Stablecoin issuer Circle's (CRCL) shares tumbled on Tuesday, after a draft version of U.S. stablecoin legislation raised concerns about limits on yield.
The stock of the USDC issuer fell as much as 18% in the early U.S. session, snapping a weeks-long rally that saw more than 100% gain. Meanwhile, crypto platform Coinbase (COIN), which shares revenue coming from the stablecoin, dropped about 8%.
The key catalyst behind the move was the latest version of the Clarity Act, as reported by CoinDesk, which would restrict offering rewards on stablecoin balances, analysts pointed out.
"Clarity Act could potentially ban yield payments for simply holding a stablecoin (e.g. passive balances) and restrict any approach that makes the program in any way equivalent to a bank deposit," said Mizuho analyst Dan Dolev.
Stablecoin yield — whether through onchain lending or platform incentives — has been a big part of the pitch to investors. Taking that away makes it harder for tokens like USDC to evolve beyond simple payments.
"That weakens a key part of the bull case," said Shay Boloor, chief market strategist at Futurum Equities, arguing it limits USDC’s path toward becoming a true store-of-value product.
The stablecoin-focused GENIUS Act banned issuers from paying yield directly to users, but they’ve built ways to pass through income earned on reserves. Circle collects interest on USDC's backing assets and shares it with Coinbase, which in turn funds rewards for users.
The latest draft of the Clarity Act targets that structure by banning anything "economically equivalent to interest," effectively cutting off a key incentive for holding stablecoins, according to Amir Hajian, a digital asset researcher at Keyrock
“It pulls the rug on the pass-through model that has been driving stablecoin adoption," Hajian said.
There was another development in the background. Tether, issuer of the USDT stablecoin and main rival of Circle, said it has hired one of the 'Big Four' accounting firms to conduct a long-promised full audit of its reserves. If successful, the audit could improve USDT's image among institutional users by demonstrating stronger risk management, potentially eating into USDC's market share.
The selloff comes after a strong run, during which Circle shares gained 170% since early February, far outpacing other crypto stocks and the struggling broader stock market. That setup left the stock vulnerable to a sharp pullback on any negative headlines.
"The actual situation doesn’t appear to be as bad as the headline indicates," said Owen Lau, an analyst at Clear Street. "It looks like an overreaction, but the market tends to shoot first and ask questions later."
