Stablecoin rewards restrictions can slow but not stop Circle's USDC, says Citigroup
USDC adoption hinges on volume, not circulation, the bank said
By Will Canny, AI Boost|Edited by Stephen Alpher Mar 26, 2026, 2:02 p.m.
Make us preferred on Google
What to know:
- Citi said limits on stablecoin rewards could reduce USDC circulation short term, but won’t hit Circle’s core revenue.
- The bank maintained that stablecoin usage (volume), not supply, is the primary adoption signal.
- The Circle selloff reflected a market misread of the draft Clarity Act, according to broker Bernstein.
Wall Street bank Citi says proposed limits on stablecoin rewards in the latest draft of U.S. market structure legislation would be a setback for Circle (CRCL) but not a fundamental threat to the investment case.
"We view this development potentially (but not necessarily) as a scaling setback, but not a thesis killer," wrote analysts led by Peter Christiansen in the Tuesday report.
The draft bill allows narrowly defined rewards programs as long as they don’t resemble bank deposit interest, the analysts said. A broader ban on third-party rewards would not directly affect Circle’s net revenue, as the firm already passes most of its reserve income to distribution partners like Coinbase (COIN).
Still, the analysts expect weaker incentives to hold USDC, which they characterize as a payment instrument rather than a security, could temporarily reduce circulation and secondary-market liquidity. “We still maintain the view that stablecoin volume is the key indicator of adoption, not circulation.”
Citi has a high risk rating on Circle stock with a $243 price target. The shares were trading around $100 at the time of publication.
Circle shares fell roughly 20% on Tuesday, after a draft of the U.S. Clarity Act raised the prospect of banning yield on passive stablecoin balances, sparking concerns about the attractiveness of yield-bearing crypto products.
The move was compounded by broader investor anxiety around how the rules could impact stablecoin-related revenues and incentives, alongside fresh competitive pressure after Tether signaled plans for a full Big Four audit and potential U.S. expansion.
The Circle selloff on Tuesday reflected a market misread of the draft Clarity Act, according to Wall Street broker Bernstein.
Investors are conflating who earns yield with who distributes it, the broker said in a Wednesday report. Circle earns reserve income from USDC backing assets, while platforms like Coinbase (COIN) pass some of that yield to users, the actual target of the proposed rules.
The draft would ban yield on passive stablecoin balances but allow activity-based rewards tied to trading or payments. Bernstein analysts led by Gautam Chhugani said this pressure on Coinbase’s ~3.5% USDC yield product, likely forcing a restructure. Circle’s model remains unaffected. The firm does not pay yield to holders and generated $2.64 billion in reserve income in FY2025.
The report noted that USDC growth, from ~$30 billion to $80 billion in two years, is driven by trading, payments and collateral demand, not yield.
Bernstein has an outperform rating on Circle shares with a $190 price target.
Coinbase is treading carefully in negotiations over the Clarity Act, privately signaling to Senate staff that it is dissatisfied with the latest compromise while stopping short of publicly opposing the bill, according to people familiar with the matter.
Read more: Circle selloff may be overdone as crypto bill weakens Coinbase edge, say analysts
CircleAI Disclaimer: Parts of this article were generated with the assistance from AI tools and reviewed by our editorial team to ensure accuracy and adherence to our standards. For more information, see CoinDesk's full AI Policy.More For You
U.S. midterms pack major digital assets punch as Stand With Crypto preps strategy
By Jesse Hamilton|Edited by Nikhilesh De3 hours ago
The terrain of Congress is likely to shift considerably even as the crypto sector continues to chase fundamental legislation.
What to know:
- Stand With Crypto has endorsed half a dozen U.S. congressional candidates in some of the states expected to be hard-fought in the November midterms.
- The advocacy group also fielded a poll of crypto holders, suggesting they're highly motivated to vote and to pick candidates who support digital assets.
The privacy paradox: regulating zero-knowledge finance in the EU and beyond
30 minutes ago
CoinDesk 20 performance update: index falls 3.2% as all constituents trade lower
1 hour ago
MARA Holdings higher by 10% after selling $1.1 billion in bitcoin to fund debt buyback
2 hours ago
U.S. midterms pack major digital assets punch as Stand With Crypto preps strategy
3 hours ago
Brazil passes law turning seized crypto into public-security war chest
3 hours ago
Coinbase, Fannie Mae bring crypto-backed mortgages to homebuyers
3 hours agoTop Stories
Crypto slides as oil spike, macro jitters trigger derivatives unwind
4 hours ago
Bitcoin has traded in a tight range for nearly 50 days – but this is not a "bear flag"
4 hours ago
Market structure bill compromise draws wide-ranging reaction from fractured crypto crowd
15 hours ago
Some bitcoin indicators are still going the wrong way, challenging the bullish $70,000 holdout story
8 hours ago
U.S. lawmakers dig into tokenizing securities as Trump ties muddy waters
21 hours ago
