Circle's stock plunged nearly 20% to $100 yesterday, wiping out billions in market cap. Wall Street firm Bernstein quickly pushed back, arguing investors have misread the proposed Clarity Act and its impact on the stablecoin issuer.
Don't Lump Issuers and Distributors Together
Led by Gautam Chhugani, Bernstein analysts described the market reaction as a 'confusion risk.' The bill's restrictions on 'yield payments' target distributors like Coinbase, not Circle as the issuer. Circle manages roughly $80 billion in USDC reserves, earning spread by investing in short-term U.S. Treasuries—bringing in $2.64 billion in reserve income in 2025. Critically, Circle does not pay interest directly to token holders.
Coinbase, however, offers around 3.5% rewards to USDC holders, sharing reserve revenue with Circle. The Clarity Act would ban such yield on passive balances, forcing Coinbase to restructure its rewards. Analysts argue 'the Act may ban yield on passive stablecoin holdings, but that actually reinforces Circle's moat by reducing incentives for rivals to use aggressive interest rates to steal liquidity.'
USDC Demand Shifts from Yield to Real Use
Bernstein notes USDC's growth no longer hinges on interest payouts. Supply jumped from $30 billion to $80 billion in two years, driven by cross-border payments, corporate treasury management, and on-chain collateral. On-chain transaction volume hit $11.9 trillion in Q4 2025.
While Coinbase may need to pivot rewards to participation-based incentives (e.g., trading or payment rewards), the long-term trend of stablecoins as digital dollar infrastructure remains intact. Circle's position as a 'digital dollar proxy' in public markets stays solid, the analysts concluded.