Circle Internet Group (CRCL) dropped 20% on March 24th after a draft Clarity Act banning passive stablecoin returns was released, wiping out approximately $4.6 billion in market Capital .
The sell-off occurred as three negative events simultaneously hit Circle. The ban on profit payments caused investor panic, rival Tether (USDT) announced an audit with one of the world's four largest auditing firms, and Circle froze 16 corporate wallets holding USDC.
What does the Law of Clarity actually do?
The Digital Asset Market Clarity Act has been stalled in the Senate Banking Committee since January 2024 due to one issue: Will stablecoin holders be entitled to passive interest payments?
On March 20th, Senators Thom Tillis (R-NC) and Angela Alsobrooks (D-MD) reached an agreement with the White House . By Monday, the draft of the new document had been sent to relevant industry stakeholders.
The draft regulations prohibit exchanges, platforms, or brokers from offering profits/rewards from holding stablecoins. Only rewards based on trading activity or participation in governance will be permitted. The SEC, CFTC, and the Treasury Department have 12 months to develop regulations to prevent circumvention of the rules.
Banks have been lobbying hard for this outcome. The American Bankers Association argues that stablecoin interest-paying programs threaten trillions of dollars in deposits .
Mizuho analyst Dan Dolev warned that the ban could reduce demand for Circle in the short term. Coinbase (COIN) also fell by about 10%, as revenue related to stablecoins accounts for up to 20% of the company's total income.
Circle (CRCL) stock performance. Source: TradingViewOpposing viewpoint
However, Circle expects to earn 96% of its revenue from interest on USD Coin ( USDC ) USD Coin through Q3 2025. According to published S-1 filings, this rate has consistently fluctuated between 95% and 99% since 2022. The majority of these reserves are held in U.S. government bonds.
The Clarity Act doesn't touch this revenue stream. The draft only prohibits platforms from Chia interest with users, while Circle retains all of the interest from its reserves.
Prior to this proposal, Circle faced increasing pressure to Chia its reserve profits with USDC holders. DeFi protocols offering passive interest on USDC further fueled this expectation. The newly proposed ban would completely eliminate this practice.
Expert Simon Dedic has refuted the negative assessment of Circle.
“This is a huge benefit for Circle. Their entire business model relies on retaining the interest generated from the supply of $ USDC. The Clarity Act has essentially created a legal protection ‘aura’ for them…,” Dedic Chia .
Journalist Eleanor Terrett (former Fox) also noted that the ban on passive interest payments had been publicly discussed months prior. The strong reaction in the stock market surprised many observers.
Tether, ARK, and wallet freezing.
Meanwhile, Tether announced it has signed a contract with a Big Four auditing firm to conduct the first independent audit of USDT . The name of the firm has not yet been revealed. Currently, USDT 's market Capital has exceeded $184 billion.
For years, Circle has presented itself as the more transparent option. Tether has only received periodic confirmations from BDO Italia every quarter. If the Big Four audits are completed, the gap in credibility between the two will narrow significantly.
Tether Chief Financial Officer, Simon McWilliams, said they selected their auditing partner through a competitive process. The audit will XEM assets, liabilities, and internal controls.
ARK Invest sold $5.9 million worth of CRCL shares on March 20th, just four days before the draft was leaked to the public. This timing has raised many questions.
However, immediately after the sharp drop on March 24th, ARK bought $16.3 million worth of CRCL shares. This move suggests they are simply rebalancing their portfolio rather than betting on a clear upward or downward trend.
On the other hand, on-chain investigative expert ZachXBT reported that Circle had frozen USDC on 16 hot wallets across various exchanges, casino platforms, and forex companies.
The reason for the freeze stems from an undisclosed civil lawsuit in the US. ZachXBT criticized Circle for failing to thoroughly verify wallets before taking action. This incident fueled negative sentiment and raised concerns about the centralization of USDC.
To date, the Clarity Act has not yet become law. The Senate Banking Committee is expected to XEM it at the end of April, and regulations related to DeFi remain unresolved.
DeFi protocols are rapidly adjusting rewards to fit a performance-based model. Whether USDC can retain its appeal without passive yields will answer the question: was the March 24th drop an overreaction or the start of a longer correction phase?
