Circle (CRCL) sank 20% on Tuesday, ending a weeks-long surge, after a new draft of U.S. stablecoin legislation raised concerns over limits on reward programs. Coinbase (COIN), which shares revenue linked to USDC, also slid nearly 10%. The market reaction centered on the latest version of the Clarity Act and its potential impact on how stablecoin holders are rewarded.
Draft language targets interest-like stablecoin incentives
As reported by CoinDesk, the updated Clarity Act could restrict rewards paid on stablecoin balances. Mizuho analyst Dan Dolev said the proposal could ban yield payments for simply holding a stablecoin, meaning passive balances, and limit structures that make the program economically similar to a bank deposit. A short point, but a meaningful one. If adopted, that would put pressure on one of the main incentive models used across the stablecoin market.
Dolev said such a ban could hurt Circle’s use case in the near term. Over a longer period, if Coinbase can no longer offer rewards to USDC holders, the appeal of keeping USDC on the platform may weaken as well. Stablecoin yield, whether generated through onchain lending or platform-based incentives, has been a major part of the product pitch to investors. Remove that feature, and tokens such as USDC face a harder path beyond basic payments.
Circle-Coinbase revenue pass-through faces scrutiny
Futurum Equities chief market strategist Shay Boloor said the change would weaken a core part of the bullish case for USDC and narrow its path toward becoming a true store-of-value product. The GENIUS Act already banned issuers from paying yield directly to users, but the market developed workarounds that pass reserve income through other channels. Circle earns interest on assets backing USDC and shares that income with Coinbase, which then uses it to fund user rewards.
According to Amir Hajian, a digital asset researcher at Keyrock, the latest Clarity Act draft goes after that structure by banning anything “economically equivalent to interest.” In practical terms, that would cut off a key reason for users to hold stablecoins rather than just use them for transfers or settlement. Hajian said the proposal pulls the rug from under the pass-through model that has helped drive stablecoin adoption.
Tether audit update adds pressure in the background
Another development was also hanging over the market. Tether, the issuer of USDT and Circle’s main rival, said it has hired one of the Big Four accounting firms to conduct a full audit of its reserves, something it had long promised. If that process is completed successfully, it could improve USDT’s standing with institutional users by showing stronger risk management and could chip away at USDC’s market share.
The selloff also came after an extended rally that left Circle exposed to a sharp reversal on negative headlines. Before Tuesday’s drop, the stock had climbed 170% since early February, outperforming other crypto-related equities and a broader stock market that had been struggling. With shares already stretched, a legislative threat to the stablecoin reward model was enough to trigger a steep pullback.