Circle shares tumble 20% as draft Clarity Act puts stablecoin rewards at risk.

Shares of Circle came under heavy pressure Tuesday after a new draft of U.S. stablecoin legislation raised concerns about limits on yield, triggering a sharp pullback across crypto-linked equities.

The stock dropped 20% on the day, snapping a weeks-long rally that had seen gains of more than 100%. Meanwhile, Coinbase—which shares in revenue generated from USDC—fell nearly 10%.

The sell-off was driven by the latest version of the Clarity Act, which could restrict rewards on stablecoin balances. Analysts say the proposal may prohibit yield payments for simply holding stablecoins and limit structures that resemble interest-bearing deposits.

According to analysts, such restrictions could weigh on Circle’s near-term growth while also reducing the long-term appeal of holding USDC on platforms like Coinbase. Yield—whether generated through onchain lending or platform incentives—has been a key part of the value proposition for stablecoins. Removing it could make assets like USDC less competitive beyond basic payment use cases.

The proposal appears to go further than the GENIUS Act, which already bars issuers from directly paying yield but allows indirect distribution of income generated from reserves. Circle currently earns interest on USDC’s backing assets and shares a portion with Coinbase, which then funds user rewards.

The updated Clarity Act draft targets that model by restricting anything deemed “economically equivalent to interest,” potentially cutting off a major incentive for stablecoin adoption.

At the same time, Tether—Circle’s main competitor—announced it has engaged a Big Four accounting firm to conduct a full audit of its reserves. A successful audit could boost confidence in USDT among institutional investors, potentially increasing competitive pressure on USDC.

Despite the sharp decline, some analysts view the reaction as overdone. Circle shares had surged roughly 170% since early February prior to Tuesday’s drop, significantly outperforming both crypto peers and the broader equity market, leaving the stock vulnerable to negative headlines.

Longer term, sentiment remains constructive. Analysts note that stablecoin usage continues to expand, supporting the broader growth outlook for the sector. Coinbase could also benefit in the near term, as USDC-related revenue—currently a meaningful portion of its business—includes reward payouts that could be reduced under new rules.

Others argue that the market may have overreacted. Circle remains up more than 30% year-to-date even after the sell-off and continues to hold a significant share of a rapidly growing market. Some expect alternative incentive structures, such as loyalty-style programs, to emerge if direct yield mechanisms are restricted.

While regulatory uncertainty may create near-term headwinds, the long-term outlook for stablecoins—and Circle’s position within that ecosystem—remains intact.