Circle Stock Drops 18% as Draft Clarity Act Raises Concerns Over Stablecoin Rewards

Shares of Circle fell as much as 18% after a new draft of the U.S. Clarity Act introduced stricter rules that could limit rewards tied to stablecoin balances. The proposal would restrict incentives on passive holdings and prohibit structures considered “economically equivalent to interest,” directly affecting how stablecoin rewards are distributed.

The sell-off also affected related companies, with Coinbase shares declining about 8%, reflecting investor concern over revenue models connected to stablecoin activity. Stablecoin rewards have played a central role in attracting users, making the proposed restrictions a potential challenge to long-term growth strategies.

Stablecoin Adoption Model Faces Regulatory Pressure

Stablecoin issuers typically generate income from reserve assets and share part of those earnings through user incentives. The draft legislation targets this pass-through structure, which has supported adoption by offering returns to holders.

The market reaction followed a strong rally in Circle shares, which had risen roughly 170% since early February, leaving the stock vulnerable to sudden declines. Meanwhile, competition in the sector is intensifying as rival firms pursue greater transparency measures, including full reserve audits aimed at strengthening institutional confidence.

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