Circle (CRCL) stock tanked over 20% on Tuesday in its biggest intraday drop on record over reports that proposed legislation in Congress could restrict rewards on stablecoin balances.
Trading platform Coinbase (COIN), a Circle partner that receives revenue from the stablecoin issuer, also sank 8% during the session. (Disclosure: Yahoo Finance has a partnership with Coinbase.)
According to an internal stakeholder cited by Crypto America, the Clarity Act proposal would prohibit platforms from offering yield “directly or indirectly” for holding a stablecoin in a manner that resembles a bank deposit. Bank representatives were set to review the text on Tuesday, according to the report.
The bill, which aims to lay out rules for which federal agency oversees what portions of the crypto markets, has struggled to pass through Congress.
A key point of contention is whether crypto platforms should be able to pay customers “yield,” or interest on their stablecoin balances, a move seen as a threat to banks.
“For the broader crypto industry, this is the single most consequential policy question on the table right now,” Colin Butler, executive vice president of capital markets at Mega Matrix, told Yahoo Finance.
“Yield is what has been pulling real capital into stablecoins. Without it, people transact in stablecoins but don’t hold them,” he added.
Circle stock has been on a tear in recent weeks, rallying from around $60 in late February to $130, or roughly 110%, just last week.
The company posted strong quarterly results last month as stablecoin circulation exploded.
Expectations that the Federal Reserve will hold rates steady have also helped buoy the stock. Circle makes much of its revenue from interest on reserves backing its USDC (USDC-USD).
The company has expanded beyond stablecoins to position itself as a fintech infrastructure provider. Last year, it announced Arc, a specialized blockchain to support global payments, foreign exchange, and tokenized real-world assets using USDC as its native currency.
Ines Ferre is a senior business reporter for Yahoo Finance. Follow her on X at @ines_ferre.
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