Shares of Circle came under heavy pressure Tuesday after a revised draft of U.S. stablecoin legislation raised fresh concerns about curbs on yield, sending shockwaves through crypto-related equities.

The stock slumped 20%, reversing part of a strong multi-week rally that had seen it more than double in value. Coinbase also declined करीब 10%, reflecting its exposure to USDC-linked revenue streams.

At the center of the sell-off is the updated Clarity Act, which could restrict or eliminate rewards on stablecoin balances. Analysts warn the proposal may effectively prohibit yield on passive holdings and limit structures that resemble traditional interest-bearing accounts.

If implemented, the changes could weaken both near-term demand and long-term appeal for USDC. Yield has been a major driver of stablecoin adoption, helping position these assets as more than just payment tools. Removing that incentive may slow their evolution into broader financial instruments.

The draft builds on provisions in the GENIUS Act, which already bans direct yield payments but allows issuers to pass through income generated from reserves. Circle currently earns interest on USDC’s backing assets and shares a portion with Coinbase, which distributes rewards to users.

However, the latest version of the Clarity Act aims to close that channel by targeting any mechanism deemed “economically equivalent to interest,” potentially cutting off a key pillar of stablecoin growth.

Meanwhile, Tether—Circle’s primary rival—announced it has engaged a Big Four accounting firm to conduct a full audit of its reserves. A successful audit could boost confidence in USDT and increase competitive pressure on USDC, particularly among institutional investors.

Despite the sharp decline, some analysts believe the market reaction may be exaggerated. Circle had rallied करीब 170% since early February prior to the drop, significantly outperforming peers and leaving it vulnerable to a pullback on negative developments.

Longer term, the outlook remains relatively constructive. Analysts note that stablecoin usage continues to expand, supporting sector growth. Coinbase could also benefit in the near term, as reduced reward payouts may improve margins on its USDC-related revenue.

Market participants also expect new incentive structures—such as loyalty-based rewards—to emerge if traditional yield mechanisms are restricted.

While regulatory uncertainty may weigh in the short run, Circle retains a strong position in a fast-growing market, with its longer-term growth story still largely intact.