Stablecoin issuer Circle (NYSE: CRCL) saw its stock price drop nearly 20% in a single day, drawing significant market attention. The latest draft of the U.S. Congress’s CLARITY Act is a major trigger. According to former Fox Business Channel reporter Eleanor Terrett, the draft proposes banning stablecoin issuers from offering any form of passive income to users and restricting all designs that are economically or functionally equivalent to bank deposit interest.

Core Regulatory Logic of the CLARITY Act Draft

The draft targets the mechanism by which stablecoin issuers redistribute reserve asset earnings to users. The regulatory direction reflects the long-term demands of the banking industry: if stablecoins can offer returns similar to deposit interest, they will directly compete with traditional deposit services, potentially impacting the overall capital flow structure of the financial system.

The bill is still in the draft and congressional negotiation stage, and the provisions have not been finalized. The current draft indicates that passive income directly linked to “coin balances” may be restricted, but rewards related to trading activities or liquidity provision may have exemptions. The bill currently applies only to domestic U.S. operators; foreign markets and decentralized finance (DeFi) are not within its scope.

Structural Pressures Facing Circle’s Business Model

While USDC does not pay interest directly to holders, Circle’s core profit model and revenue mechanisms are highly interconnected:

Reserve Asset Allocation: Circle invests USDC reserves in short-term U.S. Treasury bonds to earn interest.
Profit Sharing Mechanism: Part of the interest is shared with Coinbase according to agreements, which is then used to incentivize platform users.
Potential Blocking Risks: If the “pass-through” of earnings is cut off by the bill, USDC’s ability to attract funds will be directly impacted.

Notably, before this decline, CRCL’s stock price had risen from about $50 in February to over $130, a gain of over 170%. Under high valuation conditions, negative policy news often significantly amplifies market corrections, leading to over-adjustments.

Market Reaction and Future Impact on Competition Dynamics

Analysts generally believe that the sharp decline in CRCL’s stock price includes an element of overreaction. USDC’s circulation volume continues to grow at a double-digit annual rate, and basic demand has not disappeared. The market is mainly re-pricing the policy uncertainty risk.

In terms of competition, Tether (USDT) recently announced that it has commissioned four major accounting firms to conduct comprehensive audits. If increased transparency successfully builds institutional trust, some funds may shift from USDC, adding pressure on Circle’s market share. If the earnings restrictions only apply within the U.S., offshore stablecoin issuers or those with mechanisms offering relative competitive advantages may benefit.

Frequently Asked Questions

What specific impact does the CLARITY Act draft have on Circle’s business model?

The draft proposes restricting stablecoin issuers from offering any passive income linked to coin balances. Circle’s interest income from reserves and its profit-sharing arrangement with Coinbase could be included in these restrictions, directly compressing its core profit structure.

Does the recent crash in CRCL’s stock price reflect a deterioration in business fundamentals?

Most analysts believe the decline includes an element of overreaction. USDC’s circulation volume continues to grow, and Circle’s business has not fundamentally deteriorated. The main factors are the re-pricing of policy uncertainty and technical correction after a gain of over 170% in CRCL’s stock price.

What is the current legislative progress of the CLARITY Act?

The CLARITY Act is still in the draft negotiation stage, and the provisions have not been finalized. The profit-related clauses remain negotiable, and the bill is not legally binding until officially passed. The final wording remains to be seen.

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