Bank stablecoins can earn DeFi gains, but holders bear risks: Katana CEO

Katana CEO: Compliant stablecoins can earn revenue through a separate DeFi protocol, but users have to bear their own risks.

Katana CEO Matt Fisher said that the US dollar stablecoins planned to be launched by 21 financial institutions in the first half of 2027 can generate revenue through a separate decentralized finance (DeFi) protocol. However, holders need to bear risks that are not covered by the issuing bank.

GENIUS Act Restrictions and Revenue Sources

21 financial institutions plan to launch a U.S. dollar stablecoin the first half of 2027. Under the GENIUS Act, issuers of licensed payment stablecoins are not allowed to pay interest or gains to holders. Fisher pointed out that a stand-alone agreement could reap a return by lending stablecoins to identifiable borrowers. However, failures in smart contracts, liquidity, oracle and custody often cause depositors to bear any losses.

Fisher said in an interview that the restrictions under the GENIUS Act apply to licensed stablecoin issuers and do not necessarily apply to how the holder uses the token after receiving it, although he emphasized that this view belongs to a market structure perspective rather than legal advice. "What the GENIUS Act prevents issuers from paying proceeds; it does not prevent holders from investing dollars somewhere beyond the issuer's control. Once compliant stablecoins leave the issuer and enter a stand-alone agreement, gains can come from real economic activity."

Bank stablecoins may face idle funds

Fisher's comments followed a commitment in September, when 17 other financial institutions, including Bank of America, Citigroup, Goldman Sachs, and UBS, announced plans to establish a new stablecoin company in the second half of 2026, provided that delivery conditions are met. Based on the recently announced 21 institutional stablecoin plan, the unnamed joint venture is expected to launch dollar-denominated tokens in the first half of 2027. Tokens pegged to other G7 currencies may be added in the future, with euro products listed as the top expansion priority.

Participating institutions stated that the US dollar token can support wholesale, institutional and retail transactions, including cross-border payments and digital asset settlement. North American participants include Fidelity Investments, Capital One, Wells Fargo, PNC Financial Services, Scotiabank, TD Banking Group and WisdomTree, as well as Bank of America, Citigroup and Goldman Sachs. Europe is represented by Banque Santander, BBVA, Commerzbank, Credit Agricole, Deutsche Bank, Lloyds Banking Group, Rabobank and UBS. Mitsubishi UFJ Bank, Sirius International Holding and Standard Bank also joined the group.

According to the official alliance announcement, the project is designed to comply with the applicable GENIUS Act and the European Union Cryptographic Asset Markets Regulation (MiCA). The group has not disclosed the name of the token, supported blockchains, reserve custodians, governance structure or redemption terms.

Under current U.S. stablecoin issuance rules, licensed issuers cannot pay interest or proceeds to holders. The federal framework also requires that eligible paying stablecoins must have a 1:1 approved liquid asset collateral, with regular disclosures and definition of redemption rights. For Fisher, this restriction leaves a gap between creating tokenized dollars and making them productive. Compliant issuers can improve the way money flows without having to provide a return on the cash stored in tokens.

Jiko's 2026 "Corporate Cash Confidence Survey" shows the scale of existing cash problems. The survey of 192 treasury professionals was conducted between April 13 and June 19 and found that nearly half kept more than 10% of corporate cash uninvested at any given time. Another 23% said more than a quarter of their cash was often idle.

For respondents, liquidity still trumps returns. 60% of respondents listed "access to cash on demand" as their top priority, and 46% chose risk control and principal protection. Yields come after the two.

Independent DeFi protocol provides benefits

Fisher said that once the stablecoin enters an agreement outside the control of the issuer, its return may come from over-mortgage loans, market maker financing inventory or other users 'fees for borrowing the asset. He likened the arrangement to the separation between bank deposits and money-market funds. In his interpretation, banks create dollar tokens and independent venues make them work. "The proceeds come from whom the cash was borrowed, not from the bank that originated it."

According to Fisher, the source of the return determines whether the arrangement can last. Interest paid by borrowers represents economic needs, while rewards generated by governance tokens through repeated issuance agreements rely on subsidies. Fisher said infrastructure like Katana's VaultBridge agreement is designed to channel stablecoins to borrowing demand. His comments about the product represent Katana's description of its own infrastructure, rather than an independent assessment of its performance or risks.

This distinction also exists in the active U.S. policy controversy. In January, U.S. Community Banks challenged gains indirectly earned through exchanges and other third parties. Banks believe such incentives could attract deposits away from local lenders even if the stablecoin issuer does not pay a return itself.

Fisher's model differs from passive holding rewards in that it requires token holders to put funds into separate strategies. Returns will depend on borrowing or other income-generating activities, not just ownership of stablecoins.

Sustainable stablecoin gains require identifiable needs

Fisher said that treasury officials assessing on-chain returns should first determine who is paying for using stablecoin. Clear sources of demand allow depositors to examine why borrowers need funds and what risks support the interest rates offered.

His second test involved the way interest rates behaved. Borrowing returns should vary with the supply of available dollars and borrower demand, while a fixed nominal annualized rate of return may rely on temporary incentive plans.

Removing the token reward constitutes the third test. Fisher said that if the underlying return disappears when the agreement stops providing incentives, then the benefits advertised are subsidies, not revenue generated by underlying activities. "Any gain that is significantly higher than the risk-free rate is the premium you get for taking risk. Treasury officials should be able to clearly identify the specific risks they take in order to earn profits."

If there is no identifiable risk, Fisher said the return could come from ending subsidies or from depositors 'unpriced exposure. His tests will not determine whether the product is legal and compliant, and regulatory treatment will depend on its structure and the relationship between the issuer, agreement and holder.

DeFi gains mean the holder takes risk.

Fisher said that moving bank-issued stablecoins into DeFi introduces a risk exposure that is not available when holding only payment tokens. Smart contracts may contain exploitable code, and failed or manipulated oracles may provide wrong collateral prices.

In times of stress, liquidity can pose another problem. Even if the agreement reports sufficient assets for normal redemption, depositors may not be able to withdraw at face value if many users withdraw cash at the same time. Self-custody may also prevent the holder from obtaining chargebacks or customer service channels after a wrong transaction or loss of account access. Failed counterparties and failed lending strategies add further avenues for loss.

"In most DeFi, no publisher endorses the strategy. If the strategy of an independent agreement fails, the loss is usually borne by the depositors, not the bank or backing party."

According to Fisher, audited codes, liquid markets and conservative collateral can reduce some risk exposure, but nothing can transform independent agreements into bank guarantees. Under the U.S. framework, eligible payment stablecoins are also not FDIC-insured deposits, although the law provides reserves, disclosures, redemption and bankruptcy protection.

DeFi developers have raised a related concern about regulations that could lead publishers to liability for activities beyond their control. In June, the Hyperliquid Policy Center and Paradigm warned that the proposed secondary market compliance obligation could push regulated stablecoin liquidity towards authorized or offshore platforms.

Corporate adoption depends on liquidity under pressure

Fisher also dismissed the view that DeFi has solved the problem of unproductive digital dollars. DefiLlama records show that as of the time of report, the total amount of stablecoins was approximately US$305.3 billion, and the total lock-in value of DeFi was approximately US$87.6 billion, which means that most of the supply of stablecoins was not deposited in DeFi capital.

Fisher said that before viewing the agreement as treasury infrastructure, companies need transparent economic activity, predictable liquidity, conservative collateral, real-time reporting and clear responses to failure. Operational requirements include round-the-clock clearing and counterparties that can remain operational under pressure.

According to Fisher, advertised interest rates should not be used as the main test criterion. He said treasury officials need to examine redemption routes and determine how long an exit may take on other days when many depositors are trying to withdraw money simultaneously. "Most treasury officials unintentionally assumed the proceeds and inherited the redemption path." Fisher added that corporate users should test exit conditions under pressure rather than relying on the liquidity the agreement demonstrates during normal trading periods."