Circle shares plunged nearly 20% on Tuesday after a leaked draft of the CLARITY Act proposed banning passive yield on stablecoin holdings, wiping out $5.6 billion in market value and raising questions about the future of USDC (USDC) reserve-based revenue.
CLARITY Act Yield Ban
The stock closed at $101.17, down from $126.64. Coinbase (COIN) fell roughly 11% on the same day.
The sell-off followed details from a Senate compromise tied to the Digital Asset Market Clarity Act, first reported by former FOX journalist Eleanor Terrett. The draft would block crypto platforms from offering interest-like returns on stablecoin balances.
Both direct interest and rewards structured to mimic bank deposit returns would be restricted. The ban would apply to exchanges, brokers, and affiliated services.
However, the proposal carves out room for loyalty rewards, transaction-based benefits, and other incentives not tied to passive income.
The SEC, CFTC, and Treasury Department would have one year to define what qualifies.
Circle earns 96% of its revenue from interest on USDC reserves. That makes the yield ban a direct threat to the company's core business model.
Also Read: Ethereum Clears $2,145 Bearish Trend Line
Cathie Wood's ARK Sale
Separately, ARK Invest CEO Cathie Wood sold $5.9 million worth of CRCL on Mar. 20 — four days before the draft leaked. Some initially linked the stock drop to the sale.
But analysts pushed back on that reading. One X users noted the decline was driven by legislative risk, not ARK liquidation or broader market fears.
Brian Armstrong on Banks
Coinbase CEO Brian Armstrong said banks are already using stablecoins for faster payments, asset tokenization, and crypto trading. He warned that restricting yields could slow USDC adoption and limit stablecoins' evolution from payment tools into store-of-value assets.
Bank representatives are expected to review the draft soon. Final legislative markup is anticipated in late Apr.
Blockchain investigator ZachXBT also reported that Circle froze USDC in 16 wallets tied to various businesses in connection with an ongoing U.S. civil case. He said the wallets appeared to be operational accounts handling customer transactions and criticized the freeze as poorly reviewed.