A new legislative proposal under debate in the US Congress aims to place restrictions on rewards programs attached to stablecoins, triggering a swift reaction in the markets. The draft legislation, which could prohibit yields on passive stablecoin holdings, fueled noticeable losses in the share price of Circle. The company, a major issuer of USD Coin (USDC), saw its shares tumble following investor concerns about the bill’s potential impact on Circle’s revenue streams.
Wall Street Reports Weigh Circle’s Prospects
Circle, a US-based fintech firm renowned for issuing USDC and developing digital asset infrastructure, found itself at the center of analysis in recent reports from major financial institutions. In a report released by Wall Street giant Citi, analysts noted that while the proposed regulation doesn’t pose an outright threat, it could impede Circle’s growth in the short run. The report clarified that the bill would only curtail reward schemes resembling banking deposits, while rewards tied to transactions or payment processes would remain permissible.
Citi analysts highlighted that Circle already directs the majority of its reserve income to its partners, most notably Coinbase, suggesting that a sweeping third-party reward ban would not directly dent the company’s net earnings. They also emphasized USDC’s primary function as a payment solution rather than an investment product, predicting that any reduction in yield incentives might temporarily depress stablecoin circulation and liquidity.
A separate review by Bernstein, a Wall Street brokerage, argued that the market has misread the bill’s implications. The report pointed out confusion regarding who actually provides and distributes yield-sharing. While Circle generates revenue from its reserves, it does not pay out returns directly to users—this role is performed by platforms like Coinbase.
Market Reaction, Escalating Competition, and Regulatory Pressure
Circle’s share price nosedived by nearly 20% following the bill’s public reveal. At the time, Citi maintained a target price of $243 for Circle’s shares, yet the market witnessed trading around the $100 mark. Bernstein, meanwhile, reaffirmed its positive stance on Circle, establishing a target of $190 per share.
The regulatory uncertainty introduced by the proposal has cast a shadow over investors’ perceptions of the broader crypto market, particularly for stablecoin issuers. At the same time, Tether announced plans to undergo a comprehensive audit by a major audit firm and hinted at ambitions for significant expansion in the US market—developments that have ramped up competitive pressure in the stablecoin sector.
Circle’s current business model does not provide users with direct yields; the company reportedly generated $2.64 billion in reserve income over the past year. Although regulatory scrutiny has hit its share price, current assessments suggest that as Circle does not pay yields directly to customers, these pressures may not pose a lasting threat to its fundamentals.
On the other hand, Coinbase has adopted a cautious approach in its discussions with Senate officials over the Clarity Act. While the company has communicated behind closed doors that it is dissatisfied with the current draft, it has yet to make any public opposition to the bill known.
