Circle shares declined by as much as 18% and Coinbase fell approximately 8% following the release of a draft version of the U.S. Clarity Act, which proposes significant restrictions on stablecoin yield. The draft legislation has unsettled investors who had previously driven both companies to notable gains. The sell-off reflects broader concern about how the bill could reshape the stablecoin market if enacted.
The proposed legislation would prohibit rewards paid on passive stablecoin balances and would also ban any financial structures deemed economically equivalent to interest. Lawmakers appear to be targeting arrangements that effectively function as yield-bearing accounts without being classified as such. The restrictions, if passed, would directly affect how stablecoin issuers attract and retain users.
For Circle, the issuer of the USDC stablecoin, the draft bill poses a particular threat because yield-based incentives have been a central driver of USDC adoption. Removing that mechanism could reduce the appeal of holding USDC relative to competing products. Analysts see the proposed ban as a meaningful headwind for Circle’s growth strategy.
The decline for Circle comes after the company had surged roughly 170% since early February, meaning the stock still retains substantial gains from that rally. The sharp single-day drop, however, signals that investors are reassessing the regulatory risk surrounding stablecoin business models. The timing of the draft’s release added to the abruptness of the market reaction.
Meanwhile, rival stablecoin issuer Tether moved to strengthen confidence in its own product by engaging a Big Four accounting firm to conduct a full audit of the reserves backing its USDT stablecoin. The decision positions Tether to demonstrate greater transparency at a moment when regulatory scrutiny of the sector is intensifying. The audit announcement contrasts with the uncertainty now surrounding Circle’s yield-related business practices.
The broader implications of the Clarity Act draft extend across the stablecoin industry, as the legislation could redefine what products issuers are permitted to offer. Market participants are now watching for further developments in the legislative process to gauge how the final bill may differ from the current draft. The outcome is expected to have lasting consequences for how stablecoins are structured and marketed in the United States.
Originally reported by CoinDesk.
