Stablecoin issuer Circle’s ( CRCL ) shares fell on Tuesday after a draft of US stablecoin legislation raised concerns about limits on returns.
The USDC issuer’s stock fell as much as 18% in the early US session, capping a week-long rally that saw gains of more than 100%. Meanwhile, crypto platform Coinbase (COIN), which shares revenue from the stablecoin, fell about 8%.
The key catalyst behind the move was the latest version of the Clarity Act, as reported by CoinDesk, which would limit the offering of rewards on stablecoin balances, analysts pointed out.
“The Clarity Act could potentially prohibit dividend payments for simply holding a stablecoin (eg, passive balances) and limit any approach that makes the program in any way equivalent to a bank deposit,” Mizuho analyst Dan Dolev said.
According to Dolev’s analysis, a potential ban could reduce the use of Circle in the short term, while not paying rewards would reduce the long-term attractiveness of keeping USDC on Coinbase’s platform.
The stablecoin dividend – whether through onchain lending or platform incentives – has been a big part of the pitch for investors. Taking that away makes it harder for tokens like USDC to evolve beyond simple payments.
“It weakens an important part of the bull case,” said Shay Boloor, chief market strategist at Futurum Equities, arguing that it limits USDC’s path to becoming a true value product.
The stablecoin-focused GENIUS Act prohibited issuers from paying returns directly to users, but they have built ways to pass through income earned on reserves. Circle collects interest on USDC’s backing assets and shares it with Coinbase, which in turn funds rewards for users.
The latest draft of the Clarity Act targets this structure by banning anything “financially equivalent to interest,” effectively cutting off an important incentive to hold stablecoins, according to Amir Hajian, a digital asset researcher at Keyrock
“It pulls the curtain on the pass-through model that has driven stablecoin adoption,” Hajian said.
There was another development in the background. Tether, issuer of the USDT stablecoin and main rival of Circle, said it has hired one of the ‘Big Four’ auditing firms to conduct a long-promised full audit of its reserves. If successful, the audit could improve USDT’s image among institutional users by demonstrating stronger risk management, potentially eroding USDC’s market share.
not ‘so bad’
The sale comes after a strong run that saw Circle shares rise 170% since early February, far outperforming other crypto stocks and the struggling broader stock market. That setup made the stock vulnerable to a strong setback on any negative headlines.
Still, analysts don’t see this as an existential crisis.
According to Mizuho’s Dolev, the recent outperformance of USDC’s volume signifies “use cases [for stablecoins] is starting to spread, which is a long-term positive” for Circle. Meanwhile, Coinbase could see a boost in profitability in the short term, as USDC accounts for about 20% of Coinbase’s revenue, and a large portion of that is paid out as rewards.
In fact, Owen Lau, an analyst at Clear Street, said that “the actual situation does not appear to be as bad as the headline indicates. “It looks like an overreaction, but the market tends to shoot first and ask questions later.”
Ryan Rasmussen, head of research at digital asset manager Bitwise, agreed that investors should look past today’s short-term headwinds. Circle is still up more than 30% this year after Tuesday’s drop and remains an important player in a fast-growing market, he noted. “There will be solutions,” such as loyalty programs that could replicate similar incentives like dividends, Rasmussen said.
“With that in mind, Circle’s long-term outlook has never been better; they have a 30% share of a market that is expected to grow 10x over the next four years,” he added.
UPDATE (March 24, 15:46 UTC): Adds analyst commentary.
