Stablecoin Yield Mechanisms Face Regulatory Constraints Circle(CRCL.US), Coinbase(COIN.US) Stock Prices Plunge

The regulatory controversy surrounding stablecoin yield mechanisms has triggered intense market volatility. Influenced by the latest developments of the proposed Crypto Market Structure Act in the U.S. Congress, several crypto-related concept stocks plummeted on Tuesday, as investors expressed concerns about potential impacts on the stablecoin business model.

Reports indicate that the U.S. Senate’s Clarity Act for digital asset markets may include a key provision prohibiting platforms from paying yields to stablecoin holders in a manner similar to bank interest. According to a draft email sent by the Blockchain Association to its members, this clause would ban companies from “directly or indirectly” paying interest to users who only hold stablecoins, but would allow reward mechanisms related to real business activities, such as loyalty programs, promotions, or subscription incentives.

According to iFinD, affected by this, Circle (CRCL.US) stock plunged over 20% on Tuesday, as its issued stablecoin USDC is the second-largest stablecoin globally; partner Coinbase (COIN.US) also fell more than 9.7%. The market generally fears that if yields are banned, it will weaken users’ motivation to hold stablecoins, thereby limiting the growth potential of products like USDC.

In the current stablecoin model, issuers typically invest reserve funds in low-risk assets such as U.S. Treasuries and reverse repos, sharing the profits with distribution platforms. Some platforms also offer yield to attract funds, for example, Coinbase currently provides about 3.5% annualized return to USDC holders. This model has also raised major concerns among traditional banks. Banking organizations believe such products could divert deposits, weakening the banking system’s lending capacity.

This legislative controversy reflects the ongoing tug-of-war between the crypto industry and traditional banking. Although the industry has long advocated for clear regulatory frameworks for crypto assets to move away from the uncertainties of securities laws, disagreements over whether stablecoins should have deposit-like attributes remain prominent.

It is reported that the White House and several senators reached a preliminary consensus on this issue last week and have begun negotiations with banks and crypto companies on specific provisions. The draft also suggests that the U.S. Treasury, SEC, and CFTC should develop detailed rules to define under what circumstances yield payments are permitted.

However, whether the bill can ultimately pass remains uncertain. Some Democratic lawmakers insist on including restrictions on the president and his family profiting from crypto investments, which Republicans generally oppose. Additionally, with the midterm elections approaching, legislative time is tightening, and if progress is not made quickly, the bill may be shelved.

Analysts point out that if related legislation is delayed or fails, the crypto industry could face even stricter regulatory environments in the future. SEC Chairman Gensler recently stated that a clear regulatory framework is crucial for industry development; otherwise, future regulatory policies might shift toward a more confrontational stance.