A new piece of draft legislation from Washington has rattled financial markets and sparked a fundamental debate about the future of stablecoins. The CLARITY Act, championed by US Senators Alsobrooks and Tillis, would prohibit platforms from offering interest income on passive stablecoin balances. The markets’ reaction was not long in coming. The draft targets products that are economically or functionally equivalent to interest payments.
Specifically, the legislation would prohibit platforms from distributing yields on passive stablecoin holdings or offering products classified as economically equivalent to interest payments. Currently, Coinbase, for example, offers a yield of 3.5 percent on USDC balances, while competitors such as Kraken and Binance distribute even higher returns of between 5 and 5.63 percent. The draft does, however, leave room for so-called activity-based rewards tied to specific user behavior such as trading activity or payment transactions. Whether and in what form such exceptions will be incorporated into the final legislative text remains to be seen.
The text was first presented to crypto industry representatives at the Capitol on Monday, March 23, and passed on to banking associations the following Tuesday. The debate around stablecoin yield isn’t really about yield. It’s a signal that policymakers now view stablecoins as deposit-like instruments — and therefore as core payment and settlement infrastructure that can compete with bank deposits. The announcement of the draft immediately triggered sharp price movements. Circle, the issuer of the USDC stablecoin, lost around 19 to 20 percent and closed at approximately $101, even though the stock had already gained more than 160 percent since its February lows.
Coinbase shed around eleven percent, losing several billion dollars in market capitalization, which fell from approximately $53.3 billion to around $47.7 billion. Other crypto-adjacent stocks also came under pressure: Robinhood fell 4.7 percent over the same period. The issue is particularly sensitive for Coinbase, as revenues from stablecoin products are estimated to account for around 20 percent of the company’s total revenues. The close interconnection between Circle and Coinbase also makes price movements at Circle a direct sentiment indicator for the entire segment.
Several analysts weighed in with nuanced assessments. Experts at the research firm Bernstein pointed out that the market was overlooking a crucial distinction: who earns the yields and who distributes them are not the same actors. “Circle earns. Coinbase distributes,” wrote Bernstein analysts Gautam Chhugani, Mahika Sapra, Sanskar Chindalia, and Harsh Misra in a note to clients. Circle’s business model is based on generating returns from the reserves that back the USDC stablecoin. These reserves are invested predominantly in short-term US Treasury securities. Bernstein estimates that these reserve yields reached around $2.6 billion in 2025. Circle’s core business, the analysts argued, remains largely unaffected by the draft, as the legislation primarily targets the distribution of yields to end users, not the reserve income of the issuers themselves.
Experts at Clear Street and Mizuho also expressed skepticism about the severity of the market reaction. They noted that a ban on yield products could even provide short-term relief for Coinbase, as it would result in lower interest expenses. Behind the CLARITY Act lies intensive lobbying by the traditional banking sector. Conventional financial institutions view stablecoin interest products as unregulated competition to classic deposit accounts. While banks are subject to strict regulation, deposit insurance, and capital requirements, crypto platforms have until now been able to offer comparable yield products without the same regulatory framework. For the crypto industry, however, such interest products are a central tool for attracting and retaining users. A ban would significantly reduce the incentive for end customers to hold stablecoins, potentially slowing the growth of the entire stablecoin economy. USDC is currently the world’s second-largest dollar stablecoin, behind Tether’s USDT, and has grown its circulating supply from around $30 billion to $80 billion over the past two years.
The CLARITY Act is still at the draft stage, and nothing has been finalized yet. The decisive variable for Coinbase, Circle, and the entire stablecoin industry will be whether exceptions for activity-based user programs are included in the final legislative text and how far the draft actually progresses through the legislative process.
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