Shares of Circle dropped as much as 18% after a new draft of the Clarity Act raised concerns about restrictions on stablecoin rewards. The sell-off followed a strong rally, with the company’s stock previously surging over 100% in recent weeks.
The proposed legislation could limit incentives tied to holding stablecoins, directly impacting USDC, Circle’s flagship product. At the same time, Coinbase shares fell around 8%, reflecting its close revenue ties to USDC.
The latest draft of the Clarity Act aims to restrict rewards on passive stablecoin balances and prohibit mechanisms that are “economically equivalent to interest.” This could effectively dismantle a key growth driver for stablecoins. It is yield generation.
Currently, Circle earns interest on reserve assets backing USDC and shares a portion of that revenue with Coinbase, which distributes rewards to users. Analysts suggest that eliminating this structure could weaken the appeal of stablecoins beyond simple payment use cases.
Market participants noted that yield-bearing features have been central to attracting users, and limiting them may slow adoption. However, some experts believe alternative incentive models, such as loyalty programs, could emerge to fill the gap.
The downturn also coincided with renewed competition from Tether, which recently announced plans for a full audit of its USDT reserves. Improved transparency from Tether could strengthen its position among institutional investors and challenge USDC’s market share.
Despite the sharp decline, analysts argue the reaction may be overstated. Circle remains a major player in a rapidly expanding stablecoin market, and its long-term outlook is still supported by growing adoption across payments and financial services.
While regulatory uncertainty continues to weigh on sentiment, the broader trajectory for stablecoins suggests continued growth, even as the industry adapts to potential new rules.
