Yield Restrictions and the Funding of Stablecoin Settlement

Yield restrictions on stablecoin issuers move remunerated liquidity to exchanges and on-chain vaults whose claims are backed by the restricted token. These wrappers fund liquidity by redeeming tokens, which retires issuer reserves and liabilities before stress, or by placing tokens with outside investors. Worse recovery beliefs and tighter restrictions redirect funding toward redemption. With cash and claims fixed, this feedback can create safe and fragile equilibria, and sufficient netting restores uniqueness without closing either route. In a certified fully endogenous economy, routing and claim creation generate multiplicity, and funding flight alone makes the restriction worsen recovery at the safe equilibrium.