Circle stock dives 18% as US bill targets stablecoin rewards

• Circle (CRCL) shares fell 18% following news of a draft U.S. stablecoin bill that could restrict yield-bearing features.
• The Clarity Act draft aims to prohibit rewards on stablecoin balances that are economically equivalent to bank deposit interest.
• Coinbase (COIN), which shares stablecoin revenue with Circle, saw its stock decline by 8% in response to the legislative news.

Regulatory Pressure on Yield Models

The recent selloff in Circle shares was triggered by a leaked draft of the Clarity Act, a legislative proposal targeting the stablecoin industry. Analysts suggest the bill could effectively ban yield payments for passive stablecoin holdings. Dan Dolev, an analyst at Mizuho, noted that the legislation might restrict any program that makes holding a stablecoin equivalent to a traditional bank deposit. This move threatens a core incentive for investors who hold USDC, as yield has historically been a primary driver for adoption.

Impact on the Circle-Coinbase Partnership

Stablecoin rewards are often funded through interest earned on the reserves backing the tokens. While the previous GENIUS Act banned direct yield payments from issuers, companies like Circle and Coinbase established a pass-through model. Circle earns interest on its reserves and shares that revenue with Coinbase, which then provides rewards to its users. Amir Hajian, a researcher at Keyrock, warned that the new draft specifically targets this structure by banning anything "economically equivalent to interest," which could disrupt the current growth trajectory of USDC.

Competitive and Market Context

The legislative concerns emerged just as Tether (USDT), Circle’s main competitor, announced it had engaged a 'Big Four' accounting firm for a comprehensive audit of its reserves. A successful audit could bolster USDT's reputation among institutional players, potentially pressuring USDC’s market share. Despite Tuesday's sharp decline, some analysts view the reaction as excessive. Owen Lau of Clear Street described the move as an overreaction, noting that the stock was vulnerable after a massive 170% rally since early February, which had previously outpaced the broader crypto market.