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It was a rough Tuesday for Circle Internet Group. Shares of the company fell around 20% after details emerged about proposed stablecoin legislation in the form of the revised Clarity Act, which would ban platforms from offering yield on stablecoin holdings if it resembles a bank deposit.
The sell-off hit Circle after a 170% rally since early February, making Tuesday’s drop one of the more jarring reversals in its brief time as a publicly traded company. Even with the single-day loss, Circle remains up more than 30% for the year and continues to hold a significant position in a fast-growing market.
What the Clarity Act actually says
According to reports citing an internal stakeholder email, the proposal would prohibit platforms from offering yield directly or indirectly for holding a stablecoin, or in any way that is economically or functionally equivalent to bank interest. The restriction would apply across digital asset service providers, including exchanges, brokers, and affiliated entities.
The new language, announced by Senators Angela Alsobrooks and Thom Tillis, would ban yield payments for simply holding a stablecoin. The latest version would grant rewards programs on a narrow basis, as long as they do not resemble the interest from bank deposits in any way.
The draft aims to ensure that no activities are economically or functionally similar to interest, extending restrictions to digital asset service providers and their partners. While the legislation would allow for rewards based on user activities such as loyalty or subscription programs these must not be equivalent to interest from an economic standpoint.
Why this hits Circle so hard
Circle is the issuer of USDC, the second-largest stablecoin in circulation. USDC accounts for about a quarter of the $315 billion in circulating stablecoins, and some analysts predict the total stablecoin market could expand to $2 trillion in the coming years.
The Genius Act already prohibits stablecoin issuers like Circle from paying interest on deposits. However, third parties, like Circle’s longtime partner Coinbase, can and do legally pay customers stablecoin interest and banks have been pushing to close that loophole. The Clarity Act’s revised language appears to do exactly that, and the market responded swiftly.
Stablecoin yield whether through onchain lending or platform incentives has been a significant part of the pitch to investors. Removing that element makes it harder for tokens like USDC to evolve beyond simple payments.
The broader impact on crypto stocks
Circle was not the only company caught in Tuesday’s downdraft. Coinbase, Circle’s key distribution partner, dropped over 10% on the same news. The ripple effect underscored how deeply interconnected the stablecoin ecosystem has become with broader crypto market performance.
The bill would direct the SEC, CFTC, and Treasury to jointly define what counts as a permissible reward and set anti-evasion rules within one year of passage. The Blockchain Association, which represents crypto companies including Circle, has acknowledged the carve-out but is seeking more detail on what activities would actually qualify.
What comes next for Circle
Despite the steep drop, some market watchers remain measured. Analysts point out that there will likely be workarounds, such as loyalty programs that could replicate similar incentives as yield. Circle holds a 30% share of a market projected to grow tenfold over the next four years.
The Clarity Act still faces five sequential legislative hurdles before becoming law, including a Senate Banking Committee markup targeted for the second half of April, a full Senate floor vote requiring 60 votes, reconciliation with competing versions, and a presidential signature. The road ahead remains long, and Tuesday’s reaction may ultimately reflect more fear than certainty about what the final law will actually contain.
Source: Investor’s Business Daily
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