Circle stock drops nearly 20% as CLARITY Act draft restricts stablecoin yields and rewards

• Circle shares plunged nearly 20% after the CLARITY Act draft restricted stablecoin yields and rewards programs.
• Lawmakers are reportedly looking to ban platforms from offering any yield directly or indirectly on stablecoin holdings.
• ZachXBT revealed that Circle froze 16 unrelated hot wallets in an undisclosed civil case, despite clear high-volume operational activity.

Circle shares fell nearly 20% on Tuesday following new details from a Senate compromise tied to the Digital Asset Market Clarity Act (CLARITY), which could limit yield payments on stablecoin balances.

Proposed rules target stablecoin yield and rewards

According to draft language reviewed by industry participants, the changes would prevent crypto platforms from offering yield on stablecoin holdings, former FOX reporter Eleanor Terrett stated in a late Monday X post.

The ban includes both direct interest and any rewards considered similar to traditional bank deposit returns. Restrictions would apply broadly to exchanges, brokers, and affiliated services, aiming to "limit workarounds."

However, the draft allows certain user incentives, such as loyalty rewards or transaction-based benefits, provided they are not structured as passive income. US regulators, including the Securities and Exchange Commission (SEC), Commodity Futures Trading Commission (CFTC), and the Treasury Department, are expected to define the boundaries of these programs within a year.

Terrett shared that some executives see the proposal as a shift from earlier discussions, which could limit how companies design reward systems tied to user balances. Others said the outcome was largely expected, noting that it preserves some flexibility while preventing stablecoins from functioning like interest-bearing accounts.

Shares of crypto exchange Coinbase also declined nearly 10% on the day, reflecting concerns about reduced revenue opportunities tied to its USDC activity.

Meanwhile, blockchain investigator ZachXBT reported that Circle froze USDC held in 16 wallets linked to various businesses, including exchanges and online platforms. The action was reportedly connected to an ongoing US civil case.

ZachXBT said the affected wallets appeared unrelated and were likely operational accounts used for handling customer transactions. He added that the freeze wasn't properly reviewed before being carried out, noting that such actions could disrupt normal business operations.

"An analyst with basic tools could have identified within minutes that these were operational business wallets from the thousands of transactions they process," ZachXBT wrote in a message to his Telegram community.

The on-chain sleuth further questioned Circle's actions, stating that the company "fail to protect users during actual incidents yet respond to a request riddled with errors."

The combination of regulatory uncertainty and operational concerns has added pressure on Circle, as markets react to potential changes in how stablecoins will be used under the CLARITY Act.