Circle’s stock fell 20% on Tuesday and Coinbase dropped nearly 10% after a draft of the Clarity Act raised the prospect of strict limits on stablecoin yield, threatening the incentive structure that has fueled USDC adoption over the past year.

The proposed legislation, from Senators Angela Alsobrooks and Thom Tillis, would bar rewards on passive stablecoin balances and ban structures “economically equivalent to interest.” It goes meaningfully further than the GENIUS Act, signed into law last July, which prevented stablecoin issuers from paying yield directly to holders but left room for third-party platforms to offer rewards. Coinbase currently pays 3.5% on USDC held through its Coinbase One program. Kraken offers up to 5%, and Binance pays 5.63%.

That pass-through model is exactly what the Clarity Act targets. Banks have lobbied hard against stablecoin yield, arguing it draws deposits away from traditional institutions. Circle does not pay USDC holders directly, but the rewards ecosystem built by exchanges has become central to its growth story. USDC accounts for roughly 20% of Coinbase’s revenue, and a significant share of that flows back out as user rewards.

This story is an excerpt from the Unchained Daily newsletter.

The timing compounded the pressure. Tether announced the same day it had hired a Big Four accounting firm for a full audit of its $184 billion reserves, a step that could narrow the transparency advantage Circle has long held over its larger rival. Tether also recently launched a U.S.-focused stablecoin, USAT, adding direct competitive pressure on Circle’s home turf.

Analysts were measured. Clear Street’s Owen Lau called the move “an overreaction,” noting Circle is still up more than 30% this year after a 170% rally since February. Bitwise’s Ryan Rasmussen pointed to potential workarounds such as loyalty programs that could replicate yield-like incentives. But the selloff signals the market is pricing in a real possibility that stablecoin yield, one of the strongest adoption drivers in crypto, may not survive the legislative process.