CLARITY Act Draft Interpretation: Can USDC Still Earn Interest Under Stablecoin Yield Prohibition?

On March 24, 2026, the crypto market experienced a震动. The stock price of Circle Internet Financial (CRCL.US), the issuer of the world’s second-largest stablecoin USDC, plunged over 20%, marking the largest single-day decline since its listing. At the same time, Coinbase (COIN.US), the main distribution platform for USDC, saw its stock price fall nearly 10%. The immediate trigger for this sell-off was linked to the latest draft revision of the “Digital Asset Market Clarity Act” (CLARITY Act) currently advancing in the U.S. Senate. Multiple sources confirmed that the draft includes a key provision: prohibiting platforms from paying yields to stablecoin holders in a manner similar to bank deposit interest.

For users holding USDC and other stablecoins, if this clause is enacted, it could fundamentally reshape the “earn while holding” model. This article will analyze the true implications of the draft, market reactions, and project its three-layer impact on retail investors, institutions, and DeFi protocols.

Stablecoin Yield Mechanisms Face Legislative Blockades

Starting March 23, 2026, multiple media reports indicated that the U.S. Senate Banking Committee added restrictive clauses on stablecoin yields in the revised CLARITY bill. The core points include:

• Banning companies from “directly or indirectly” paying interest or any “economically or functionally equivalent to interest” returns to users who solely hold stablecoins;
• Allowing reward mechanisms related to real business activities, such as loyalty programs, promotions, or subscription incentives;
• Requiring the U.S. Treasury, SEC, and CFTC to develop detailed rules clarifying under what circumstances yields can be paid.

This clause is widely interpreted as a direct intervention against current mainstream stablecoin business models. Currently, compliant stablecoin issuers like USDC typically invest reserves in low-risk assets such as U.S. Treasuries and share part of the yields with distribution platforms like Coinbase, which then pass them to users as “rewards.” For example, Coinbase currently offers about 3.5% annualized yield to USDC holders. The exposure of this draft has triggered a reassessment of the sustainability of stablecoin business models.

From Legislative Battles to Market Turmoil

Key Milestones in the Legislative Process

• Throughout 2025: The U.S. Congress engaged in ongoing debates over stablecoin regulation, with the GENIUS Act and CLARITY Act progressing in parallel. The banking sector exerted pressure, demanding bans on stablecoin interest-like yields, arguing they divert deposits from banks and weaken lending capacity.
• January 2026: Prediction markets like Polymarket showed about an 80% chance of the CLARITY Act passing.
• Early March 2026: The Congressional Research Service issued a report noting that while the GENIUS Act prohibits direct yield payments by issuers, the “three-party model” (issuer—intermediary—user) remains legally ambiguous.
• Around March 20, 2026: Senators Angela Alsobrooks and Thom Tillis announced the latest revised clauses tightening restrictions on stablecoin yields.
• March 24, 2026: Details of the draft became public, causing Circle’s stock to plummet 20.2%, and Coinbase’s to fall 9.76%.

Narrowing Legislative Window

Industry analysts suggest that if the CLARITY bill cannot pass committee review and reach a full Senate vote before the end of April 2026, the legislative window may close as mid-term elections approach. Market data supports this view: Polymarket’s probability of passage has dropped to nearly 50%, and Kalshi’s data indicates only a 7% chance of passing before May.

The Logical Chain Behind Market Reactions

Stock Prices and Supply Data

Vulnerability of Revenue Structures

Public information shows that about 96% of Circle’s revenue comes from interest on USDC reserves. If the bill ultimately bans yield generation for stablecoins, Circle’s core income source will face direct impact.

For Coinbase, stablecoin-related revenue reached $1.35 billion in 2025, up significantly from $910 million in 2024, making it the second-largest revenue stream after trading. Although Coinbase CEO Brian Armstrong stated that banning yields might temporarily boost profits by reducing reward payouts to users, in the long run, decreased user holdings of USDC could weaken platform liquidity.

The Triangular Battle: Banks, Crypto Firms, and Legislators

Banking Sector Stance

A recent survey by the American Bankers Association (ABA) showed that when respondents were told that “allowing stablecoin yields could reduce bank lending funds,” they supported congressional bans on stablecoin yields at a 3:1 ratio. Banks argue that even limited yield incentives could make stablecoins strong competitors to bank deposits, especially impacting community banks. Standard Chartered estimates that by the end of 2028, stablecoins could drain about $500 billion in deposits from the U.S. banking system.

Crypto Industry Position

Companies like Coinbase advocate that incentives tied to payments, wallet usage, or network activity can help digital dollars compete with traditional payment channels. Industry insiders believe that banks are trying to restrict digital dollars to protect their own deposit models. Some suggest that the clause allowing “activity-based rewards” in the draft leaves room for interpretation and product design to circumvent a direct ban.

Legislative Compromises

The White House has attempted to broker a compromise: allowing some yield provision in peer-to-peer payments but banning returns on idle funds. Crypto firms have accepted this framework, but banks have rejected it, leading to deadlock. The latest draft clauses are seen as a compromise after negotiations—retaining the “activity-based reward” loophole while explicitly banning yields solely from holding.

Understanding the True Intent of the Draft

Key Disputes

Current narratives in the market need clarification on two points:

First, a “total ban on yields” is not definitive. The draft explicitly permits “activity-based rewards,” meaning if users engage in payments, trading, or DeFi lending with stablecoins, they may still earn incentives. The key distinction is passive holding versus active use.

Second, the legislative process remains uncertain. On one hand, Democratic lawmakers want to include provisions preventing the president and family from profiting from crypto investments; Republicans generally oppose such restrictions. On the other hand, the legislative window is narrowing. As of March 25, 2026, whether the bill passes before May remains unknown.

Regulatory and Legislative Relationship

Even if Congress does not act, regulators may step in. The OCC, in a proposed rule implementing the GENIUS Act, suggested that if a stablecoin issuer provides funds to an affiliate, which then pays yields to users, it could be considered a disguised form of prohibited yield distribution. This indicates that regardless of legislative outcomes, administrative tightening is already underway.

Structural Impact on Retail, Institutions, and DeFi

Retail Investors: From “Lying Down and Earning” to “Needing Action”

For individual users, the most immediate impact is that the “passive yield from holding USDC” model may end. Currently, holding USDC on centralized exchanges yields about 3–5% annually; if the bill is enacted, this will no longer be sustainable.

Alternative paths include requiring users to actively engage in trading, lending, or liquidity mining to earn rewards. This raises operational barriers and introduces additional risks (smart contract risk, impermanent loss, etc.).

Institutional Level: Increased Compliance Costs and Mode Adjustments

Institutions face two challenges:

• Redesign of yield models: They need to ensure that yield payments are based on activity, not passive holding.
• Transparency in reserve management: Tether recently announced hiring the Big Four accounting firms for its first USDT reserve audit, reflecting rising market demands for transparency. Circle has undergone a Deloitte audit, but regulatory pressure will increase compliance costs for all stablecoin issuers.

DeFi Protocols: Opportunities and Risks

DeFi protocols may experience bifurcation:

• Opportunities: With centralized platforms restricted from offering passive yields, funds might flow into DeFi protocols seeking yield. Lending protocols like AAVE, Compound, and liquidity pools like Curve could benefit.
• Risks: The draft’s restrictions on “indirect” yield payments could impact DeFi. If regulators classify DeFi protocols as “platforms” subject to regulation, some yield mechanisms may face legal challenges.

Three Possible Development Scenarios

Based on current information, three main scenarios can be projected:

Scenario 1: Bill Passes Before May 2026

Conditions: Senate completes committee review by late April and votes in early May.

Evolution:

• Short-term: Circle and Coinbase stocks fluctuate more; markets digest compliance costs.
• Medium-term: Centralized platforms launch “activity-based” reward products, requiring active use of stablecoins for incentives.
• Long-term: Stablecoin market cap growth slows, but after establishing a compliant framework, institutional participation may increase.

Scenario 2: Bill Delayed or Blocked, Regulatory Agencies Step In

Conditions: Congress fails to pass the bill timely; mid-term elections lead to legislative window closure.

Evolution:

• Short-term: Market uncertainty and fluctuating expectations for stablecoin yield models.
• Medium-term: OCC, SEC, and CFTC develop rules tightening yield mechanisms, effectively creating a de facto ban.
• Long-term: The industry faces regulatory uncertainty similar to 2023–2024, with rising compliance costs.

Scenario 3: Clauses Are Revised to Retain Some Yield Space

Conditions: Successful lobbying by crypto industry or banking sector compromises.

Evolution:

• Short-term: Market sentiment recovers; USDC market cap stabilizes.
• Medium-term: Yield models are redesigned within legal frameworks, possibly adopting “activity-based rewards + no yield on idle funds” standards.
• Long-term: Stablecoins differentiate from bank deposits—focusing on payment efficiency versus savings.

Conclusion

The exposure of the CLARITY bill draft has thrust the issue of stablecoin yields into the spotlight of regulatory battles. For USDC holders, there is no need to panic in the short term—legislation has not yet been enacted, and the draft still allows for “activity-based rewards.” However, in the long run, the stablecoin business model is at a crossroads: shifting from “passive earning” to “use-based rewards.”

This transition presents both challenges and opportunities for industry maturity. As digital dollars move from speculative tools toward practical payment and utility functions, their value may no longer be reflected solely in passive yield percentages but in their role as an indispensable part of open financial infrastructure. Before the Damocles sword of regulation falls, markets are voting with prices, signaling their expectations for the future.