Circle and Coinbase Shares Slide as Clarity Act Draft Targets Stablecoin Yield

A few lines of draft legislation sent crypto stocks sharply lower on Tuesday. Shares of USDC issuer Circle fell close to 20% and Coinbase dropped between 7% and 10% after a revised version of the Senate’s crypto market structure bill surfaced with tight new limits on rewards paid to people who hold stablecoins.

The language comes from the latest draft of the Digital Asset Market Clarity Act, the bill meant to set out how the SEC and CFTC split oversight of crypto markets. It was circulated to industry participants on Monday, and its contents spread late that evening after journalist Eleanor Terrett described the changes on X. By Tuesday’s close, the market had delivered its verdict.

What the draft would change

According to Unchained, the yield provisions were negotiated by Senators Thom Tillis, a North Carolina Republican, and Angela Alsobrooks, a Maryland Democrat. The text would bar rewards paid simply for holding a stablecoin balance, and it would also ban arrangements that are “economically equivalent to interest.”

The restriction reaches beyond issuers. Reporting on the draft says it would apply to exchanges, brokers and their affiliated services, which is where most stablecoin rewards are actually paid today. Rewards tied to activity, such as trading or payments, would still be allowed as long as they are not structured as passive income. The SEC, CFTC and Treasury would be given about a year to define where that line falls.

That matters because the GENIUS Act, the stablecoin law signed last July, already stopped issuers from paying interest directly to holders. It left a gap: third-party platforms could still pass along rewards. The new draft is aimed squarely at closing that gap.

Why Circle and Coinbase took the hit

Circle does not pay USDC holders directly. It earns income by investing reserves, mostly in short-term U.S. Treasurys, and keeping the spread. Coinbase, its largest distribution partner, shares in that reserve income and passes part of it to customers, paying around 3.5% on USDC balances through its Coinbase One program. Other exchanges have advertised higher rates.

Investors read the draft as a threat to that whole arrangement. If platforms cannot offer a headline rate on idle balances, the argument goes, demand for holding USDC on exchanges could soften, and the revenue Coinbase earns from the partnership could shrink. The Block reports that Coinbase booked $1.35 billion in stablecoin revenue in 2025, most of it from distribution payments linked to USDC.

Not everyone agrees the selloff was justified. Analysts at Bernstein, led by Gautam Chhugani, argued in a note covered by The Block that the market was confusing issuers with distributors. In their view, the rules target platforms that pass yield through to users, not Circle’s own reserve income. They suggested that limiting payouts could even help Circle by reducing the incentive for rivals to compete for deposits with aggressive rates. Bernstein kept Outperform ratings on both stocks. Clear Street analyst Owen Lau called the move “an overreaction,” noting that Circle was still up for the year after a strong rally since February.

The banks versus crypto fight continues

Stablecoin yield has been the main sticking point in Clarity Act negotiations for months. Banks have lobbied hard against it, arguing that interest-like returns on stablecoins would pull deposits away from lenders that use those funds to extend credit. Crypto firms counter that rewards give consumers more choice and that the banks simply want to block competition.

The dispute has already derailed the bill once. In January, Coinbase withdrew its support for a Senate Banking Committee draft that included a yield ban, and CEO Brian Armstrong accused banks of trying to stifle crypto. The White House has since hosted several closed-door meetings aimed at brokering a compromise.

On Wednesday, Punchbowl News reported, citing four people familiar with the matter, that Coinbase had told senators it could not support the latest text and had “significant concerns” about the yield provisions. Senator Cynthia Lummis, a leading Republican voice on crypto policy, wrote on X that bipartisan compromise is necessary for the bill to pass. Patrick Witt, executive director of the President’s Council of Advisors for Digital Assets, dismissed online criticism of the draft and said he expected it to work out.

What it means for crypto readers

For people who keep stablecoins on an exchange to earn a return, the draft signals that the era of simple, passive yield on dollar tokens in the U.S. may be ending, at least for balances that just sit in an account. Loyalty programs and activity-based rewards could survive, and some analysts have already suggested platforms will redesign their offers around those exceptions.

For the wider market, the episode shows how much value now rides on the fine print of one bill. Circle and Coinbase are among the most visible public crypto companies, and Tuesday’s moves show that investors see stablecoin economics as central to their business models.

The text is still a draft, and nothing is final until the Senate Banking Committee schedules and holds a markup. Lawmakers could revise the yield language again, and Coinbase’s reported opposition suggests further negotiation is likely.

In a separate stablecoin development on the same day, Tether said it had hired a Big Four accounting firm to carry out a full audit of its reserves, a step critics have demanded for years. Taken together, the two stories show U.S. stablecoins moving further into the rules-based financial system, with the terms of that move still being written.