Summary Market structure bill halts as banks & crypto clash over yield. The systemic importance of bank-funded lending makes stablecoin yield a likely compromise point in order to secure passage of the broader framework. Elon Musk’s X has banned InfoFi apps that pay users to post in an effort to curb AI-driven spam and low-quality engagement, showing growing backlash against attention-based crypto incentives that have distorted online discussion. Vitalik Buterin argues that decentralized stablecoins remain fundamentally fragile due to dollar dependence, oracle vulnerabilities, and staking-related risks, while we think that decentralized models are unlikely to achieve adoption and that stablecoins should instead remain U.S. dollar–pegged. This week’s newsletter examines the growing frictions in the industry, from the stalling of U.S. market structure legislation amid clashes over stablecoin yield, to Elon Musk’s X cracking down on InfoFi-driven attention farming, and Vitalik Buterin’s critique of decentralized stablecoins. Market Structure Bill Halts as Banks & Crypto Clash Over Yield The U.S. Senate Banking Committee has cancelled the scheduled markup of crypto market structure bill this week due to the growing fractures in negotiations among lawmakers, regulators, and industry groups. At the center of the debate is a fierce lobbying battle between the banking industry and the crypto sector. Banks argue that stablecoin rewards and yield programs siphon deposits away from the banking system, undermining the funding base that supports lending. Crypto firms counter this, claiming stablecoins are not deposits; rewards are not interest paid by issuers. The latest draft of the crypto market structure bill walks back earlier expectations by restricting stablecoin rewards when tokens are passively held in a way that resembles a saving account, while still allowing rewards tied to activity and transaction. Regarding the timeline, the Senate Banking Committee is set to consider amendments and hold a markup vote, while the Senate Agriculture Committee has postponed its own markup until later this month. After both committees advance their versions, the bill must be reconciled into a single Senate package before a full floor vote. Key Take The Market Structure Bill is the most important policy advance to watch this year, as it will draw clearer lines between the SEC and CFTC around when a digital asset is treated as a security or a commodity and how assets can evolve from security to commodity. It also builds on the GENIUS Act, sets rules about issuance, custody, and rewards, leading to the battle between banks and crypto. The criteria used to determine whether a token is treated as a commodity or a security will have direct market consequences. Tokens that qualify as commodities are likely to benefit from simpler regulatory treatment, while security tokens would face much higher compliance burdens. For the debate whether stablecoins can offer yield, it touches a foundational layer of the current financial system. Bank lending remains a primary source of funding for the whole economy, and lending is funded by deposits. If stablecoins meaningfully divert deposits away, it could hamper a bank's ability to extend credit. Therefore, the crypto sector is likely to compromise on the stablecoin yield in order to get the bill passed. Elon Musk’s X Bans InfoFi Apps That Pay Users to Post Elon Musk's X cracks down on so-called "InfoFi" projects, which monetize user attention through digital assets. X has announced that API access is revoked for applications that reward users for posting on the platform. X's Head of Product, Nikita Bier, said the decision is intended to curb AI-generated spam and low-quality engagement, which has flooded the platform with repetitive and inorganic content. InfoFi, short for Information Finance, gained popularity in 2024-2025, focusing on monetizing information and user attention through crypto mechanisms. Early adopters viewed it positively; it provided income opportunities for content creators and offered projects an efficient way to build awareness without relying on traditional KOLs. However, by mid-2025, there is growing criticism regarding InfoFi due to an explosion of low-quality, AI-generated content, to game the mechanism rather than provide real value. The move led to an immediate market impact. Kaito, one of the largest InfoFi projects, which tokenizes user engagement through its "Yaps" scoring system, saw its token fall more than 15% after the announcement. Key Take InfoFi has increasingly distorted crypto content by incentivizing attention farming, spam, and AI-generated content, bringing negative impact to information quality and credibility across social platforms, and at the same time reinforcing negative external perception of the crypto industry. This week's featured chart below showed the declining social metric across X and YouTube. While part of the slowdown reflects a lack of compelling industry narratives, the proliferation of low-quality content has also discouraged users from engaging with crypto-related discussions. Another reason for declining content quality on crypto Twitter is the shift in crypto's growth narrative from speculative, high-upside opportunities to stablecoins, tokenized assets, and financial infrastructure. While these areas have real potential to revolutionize the current financial system, they offer little excitement to retail participants. Vitalik Buterin’s Critique of Decentralized Stablecoin Design Ethereum co-founder Vitalik Buterin warned that the crypto industry has yet to resolve several foundational flaws in how to design decentralized stablecoins, arguing that many existing models depend on fragile assumptions that may fail in the long run. Buterin identified three core problems. First, he questioned the reliance on the U.S. Dollar as a reference asset, stating stablecoin should not be tied to a single national currency. Secondly, he pointed to Oracle dependence as a major vulnerability. Because decentralized systems rely on external data feeds for pricing, oracle feeds could be manipulated. Decentralized stablecoins protocols often rely on economic design to defend against these kinds of attacks by making attacks prohibitively expensive through fees or inflation. The third issue involves staking-backed collateral. When staked ETH is used as collateral for stablecoins, the staking yield needs to compete with returns users could get in other places, and slashing risk can erode collateral value. Key Take There are few novel decentralized stablecoins emerging in this cycle. The only example is Ethena's USDe, but it does not fully meet the criteria for decentralization, as its mechanism relies on a delta-neutral strategy executing on centralized exchanges to maintain stability. Contrary to Vitalik Buterin’s view, we believe stablecoins should remain pegged to a national currency, particularly the U.S. dollar. As a medium of exchange, a stablecoin’s primary function is transactional utility, not maintain purchasing power, and the U.S. dollar remains the dominant unit of account for global trade and everyday economic activity. A stablecoin pegged to an index or some other reference point will not gain mainstream adoption. We also do not expect a truly decentralized stablecoin to ever work, or even if it appears to work, it will not achieve real adoption, particularly as the regulatory environment becomes increasingly central, where regulators around the world recognize and legitimize only centralized, issuer-backed stablecoins. A decentralized stablecoin has to rely on some kind of mechanism, and this mechanism is often complex, where no regulators can confidently assess whether it is safe and stable in any market situation. Weekly Market Chart: Social Metrics as Leading Indicators Social metrics are a critical indicator category for the crypto industry, as they capture retail engagement and narrative momentum. Since mid-2025, social activity across YouTube and X, the two most important platforms for crypto, has been on a clear downward trend per data from The Block, suggesting weakening attention. More broadly, this reflects a shift in investor focus away from crypto toward other asset classes, particularly precious metals and technology firms, which have continued to grind higher and absorb attention. The deterioration in social engagement well ahead of the market peak in Q4 demonstrates the role of social metrics as leading indicators. As such, continued weakness in these indicators suggests limited upside momentum, while a reversal in social engagement would likely be an early signal of renewed market sentiment and a potential market rebound. Disclaimer: The information provided herein does not constitute investment advice, financial advice, trading advice, or any other sort of advice, and should not be treated as such. All content set out below is for informational purposes only. Original Post
