Circle is headed for its worst trading day on record as proposed federal legislation threatens to ban or severely limit yield-earning features on stablecoins like USDC. The stock cratered following reports that lawmakers are finalizing a stablecoin regulatory framework that could eliminate one of the primary incentives for holding dollar-pegged digital currencies. With over $40 billion in USDC circulation and yield programs driving adoption, the proposed restrictions strike at the heart of Circle's competitive positioning against private rival Tether.
Circle is facing a reckoning. The stablecoin issuer's stock is on track for its worst day since going public, plummeting as draft legislation circulating on Capitol Hill threatens to eliminate or severely restrict yield-earning features on dollar-pegged cryptocurrencies. The proposed regulatory framework, according to sources familiar with the matter, could prohibit stablecoin issuers from offering rewards or interest on holdings - a feature that's become central to USDC's value proposition.
The timing couldn't be worse for Circle. Yield generation has emerged as the primary incentive for retail and institutional users to hold stablecoins rather than simply park funds in traditional bank accounts or money market funds. Users currently earn returns through DeFi lending protocols, centralized exchange staking programs, and Circle's own reward mechanisms. Strip away that yield, and the calculus for holding USDC versus dollars in a high-yield savings account shifts dramatically.
According to CNBC, earning yield "is key incentive for users to hold the coins" - a reality that makes this proposed legislation an existential threat to Circle's growth strategy. The company has positioned USDC as a regulated, transparent alternative to competitors, but that regulatory embrace may now become a liability if compliance means eliminating yield features that offshore rivals can continue offering.
The market's brutal reaction reflects deeper anxieties about Circle's competitive position. While Circle pursues a path of regulatory cooperation in the US, private competitor operates with far more flexibility. Adding salt to the wound, Tether chose today to announce a significant audit milestone, demonstrating progress on transparency while maintaining the yield-generating features that Circle might soon be forced to abandon. Tether's USDT commands roughly $110 billion in circulation compared to USDC's $40 billion - a gap that could widen if regulatory arbitrage favors offshore operators.
