Written by: Sanqing, Foresight News

On March 24 (Eastern Time), stablecoin issuer Circle (CRCL) closed at $101.17 on the NYSE, a drop of over 20% in a single day, marking its largest single-day decline since its listing. Its largest distribution partner, Coinbase (COIN), also fell nearly 10%, closing at $181.04 on Nasdaq.

The trigger for the sell-off was the leaked details of the latest draft of the Clarity Act, which proposes to prohibit digital asset service providers from paying returns to stablecoin balances "directly or indirectly" and also prohibits any structural arrangements that are "economically or functionally equivalent to interest".

Image source: Tweet by Eleanor Terrett, host of Crypto in America and former Fox Business reporter.

On the same day, its competitor Tether announced that it had hired one of the Big Four accounting firms to conduct its first full financial audit (including the USDT reserves).

"Direct or indirect"—who are these five words blocking?

The draft text was submitted to representatives of the crypto industry for review in a closed-door meeting on March 24, and banking representatives will follow up with their review the following day. Journalist Eleanor Terrett disclosed details of the draft on X, citing an email from a relevant party.

USDC itself has never paid interest, and Circle, as the issuer, has never paid any returns to holders. So, what does the draft's prohibition on issuers paying interest have to do with Circle?

The draft's "range" extends beyond the issuer. The one actually paying out revenue to users is Coinbase.

According to the profit-sharing structure disclosed in Circle's prospectus, 100% of the reserve interest earned by users holding USDC on the Coinbase platform belongs to Coinbase; for USDC circulating outside the platform, 50% of the reserve interest goes to Coinbase.

Coinbase distributes the vast majority of its reserve earnings to users through a "USDC Rewards" mechanism. According to an analysis by Columbia Law School, Coinbase's profit margin on USDC Rewards is extremely thin, retaining only a spread of about 20 to 25 basis points.

The "direct or indirect" and "economically or functionally equivalent to interest" provisions in the draft Clarity Act are designed to close this loophole.

The financial impact of this ban on Coinbase may be limited, or even positive. As a shareholder of Circle and holding a 50% share of the net profits from reserves outside the platform, Coinbase's business motivation to promote USDC will not disappear as a result.

However, USDC's competitors are not only USDT, but also the US dollar itself.

USDC Rewards has enabled USDC to function as a de facto "digital high-interest savings account." This is one of the driving forces behind USDC's growth rate outpacing USDT for two consecutive years. Once this channel closes, users' USDC holdings will yield zero returns, thus reducing their willingness to hold the currency.

The transmission path of demand contraction points to Circle. With weakening retail holding momentum, the growth rate of USDC's total circulating supply has slowed, and the rate of reserve pool growth has subsequently decreased. As a result, Circle's revenue growth story, built on expectations of scale expansion, has begun to falter.

The draft also retains the exemption for "activity-based rewards," meaning rewards linked to payments, transfers, or platform usage are still permitted. However, this is a completely different product from the current "hold and earn" model.

Furthermore, the standard statement of "economically or functionally equivalent to interest" is too vague, leaving a great deal of room for interpretation by regulators in the future, and the boundaries of activity-based rewards are also at risk of being tightened.

Another pressure on the same day

If the Clarity Act draft is dismantling Circle's growth flywheel, then Tether's audit announcement released on the same day points to another competitive advantage of Circle.

USDC's long-standing narrative of differentiation is largely based on compliance.

Circle regularly receives reserve certifications from top accounting firms. During the years when regulatory uncertainty weighed on Tether, "we are the transparent and compliant one" was an extremely effective card for institutional clients and compliance-sensitive exchanges.

Tether, on the other hand, relies on quarterly proofs rather than actual audits to deal with the outside world. S&P Global rated USDT as "weak" in 2025 and warned of the risk of insufficient collateral if the price of Bitcoin fell further.

Furthermore, the GENIUS Act requires major stablecoin issuers to undergo annual independent audits, and Tether's hiring of the Big Four accounting firms seems more like a response to this legal obligation. Regardless of the motivation, the timing of this signal is enough to amplify negative market sentiment.

USDC has outpaced USDT in growth for the past two years. A narrative of compliance and transparency is one of the most important drivers of this growth. Tether's hiring of the Big Four auditors has not yet begun, and the outcome remains uncertain. However, if the audit is successfully completed, it is clear that Circle's compliance premium, which sustains its growth advantage, will be compressed.

Image source: DeFiLlama - Stablecoins

Payment instrument, not savings account

Circle's value stems from its growth model: reward incentives drive users to hold USDC, scale expansion increases the reserve pool, and reserve interest supports income growth. This model works only if stablecoins are allowed to function as interest-bearing assets or savings deposits.

The Clarity Act draft is negating this premise at the legislative level.

Without the incentive of revenue sharing, USDC's growth must now rely on the natural penetration of real-world payment scenarios. This path isn't impossible, but it's much slower and more uncertain than revenue-driven growth.

Compliance preserved Circle's license, but it couldn't preserve its growth model. Bankers' answer is clear: stablecoins can exist, but they cannot generate interest.

Circle mints an additional 500 million USDC on Solana.

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