Shares of stablecoin issuer Circle (CRCL) plunged on Tuesday, after a draft version of US stablecoin legislation raised concerns about limits on performance.
Shares of the USDC issuer fell as much as 18% early in the US session, snapping 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 restrict the offering of rewards on stablecoin balances, analysts noted.
“The Clarity Act could potentially ban performance payments for simply holding a stablecoin (e.g. passive balances) and restrict any approach that makes the program equivalent to a bank deposit,” said Mizuho analyst Dan Dolev.
According to Dolev’s analysis, a potential ban could reduce Circle’s use case in the short term, while not paying rewards would reduce the long-term attractiveness of holding USDC on Coinbase’s platform.
The performance of stablecoins, whether through on-chain lending or platform incentives, has been a big part of the pitch to investors. Removing that makes it harder for tokens like USDC to evolve beyond simple payments.
“That weakens a key part of the bullish argument,” said Shay Boloor, chief market strategist at Futurum Equities, arguing that it limits USDC’s path to becoming a true store-of-value product.
The GENIUS Act, focused on stablecoins, prohibited issuers from paying yield directly to users, but they have created ways to transfer income earned from reserves. Circle collects interest on USDC backing assets and shares them with Coinbase, which in turn funds rewards for users.
The latest draft of the Clarity Law targets that structure by banning anything “economically equivalent to interest,” effectively removing a key incentive for holding stablecoins, according to Amir Hajian, digital assets researcher at Keyrock.
“This puts an end to the transfer model that has been driving stablecoin adoption,” Hajian said.
There was another event in the background. Tether, issuer of the USDT stablecoin and Circle’s main rival, said it hired a ‘Big Four’ accounting firm 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, which could reduce USDC’s market share.
It’s not “that bad”
The sell-off comes after a strong run, during which Circle shares have gained 170% since the beginning of February, far outperforming other cryptocurrency stocks and the broader struggling stock market. That setup left the stock vulnerable to a sharp pullback on any negative headlines.
Still, analysts do not see this as an existential crisis.
According to Mizuho’s Dolev, USDC’s recent volume outperformance means “use cases [for stablecoins] Coinbase, meanwhile, could see an increase in profitability in the short term, as USDC makes up about 20% of Coinbase’s revenue, with a large portion of it paid out as rewards.
In fact, Owen Lau, an analyst at Clear Street, said that “the real situation does not seem to be as bad as the headline indicates. It seems 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 beyond the current near-term headwinds. Circle is still up more than 30% this year after Tuesday’s decline and remains a major player in a fast-growing market, he noted. “There will be solutions,” such as loyalty programs that could replicate similar performance incentives, Rasmussen said.
“With this in mind, Circle’s long-term prospects have never been better; they have a 30% share of a market that is projected to grow 10-fold over the next four years,” he added.
UPDATE (March 24, 15:46 UTC): Add analyst comments.
