Circle Slides 18% After Clarity Act Draft Raises Questions Over Stablecoin Rewards

Shares of stablecoin issuer Circle (CRCL) sold off Tuesday after a draft of U.S. stablecoin legislation sparked concern that yield and rewards tied to stablecoin holdings could face tighter limits. The USDC issuer fell as much as 18% early in the U.S. session, ending a multiweek surge that had lifted the stock more than 100%. Coinbase (COIN), which earns revenue tied to USDC, dropped about 8%. Analysts pointed to the latest version of the Clarity Act, first reported by CoinDesk, as the driver of the move. The draft would curb rewards on stablecoin balances. "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," Mizuho analyst Dan Dolev said. Yield has become a central part of how platforms market stablecoins to users, whether through on-chain lending mechanics or incentives funded by intermediaries. Removing that benefit could make it harder for tokens like USDC to expand beyond payments. Shay Boloor, chief market strategist at Futurum Equities, said the change would undercut a key bullish argument by limiting USDC's path toward becoming a true store-of-value product. A prior bill focused on stablecoins, the GENIUS Act, barred issuers from paying yield directly to users, but the industry has relied on structures that pass through income earned on reserves. Circle earns interest on assets backing USDC and shares that revenue with Coinbase, which then funds user rewards. Amir Hajian, a digital asset researcher at Keyrock, said the newest Clarity Act draft targets that arrangement by prohibiting anything "economically equivalent to interest," potentially removing a major incentive to hold stablecoins. "It pulls the rug on the passthrough model that has been driving stablecoin adoption," Hajian said. Separately, Tether, issuer of USDT and Circle's main competitor, said it has hired one of the Big Four accounting firms to carry out a long-promised full audit of its reserves. A successful audit could bolster USDT's standing with institutional investors by signaling stronger risk controls, potentially pressuring USDC's market share. The pullback follows a powerful rally in Circle shares, which have gained 170% since early February, outperforming other crypto-related stocks and a broader equity market that has struggled. That run left the stock exposed to sharp declines on negative headlines. "The actual situation doesn't appear to be as bad as the headline indicates," Clear Street analyst Owen Lau said. "It looks like an overreaction, but the market tends to shoot first and ask questions later."