Stablecoin issuer Circle’s (CRCL) shares tumbled on Tuesday, after a draft version of U.S. stablecoin legislation raised concerns about limits on yield.

The stock of the USDC issuer fell as much as 18% in the early U.S. session, snapping a weeks-long rally that saw more than 100% gain. Meanwhile, crypto platform Coinbase (COIN), which shares revenue coming from the stablecoin, dropped about 8%.

The key catalyst behind the move was the latest version of the Clarity Act, as reported by CoinDesk, which would restrict offering rewards on stablecoin balances, analysts pointed out.

“Clarity Act could potentially ban yield payments for simply holding a stablecoin (e.g. passive balances) and restrict any approach that makes the program in any way equivalent to a bank deposit,” said Mizuho analyst Dan Dolev.

According to Dolev’s analysis, a potential ban could reduce the use case for Circle in the near-term, while not paying rewards would reduce the long-term attractiveness of holding USDC on Coinbase’s platform.

Stablecoin yield — whether through onchain lending or platform incentives — has been a big part of the pitch to investors. Taking that away makes it harder for tokens like USDC to evolve beyond simple payments.

“That weakens a key part of the bull case,” said Shay Boloor, chief market strategist at Futurum Equities, arguing it limits USDC’s path toward becoming a true store-of-value product.

The stablecoin-focused GENIUS Act banned issuers from paying yield directly to users, but they’ve built ways to pass through income earned on reserves. Circle collects interest on USDC’s backing assets and shares it with Coinbase, which in turn funds rewards for users.

The latest draft of the Clarity Act targets that structure by banning anything “economically equivalent to interest,” effectively cutting off a key incentive for holding stablecoins, according to Amir Hajian, a digital asset researcher at Keyrock

“It pulls the rug on the pass-through model that has been driving stablecoin adoption,” Hajian said.

There was another development in the background. Tether, issuer of the USDT stablecoin and main rival of Circle, said it has hired one of the ‘Big Four’ accounting firms to conduct a long-promised full audit of its reserves. If successful, the audit could improve USDT’s image among institutional users by demonstrating stronger risk management, potentially eating into USDC’s market share.

Not ‘as bad’

The selloff comes after a strong run, during which Circle shares gained 170% since early February, far outpacing other crypto stocks and the struggling broader stock market. That setup left the stock vulnerable to a sharp pullback on any negative headlines.

Still, analysts aren’t seeing this as an existential crisis.

According to Mizuho’s Dolev, recent outperformance of USDC’s volume means “use cases [for stablecoins] are starting to proliferate, which is a positive for the long-term” for Circle. Meanwhile, Coinbase could see a boost in profitability in the near-term as USDC accounts for about 20% of Coinbase’s revenue, and a large part of it is paid out as rewards.

In fact, Owen Lau, an analyst at Clear Street, said that “the actual situation doesn’t appear to be as bad as the headline indicates. “It looks like an overreaction, but the market tends to shoot first and ask questions later.”

Ryan Rasmussen, head of research at digital asset manager Bitwise, agreed that investors should see past today’s short-term headwinds. Circle is still up more than 30% this year after Tuesday’s drop, and remains a major player in a fast-growing market, he noted. “There will be workarounds,” such as loyalty programs that could replicate similar incentives as yield, Rasmussen said.

“With that in mind, Circle’s long-term outlook has never been better; they hold a 30% share of a market projected to grow 10x over the next four years,” he added.

UPDATE (March 24, 15:46 UTC): Adds analyst comments.