Proposed US CLARITY Act Could Boost Demand for Offshore and Synthetic Dollar Products, Experts Warn

The proposed CLARITY Act in the United States has raised fresh concerns among market observers that tighter onshore restrictions could redirect capital toward offshore and synthetic dollar instruments. Experts caution that if the bill’s provisions materially limit access to certain dollar-denominated yield products inside the U.S., institutional and retail investors may increasingly seek alternative venues and structures that offer comparable returns outside regulated domestic markets.

At the heart of the debate is the potential for regulatory arbitrage: when stringent domestic rules make onshore products less attractive, market participants historically respond by shifting exposure to instruments domiciled in more permissive jurisdictions or to engineered, synthetic structures that replicate dollar exposure without the same regulatory footprint. Such flows can amplify liquidity migration and complicate oversight, particularly in fast-moving segments of the fixed-income, money-market, and crypto-linked stablecoin ecosystems.

Market participants emphasize that the effect will depend on the scope and mechanics of the Act’s restrictions. If measures target specific instruments or custodial setups, innovative product design may accelerate — including the creation of synthetic dollar exposures via derivatives, tokenized instruments, or cross-border pooled funds. These alternatives can offer yield to investors willing to accept increased counterparty, jurisdictional, and operational risks.

Investors chasing yield outside regulated markets typically face higher complexity and lower transparency. Offshore vehicles and synthetic products often rely on layered counterparties, derivative overlays, or collateral arrangements that require sophisticated risk assessment. For less experienced investors, the shift can increase vulnerability to liquidity squeezes and valuation opacity, especially during market stress.

From a systemic perspective, supervisors worry that migration of dollar liquidity beyond domestic regulatory reach could create supervisory blind spots and contagion channels. The move could also affect price formation and yield spreads if large pools of demand relocate abroad. In short, while the CLARITY Act aims to tighten onshore controls, it may inadvertently increase demand for offshore dollar solutions, shifting risks rather than eliminating them.

Policy makers and industry stakeholders are weighing mitigation options. Potential responses include enhanced cross-border cooperation, clearer guidance on permitted product structures, and tailored compliance frameworks that reduce incentives for regulatory arbitrage. Some suggest that calibrating transitional arrangements and custodial standards could preserve access to safe, transparent dollar yield opportunities within regulated markets.

For investors, the immediate takeaway is to re-evaluate exposure to dollar-yield strategies in light of potential rule changes. Due diligence should focus on counterparty credit, jurisdictional risk, operational resiliency, and liquidity under stress scenarios. Market makers and product designers should prepare for increased demand for offshore and synthetic offerings, while also recognizing the reputational and compliance costs that accompany cross-border structures.

In conclusion, the proposed CLARITY Act may accomplish its objective of tightening U.S. market controls, but it also risks creating incentives that drive capital toward offshore and synthetic dollar products. That dynamic underscores the importance of integrated policy design and investor education to manage the migration of dollar liquidity and maintain market stability.