Circle Internet Group (NASDAQ:CRCL) experienced its most volatile trading session on record Tuesday, with shares plunging as much as 20% following leaked reports regarding the latest draft of the Digital Asset Market Clarity Act.
The sell-off spread to its primary partner, Coinbase (NASDAQ:COIN), which saw its stock decline by 8%.
The market reaction centers on a specific legislative provision that would prohibit digital asset platforms from offering any form of yield or reward "directly or indirectly" for holding stablecoins in a manner that mimics traditional bank deposits.
This proposed restriction aims to close what policy analysts call the "distributor loophole."
While the GENIUS Act, enacted in July 2025, already prohibits primary stablecoin issuers (like Circle) from paying interest to holders, companies have navigated this by paying "distribution fees" to exchanges like Coinbase, which then pass those funds to users as "rewards."
The new Clarity Act draft reportedly seeks to end this practice to prevent "deposit flight" from traditional community banks into the $75 billion USDC ecosystem.
Financially, the stakes are high for both companies.
In its recent Q4 2025 earnings, Circle reported that the overwhelming majority of its $770 million in quarterly revenue was derived from interest on the U.S. Treasury bills backing USDC.
Under current agreements, Circle shares approximately 56% of this reserve income with Coinbase.
If yield programs are banned, the incentive for retail users to hold USDC on exchanges could diminish, potentially reversing the 72% year-over-year growth in USDC circulation seen throughout 2025.
Despite the regulatory headwinds, Circle is attempting to diversify its business model.
The company recently launched Arc, a specialized Layer 1 blockchain optimized for real-time settlement and tokenized real-world assets (RWAs).
By using USDC as a native gas token, Circle aims to transition from a pure "issuer" to a global fintech infrastructure provider.