Shares of Circle fell sharply Tuesday after a new draft of U.S. stablecoin legislation sparked concerns over potential limits on yield, dragging crypto-related equities lower.
The stock dropped 20%, snapping a powerful rally that had seen it gain more than 100% in recent weeks. Coinbase, which shares in revenue generated from USDC, also declined about 10%.
The sell-off was triggered by updates to the Clarity Act, which could restrict rewards on stablecoin balances. Analysts say the proposal may effectively ban yield on passive holdings and limit mechanisms that resemble interest-bearing deposits.
Such changes could weigh on Circle’s near-term outlook while also reducing the longer-term appeal of holding USDC. Yield—whether generated through lending or platform incentives—has been a central component of the stablecoin value proposition. Removing it could make it harder for tokens like USDC to expand beyond their role in payments.
The draft appears to go further than the GENIUS Act, which already prohibits direct yield payments but allows issuers to distribute income earned on reserves. Circle currently collects interest on USDC backing assets and shares a portion with Coinbase, which then funds user rewards.
The revised Clarity Act aims to close that pathway by targeting anything considered “economically equivalent to interest,” potentially cutting off a key driver of stablecoin adoption.
At the same time, Tether—Circle’s main competitor—announced it has hired a Big Four accounting firm to conduct a full audit of its reserves. The move could strengthen confidence in USDT among institutional users and intensify competition in the stablecoin market.
Despite the steep drop, some analysts view the reaction as an overcorrection. Circle shares had surged roughly 170% since early February before Tuesday’s decline, significantly outperforming both crypto peers and the broader market, leaving the stock vulnerable to negative headlines.
Looking ahead, sentiment remains cautiously constructive. Analysts point to growing stablecoin adoption as a long-term positive, while Coinbase could see near-term margin benefits if reduced rewards lower payout obligations tied to USDC revenue.
Some market participants also expect alternative incentive models—such as loyalty-style programs—to emerge if direct yield mechanisms are restricted.
While regulatory uncertainty may create short-term pressure, Circle remains a major player in a rapidly expanding sector, and its long-term growth outlook is still seen as strong.
