Citi: Stablecoin reward restrictions may hinder USDC expansion but do not change Circle's fundamentals

Citi reports that restrictions on stablecoin reward mechanisms in the U.S. CLARITY Act draft may pose a temporary hurdle for Circle (CRCL), but will not undermine its long-term investment logic. Analysts note that the policy is more likely to affect the pace of expansion rather than pose a fundamental threat. The bill proposes to limit stablecoin yields similar to deposit interest but allows incentives related to trading or payments. Since Circle itself does not directly pay yields to USDC holders but distributes reserve earnings to partners like Coinbase, its core revenue model will not be directly impacted. Citi believes that reduced rewards could weaken users’ short-term motivation to hold USDC, potentially affecting circulation volume and secondary market liquidity. However, key metrics for stablecoin adoption remain transaction and payment volumes, not circulation alone. Previously, due to policy uncertainty, Circle’s stock price dropped about 20%. However, institutions including Bernstein believe the market may have misinterpreted the policy impact, emphasizing that regulators are focused on platforms that distribute yields to users (such as Coinbase), rather than Circle’s reserve earnings model.