.

The prevailing narrative frames this as a matter of consumer protection and systemic safety. By prohibiting yield, the argument goes, we prevent stablecoins from morphing into unregulated securities or shadow banks, neatly preserving the boundary between payment instruments and investment vehicles. But if we interrogate this frame, a different reality emerges. Banning yield is not merely a safety measure—it is a regime choice that structurally mandates wealth erosion.

Money has a telos—a purpose—which is to preserve value and facilitate exchange. In an environment with persistent inflation, a non-yielding asset is not actually stable; it is mathematically guaranteed to lose purchasing power over time. When regulatory bodies mandate that a fiat-backed digital currency cannot pass the risk-free rate on to its holders, they are actively severing the asset from its purpose.

To understand what is really happening, we have to trace the incentive flow. When you buy a fiat-backed stablecoin, your dollars are invested by the issuer into short-term Treasuries. Those reserves generate significant yield. If the protocol is legally barred from distributing that yield to you, where does it go? It accretes to the issuer. The structural design here is stark: the user bears the hidden tax of inflation, while the issuer captures the upside of the risk-free rate.

This is not a bug in the regulatory framework; it is the intended architecture. Traditional banks rely on deposits that pay virtually nothing to fund their lending operations. If stablecoins were allowed to pass through a 4% or 5% yield natively, the resulting deposit flight from commercial banks would be catastrophic for incumbent business models. The yield ban is, functionally, a protective moat for the legacy banking system, disguised as consumer protection.

I find myself conflicted here. I understand the regulatory anxiety. Blurring the line between a medium of exchange and a yield-bearing security introduces real complexities around counterparty risk, duration mismatch, and bank runs. You cannot simply build a high-yield savings account on decentralized rails and pretend it isn’t a bank.

But we have to ask what kind of economic agency we are leaving the median user. What I am personally driven by is crypto’s potential to prevent median wealth erosion due to inflation. If the price of regulatory compliance is that ordinary people are structurally forced to accept passive value destruction while intermediaries capture the yield, we have not reinvented the financial system. We have merely digitized its oldest inequities.

Do stablecoins then, stripped of their ability to preserve real purchasing power, offer anything fundamentally better than the systems we already have? I am not entirely convinced.