Circle (USDC) shares fell about 20% on Tuesday - their steepest single-day loss since the company's June 2025 IPO - after a draft of the U.S. Clarity Act circulated proposing a ban on passive stablecoin yield, threatening a key incentive for holding USDC.
The stock partially recovered Wednesday, trading near $104, as analysts from Bernstein and Bitwise pushed back on the severity of the market's reaction.
Rival Tether (USDT) compounded the pressure, disclosing it had retained a Big Four accounting firm for its first full audit of USDT reserves.
The drop wiped out roughly $5.6 billion in market value and came after a 170% run-up in Circle shares since early February. Coinbase, Circle's main USDC distribution partner, fell about 10% on the same news.
The Clarity Act's latest draft, co-authored by Sens. Angela Alsobrooks (D-Md.) and Thom Tillis (R-N.C.), would bar platforms from offering yield "directly or indirectly" on stablecoin balances, or anything "economically equivalent to interest."
That language targets how firms like Coinbase distribute returns to users - currently around 3.5% on USDC balances - while also potentially restricting access to the transaction data used to calculate rewards.
Why Analysts Say the Sell-Off Misreads the Risk
Bernstein analysts argued the market conflated Circle as an issuer with the distributors who actually pass yield through to end users. Circle generates approximately $2.64 billion annually from reserve income - earned on the roughly $80 billion in short-term U.S.
Treasuries backing USDC - and does not pay yield directly to token holders. Limiting distributor payouts could reduce competitive pressure from yield-chasing rivals rather than hurt Circle directly, according to Bernstein. The firm maintained an outperform rating with a $190 price target on the stock.
Ryan Rasmussen, head of research at Bitwise, called the market's reaction excessive. Circle remains up more than 30% year-to-date even after the drop, he noted.
Rasmussen said Circle holds approximately 30% of a stablecoin market that Citi projects could reach $1.9 trillion by 2030 in its base case. He said loyalty programs and activity-based reward structures could serve as compliant workarounds under the proposed rules.
Read also: Analyst Warns Bitcoin Could Plunge To $30,000 Before Recovery
Tether's Audit Move Adds a Competitive Wrinkle
The sell-off coincided with Tether's disclosure that it had hired a Big Four firm for a full financial audit - a transparency step institutional investors and regulators had long demanded after years of attestation-only reporting.
Tether's USDT carries approximately $184 billion in market value and remains the dominant stablecoin globally, though it is not formally regulated in the U.S. Tether has separately launched USAT, a U.S.-focused stablecoin.
William Blair analysts said Tether's audit progress does not automatically translate to competitive inroads. The firm faces substantial hurdles toward GENIUS Act compliance, they wrote, including potential U.S. regulatory scrutiny over illicit USDT usage patterns.
Read next: Circle Stock Down 20% As CLARITY Act Draft Leaks With Stablecoin Yield Ban