Circle's darkest day in history: Will regulatory changes affect its business model?

Author: Mario Stefanidis, Head of Research at Artemis Analytics; Source: Artemis; Translation: Shaw Golden Finance

CRCL plunged 20% on Tuesday (U.S. local time), marking its largest intraday drop since listing, with $5.0 billion in market value wiped out in a single day. Trading volume reached 56.4 million shares, nearly 4 times its average daily trading volume over the past 90 days. Coinbase fell 11% in sympathy.

The entire stablecoin sector underwent a reassessment of valuations within hours. The trigger was a new draft of the CLARITY Act, which would effectively choke off stablecoins’ passive yield.

However, the impact goes far beyond a one-day selloff. A regulatory standoff, the fragility of the business model itself, and a wallet-freezing incident all piled onto already falling share prices.

The CLARITY Act’s major bombshell

On March 20, Senators Thom Tillis (R-North Carolina) and Angela Alsobrooks (D-Maryland) announced, with support from the White House, that they had reached a principle-level agreement on stablecoin yield issues. On Monday, the full text of the bill was submitted in a closed-door meeting on Capitol Hill for review by leaders in the crypto industry.

Key provisions: Ban passive yield on stablecoins obtained solely through holding tokens pegged to the U.S. dollar. Exchanges, brokers, and their affiliates may not directly or indirectly provide yield to stablecoin balances, nor provide yield in any manner that is “economically equivalent to interest.”

Activity-based rewards tied to payments, transfers, or platform usage will still be allowed. The U.S. Securities and Exchange Commission (SEC), the U.S. Commodity Futures Trading Commission (CFTC), and the Treasury Department will jointly define the scope of compliant rewards and anti-avoidance rules within a year. Notably, the SEC and CFTC recently signed a landmark inter-agency memorandum, ending years of turf battles and differences between the two.

In this congressional action, the boundaries that the banking-industry lobbying groups have insisted on for the past two years were spelled out in writing this time: Stablecoins can be used as a payment tool, but they must never become a substitute for deposits.

An internal stakeholder email obtained by reporter Eleanor Terrett shows that an industry leader who participated in the closed-door meeting said the bill’s text is “at odds with” the contents previously communicated to and with the White House. The person warned that the “economic equivalence” standard is intentionally set to be deliberately vague, and that future regulators may deliver extremely strict interpretations.

A blow to Circle far beyond any other institution

Circle currently earns 95.5% of its revenue from interest generated by USDC reserve holdings, which also explains the reason for this selloff.

Circle issues USDC and invests its reserves into short-term Treasuries and overnight repurchase agreements, earning the spread. In Q4 2025, its reserve earnings reached $711 million, up 60% year over year, mainly driven by a 97% increase in the average USDC circulating supply. Total revenue for fiscal year 2025 was $2.7 billion, up 64% year over year.

The CLARITY Act does not directly target Circle’s reserve earnings (Circle itself earns this revenue). Instead, it directly targets the demand growth engine behind them. At present, platforms like Coinbase pass stablecoin yield through to users as an incentive to hold USDC. Coinbase’s stablecoin-related revenue reached $1.35 billion in 2025, higher than $910 million in 2024. If exchanges can no longer provide yield on USDC balances, the incentive for users to hold USDC rather than traditional bank deposits will be significantly weakened.

As yield isdistributedless, it means lower USDC adoption, which in turn leads to a shrinking reserve base, and ultimately less interest income for Circle, too.

Timing only makes it worse. With Fed rate cuts, the reserve yield has fallen from 4.49% in Q4 2024 to 3.81% in Q4 2025. Even though the market is no longer pricing in expectations for further rate cuts this year, before this bill was introduced, Circle’s interest income was already under pressure.

USDC fundamentals have never been this strong

On the very same day as the stock crash, USDC’s core metrics were at historical highs:

• Circulating supply: As of late March, $81.0 billion, up from $76.0 billion at the end of 2025;

• On-chain transaction volume: 6.8 trillion trillion dollars (adjusted) in Q4 2025 alone, up more than 2x year over year;

• Market share relative to USDT: Since August 2025, USDC trading volume has surpassed USDT every month; as of 2026, its share is already above 80%;

• Q4 performance beyond expectations: Revenue of $770 million versus expectations of $745 million; earnings per share of $0.43, 23% above the broad market consensus.

Circle also announced that it is entering the African market through a partnership with Sasai Fintech, and it has completed an important integration with Intuit.

Wallet-freezing incident fans the flames

On Monday night, Circle froze the USDC balances of 16 corporate hot wallets, disrupting operations for multiple exchanges, casinos, and FX platforms, including FxPro, Pepperstone, AMarkets, and HeroFX.

According to reports, the freeze stemmed from a U.S. civil case, though specific details have not yet been disclosed. On-chain analyst @zachxbt raised sharp questions, pointing out that anyone with basic on-chain analytics tools can identify these as operational business wallets processing thousands of transactions. He warned that opaque freezes based on an undisclosed civil lawsuit could cause USDC to become a “politicized access-control tool.”

In the smart contract code for USDC, the permission to impose blacklist controls, including clearing the assets of frozen addresses, has been explicitly written in. And on a day when the market already harbored serious doubts about the risks of centralized stablecoins, the public perception of this event could be nothing short of disastrous.

Still-existing bullish logic

This round of selloff has already priced the most pessimistic expectations of the CLARITY Act into the stock price. From a more optimistic perspective, there are still a few things worth watching:

Activity-based rewards are unaffected. The bill clearly distinguishes between passive yield (banned) and trading-type incentives (allowed). Platforms like Coinbase are already studying response plans: marketing incentives, behavior-based payments, issuer partnerships, and other approaches to blur the line between interest and rewards. The “economic equivalence” standard itself leaves room for ambiguity, which means there will likely be extensive legal wrangling going forward.

Coinbase’s profit and loss may not change much. Coinbase basically just passes stablecoin yield through to users, so related revenue is typically offset by expenses. Analysts believe the direct impact on its profitability will be limited. A bigger issue is whether these restrictions will slow USDC’s long-term mainstream adoption.

The bill has not yet officially****taken effect. Committee review is expected to happen only in late April, after the Easter recess. The industry still has time to lobby, submit amendments, and negotiate. Even though Coinbase CEO Brian Armstrong has not publicly commented on the latest draft, its past stance suggests that Coinbase will strongly fight over the “economic equivalence” provisions.

Non-reserve-based business income is growing quickly. Platform services, transaction processing, and other non-reserve-related income surged by more than 15x year over year in the fourth quarter, reaching $37 million; other revenue for the full year was $110 million. Although it is still smaller than interest income in scale, the logic of revenue diversification has started to show itself.

Outlook going forward

Before this latest plunge, CRCL’s share price had already risen 170% from its February low. Driven by strong earnings reports, USDC trading volume surpassing USDT, and positive catalysts such as the partnership with Intuit, the stock climbed from $50 all the way to $127. However, valuations had already fully priced in the perfect-development expectations for interest income, AI-driven payments, and asset tokenization, leaving no buffer room for regulatory downside news.

At present, the stock price is around $101, and CRCL’s price-to-earnings ratio is roughly 9x annualized revenue. The key debate in the market right now is whether: Will the CLARITY Act choke the growth flywheel of USDC, or will it force USDC to transform and evolve? If, driven by payments, cross-border settlement, and institutional demand, stablecoin adoption continues to increase (on-chain data still remains positive), then even if Coinbase cannot provide yield on idle balances, Circle’s reserve income engine will still keep running.