Coinbase and Circle plunge as stablecoin rewards might be doomed
Shares of Coinbase Global (COIN) and Circle Internet Group (CIRCLE) closed down sharply on Tuesday on reports that the latest draft of the US CLARITY Act crypto market infrastructure bill includes a ban on stablecoin rewards.
Although the GENIUS Act’s stablecoin legislation prohibits stablecoin issuers from offering interest on the assets, crypto companies are instead offering investors “rewards” on their stablecoin holdings, which were not banned as part of the bill.
But the most recent draft of the CLARITY Act bans anything "economically equivalent to interest," as CoinDesk reported. This would signal that lawmakers are taking the side of bank lobbyists, who have argued that crypto companies are using a "loophole" in the GENIUS Act to get around the prohibition on interest.
Stablecoin yields - or rewards - have been one of the main selling points driving the interest in stablecoins among investors. If rewards are banned by Congress then that would essentially make stablecoins strictly another form of payment, which would invariably make it less attractive.
Circle, whose USDC is the second-largest stablecoin by volume behind Tether, plunged more than 20%. Shares of Coinbase, which offers its customers 4.10% rewards for holding USDC, dropped nearly 10%.
Shay Boloor, chief market strategist at Futurum Equities, said in a post on X that a ban on rewards “weakens a key part of the bull case by making USDC harder to evolve from a payments utility into a real store-of-value product.”
Barron's reported viewing an email sent by the Blockchain Association to its members in which it confirmed there is a provision intended to be included in the CLARITY Act which "would prohibit platforms from offering yield on customers’ stablecoin holdings in any way that resembles a bank deposit"
The Blockchain Association is a lobbying group representing the crypto industry.
Neither Coinbase nor Circle has commented on the latest reports.
Coinbase was the catalyst behind delaying a vote on the CLARITY Act in January after CEO Brian Armstrong said in a post on X that the company was pulling its support because of "too many issues" with the draft of the bill, including "amendments that would kill rewards on stablecoins, allowing banks to ban their competition."
Following Armstrong's announcement, Senate Banking Committee Chair Tim Scott canceled the vote.
Although Patrick Witt, President Trump's chief advisor for digital assets, has held numerous meetings with representatives from the crypto and banking industries, there has been no indication that the two sides are nearing a compromise on stablecoin rewards.
However, given how heavily President Trump and his family are invested in the crypto market now, it would appear that a ban on stablecoin rewards is far from a done deal.
In fact, Trump laid blame on the banks earlier this month for the delay in the crypto market infrastructure bill by essentially accusing them of trying to resolve the main disagreement they have with the GENIUS Act through legislation in the CLARITY Act.
“The Genius Act is being threatened and undermined by the Banks, and that is unacceptable — We are not going to allow it,” Trump said in a post on Truth Social. “The U.S. needs to get Market Structure done, ASAP. Americans should earn more money on their money.”
Trump's missive to the banks came shortly after he had reportedly met with Armstrong at the White House.
A vote on the CLARITY Act bill is expected to happen in April.