Circle Internet Group Tumbles. Why the Clarity Act Is Crushing Crypto Stocks.Circle Internet Group
CRCL
-21.72%
stock and other crypto plays and fell sharply Tuesday after executives learned that the revised crypto market structure bill in the Senate would ban rewards on stablecoin balances.
The latest version of the Clarity Act would prohibit platforms from offering yield on customers’ stablecoin holdings in any way that resembles a bank deposit, according to an email from the Blockchain Association to its members and reviewed by Barron’s. The proposal permits activity-based rewards, but the Blockchain Association, which represents crypto companies, is seeking further detail on permissible activities.Barron’s has reached out to the Senate Banking Committee and to the bill’s authors, Sen. Angela Alsobrooks (D., Md.) and Sen. Thom Tillis (R., N.C.), for comment.
Circle is the issuer of the dollar-pegged USDC
USDCUSD
-0.02%
, the second-largest stablecoin by circulation. Coinbase Global
COIN
-10.74%
is its distribution partner, with the companies splitting the revenue generated from USDC reserves, which are held mainly in Treasury bonds and reverse repurchase agreements.
Circle stock dropped 19% on Tuesday, while Coinbase fell 8.7%. Investors likely fear that a ban on stablecoin yield will slow or limit the adoption of USDC by eliminating a key incentive for holders.
The fate of stablecoin rewards—Coinbase customers can earn a 3.5% yield on their holdings of USDC—has held up the Clarity Act to start the year. Coinbase CEO Brian Armstrong at one point withdrew his support for the bill after lawmakers planned to include a yield ban with the support of bank executives.
