Circle heads for it worst day on record as proposed law could limit stablecoin yield

Stablecoin issuer Circle is tumbling as the latest version of a bill known as the Clarity Act shows it could limit yield on stablecoin balances.

The shares were last down by 22%, marking the stock’s worst day ever. Previously, its steepest dive was June 27, when it sunk 15.5%. The move also dragged down Coinbase, which is the main distribution platform for USDC. Shares were last down 11%.

Earning yield, usually in the form of rewards, on stablecoins like Circle’s USDC and others is key incentive for users to hold the coins – similar to the interest earned on cash sitting in a bank account. The latest draft of the bill would ban stablecoin issuers from paying yield to customers just for holding the assets.

The bill could allow for “activity-based rewards,” however, such as using the stablecoin for payments, trading, or lending it out.

Interest on stablecoins has been a growing issue for the crypto industry. Banks have argued that if crypto apps like Coinbase offer it, customers could move their cash out the banks.

Separately, Circle competitor Tether announced it has hired an unnamed Big Four accounting firm to audit its USDT reserves for the first time.

USDT is the largest stablecoin in the market with $184 billion in market cap, according to CryptoQuant. However, it has been mired in controversy for years because Tether promised transparency through quarterly “attestations” but has never provided a full, formal audit. That made many investors and regulators worried that USDT reserves were too opaque or would not meet audit standards.

Circle surged in popularity last year following its successful IPO, and its USDC coin is widely viewed as more institutional grade than Tether as it undergoes full audits annually by Deloitte and also issues monthly attestations. USDC is the second largest stablecoin with a market cap of $78.6 billion.

—CNBC’s Nick Wells contributed reporting.