CRCL's wild fluctuations, COIN follows with a plunge: the real battle of interests behind the CLARITY Act

Author Charlie, Head of OSL Americas, Venture Partner @ Generative Ventures. Former Vice President at cryptocurrency unicorn Strike (involved in El Salvador's Bitcoin legislation and responsible for Latin America's Bitcoin Lightning Network and stablecoin payment business), macro and currency analyst at trillion-dollar fund Franklin Templeton, and an early member of global payment giant Adyen.

The article reflects the author's personal views and does not represent the positions of the related companies.

Last week, a latest draft concerning the CLARITY Act leaked, causing Circle to drop about 20% in a single day, while Coinbase fell nearly 10%.

Just a few weeks ago, they were the hot stocks of agentic commerce, seen as the future payment infrastructure, and now they have become a reflection of Washington's policy risks.

Following my previous article on the first act of the CLARITY Act ------ The Clarity Act Stalled, Crypto Camp Divided, the Interest Conflict Between DeFi and TradFi ------ last week's events felt more like the second act: what the U.S. truly decided was not the yield terms, but who owns the dollar accounts.

In the past few days, there have been many news reports and media analyses on the impact of the events, but what I find more worth writing about is why a seemingly technical stablecoin reward clause could profoundly affect Circle, Coinbase, banks, and Wall Street.

And why the essence of this matter is not whether a platform can still offer users some rewards in the future, but whether the U.S. is willing to let stablecoins grow into a type of on-chain savings account.

This is not a yield clause dispute; this is a "dollar account" dispute

Section 404 of the Senate draft is the core of the entire news: digital asset service providers cannot pay any form of interest or yield solely because users hold payment stablecoins.

Moreover, from the structure of the clause, 404 first targets the platform/distribution layer, and does not automatically mean that all issuers are treated the same.

However, if rewards are linked to actions such as payments, transfers, exchanges, settlements, platform usage, membership programs, merchant cashback, providing liquidity or collateral, governance, and staking, those behaviors remain permitted.

At the same time, the bill specifically prohibits packaging such compensation as "deposits," "FDIC protected," "zero risk," or "equivalent to bank deposit rates," and requires the SEC and CFTC to jointly formulate relevant disclosure rules within 360 days after the bill is enacted.

In other words, Washington is not saying "stablecoins cannot incentivize users," but rather "you can incentivize behaviors, but you cannot package stablecoins as on-chain demand deposit accounts."

If you only look at discussions within the crypto circle, you might think this is a product design issue, but once you bring in the banking side, the nature of the problem changes immediately.

The ABA and other banking organizations' joint letter in January was almost a clear signal: they requested Congress to prohibit inducements, whether directly paid by issuers or indirectly paid by affiliates, platforms, or partners, with the aim of ensuring that payment stablecoins do not become substitutes for investments and deposits.

Moreover, over the past month, the White House has repeatedly brought banks and the crypto camp together, and the unresolved issue has always been this matter.

The logic of banks is simple—if fully reserved stablecoins can offer yields close to short-term government bonds on platforms, then part of those deposits will naturally flow out, shaking the banks' cost of liabilities, lending capacity, and financial stability narrative.

Standard Chartered's estimate of about $500 billion in potential deposit outflows may not be the most accurate figure, but it is enough to become a political weapon at the legislative level.

Some may see this as merely a detail of incentive marketing, not worth elevating to the grand proposition of "dollar accounts."

But if it were really just a word game, banks would not have sent several letters publicly pressuring the issue in January, and the White House would not have personally brought banks and the crypto industry to the same table twice at the end of January and early February.

What truly turns this matter into a core contradiction has never been the incentives themselves, but the possibility behind the incentives of "moving dollars on-chain and making them inherently attractive like savings accounts."

As I mentioned in my previous article: what truly decides the incentive dispute is whether stablecoins in the U.S. are merely payment/transaction mediums or will become savings vehicles. The latest round of drafts actually aims to write this statement into law.

Circle is more like an AI stock, Coinbase is more like a policy stock

Circle and Coinbase were both hit this time, but the way they were affected was different.

Circle's stock price in recent weeks has been like a litmus test of emotions.

At the end of February, the market first cheered for its earnings report because its data was indeed impressive: USDC circulation reached $75.3 billion at year-end, a 72% year-on-year increase; Q4 total revenue was $770 million, a 77% year-on-year increase; reserve income was $733 million.

By early March, the story of agentic commerce pushed it up a bit more. The media portrayed Circle and Stripe as paving the way for a "yet-to-exist" future—a world where autonomous AI agents settle using stablecoins.

This story is certainly appealing because it makes Circle look like more than just a stablecoin issuer benefiting from interest rate cycles, but rather as a payment infrastructure for the AI era.

However, when the draft leaked on March 24, the market turned around and treated it as the biggest beta of CLARITY risk.

Within weeks, the same company was wrapped in three different valuation languages: earnings stock, AI infrastructure stock, policy victim stock.

The most magical part here is that Circle itself has not undergone a dramatic change during this period; only the labels Wall Street has attached to it have changed.

Coinbase, on the other hand, is less "story-driven"; it seems to have been directly pressed by the market into the role of the first-order victim in this chain.

The reason is simple: its stablecoin economics is no longer a marginal role.

Coinbase disclosed that Q4 stablecoin revenue was $364.1 million, and the USDC held by Coinbase's product line reached a historical high of $17.8 billion, with USDC's market cap reaching $76.2 billion.

The company also clearly included all of this in the narrative of "Everything Exchange is working" in its investor disclosures.

In other words, Coinbase is not fighting for a small product feature, but for an entire growth flywheel: balance retention, user retention, subscription benefits, platform stickiness, and the synergy of dollar balances with on-chain services.

When the market made Coinbase drop 9.8% on March 24, it was actually making a very blunt but direct pricing: if the yield based on balances for stablecoins is suppressed, this flywheel will slow down.

But I think this is also where many people mistakenly view Circle and Coinbase together.

The hit Circle took was more indirect because the draft directly targets digital asset service providers paying interest or yields to holders, meaning the platform distribution and user interface layer took the first hit; Circle, as the issuer, still primarily derives its income from reserve earnings in the short term.

Coinbase, however, is different; its user relationships, platform distribution, USDC incentives, and Coinbase One rewards are all already on this line. So while both are experiencing declines, Circle seems more like "policy uncertainty compressing growth expectations," while Coinbase feels more like "a segment of the growth engine may be directly dismantled."

The market has already given some intuition about the distinction between the two through their declines, but many reports have not fully articulated it.

Both U.S. and Chinese media got it half right, but missed three layers

In the past week, I have seen that mainstream U.S. media mostly framed this matter in two directions.

One direction is stock prices: Circle plummeted, Coinbase followed suit, and crypto-related stocks are more sensitive to Washington's news than many realize.

The other direction is the legislative window: banks and the crypto camp have not reached an agreement, the White House has coordinated, the time before the midterm elections is narrowing, and whether the bill can be enacted by 2026 is now in question.

This narrative is certainly not wrong, but it mostly stays at "what happened."

Chinese media and self-media often shift to the trading aspect more quickly.

On one side is whether Circle was mistakenly killed, whether Coinbase was the most hurt, and whether Tether's audit actions will take the opportunity to strike.

On the other side is whether the final compromise text will be announced this week and whether activity-based rewards will ultimately be interpreted too narrowly.

This perspective is closer to the market and more sensitive, but many discussions still stop at "which company benefits and which company suffers."

I think both sides have missed three layers.

The first layer is political economy.

Many write it as "banks vs crypto," but do not fully articulate it as "whether the U.S. allows stablecoins to become substitutes for savings accounts."

Section 404, the ABA's public statements, the White House's coordination, and media reports together make it quite clear: Washington does not want to eliminate stablecoins; it wants to lock them into the payment tool pathway first.

It is willing to accept stablecoins growing to resemble more efficient Visa, SWIFT, or B2B settlement layers, but is not in a hurry to let them resemble high-yield demand accounts.

The second layer is the distinction between issuance and distribution.

Circle will certainly be hurt because once the platform layer can no longer rely on "hold to earn" to attract USDC balances, the growth rate and valuation expectations of USDC will be affected.

But the most direct impact is not on Circle, but on the platform and distribution layer.

Coinbase's drop feels more like its growth engine being directly discounted by the market, while Circle feels more like a potential downward revision of future growth slope.

Writing both of these indiscriminately as "negative for stablecoins" is a bit too general.

The third layer, which I find profound and essential, is that the demand for yields will not disappear; it will only migrate.

Suppressing the imaginative capacity of payment stablecoins does not mean that the market's demand for cash-like yields suddenly evaporates.

It is more likely to migrate to tokenized MMFs, securities on-chain, or other more clearly yield-generating structures subject to securities regulation.

And this coincides with another piece of language in the CLARITY draft that is easily overlooked: Section 505 clearly states that a financial product that is already a security will not cease to be a security simply because of tokenization; a real-world asset that is not a security will not become a security merely due to tokenization; more importantly, tokenization itself cannot be a loophole to escape existing registration requirements.

In plain language: Washington is willing to leave a path for tokenization, but not to open the door directly, nor to rewrite the existing securities regulatory logic simply because it is on-chain, and Section 505 specifically prevents the market from marketing tokenized RWAs or tokenized financial assets as something that is "naturally equivalent" to the underlying assets.

Once the demand for yields migrates away from stablecoin balances, the most likely candidates to absorb it may not be those who tell the best crypto stories, but rather those TradFi institutions that are better at securities on-chain and compliant distribution.

Banks, Coinbase, and Wall Street are not fighting for the same thing

The most interesting aspect of this matter is that, on the surface, it appears to be a dispute over a clause, but underneath, it is actually three completely different business models competing for a future ticket.

Banks are fighting for the liability side.

What they fear is not that "crypto becomes cooler," but that "dollars move from deposit accounts to on-chain, and once moved, they can retain the attractiveness of near-risk-free rates."

Once this is established, the most core, least sexy, but also most profitable part of banks' moat—low-cost deposits—will be pried open.

That is why banks keep redefining this matter as financial stability rather than policy competition.

Coinbase is fighting for entry and distribution rights.

As I mentioned in my previous article regarding its "everything exchange" strategy: all assets on-chain, all transactions completed in one account, while also making the dollar balance on the platform competitive.

It is not merely about preserving the 3.5% USDC rewards; it is about preserving a larger platform vision—users placing dollars, crypto, future on-chain securities, derivatives, and subscription benefits all in the same interface.

Coinbase's strong stance this time is not just because of a short-term loss, but because it believes these terms will determine the space for the next decade, not just a quarterly compromise.

Now the investor narrative has already publicly stated this: Everything Exchange is its direction, and the USDC on the platform is a key part of it.

Wall Street is fighting over whether tokenization will still happen through familiar channels.

The language in Section 505 has already provided the answer: securities remain securities after being tokenized, and tokenization will not automatically bring lighter registration requirements.

In other words, "U.S. stocks going on-chain" can certainly happen, but Washington does not intend to hand over the gatekeeper roles of existing securities exchanges, broker-dealers, custodians, and clearing systems to crypto-native platforms.

As I mentioned previously, "the key is not whether tokenization can happen, but who can legally dominate this path," and it seems even more valid now.

As for DeFi, it has been overshadowed by stablecoin yields this time.

Many believe that CLARITY has recently only Section 404 to watch, but the language related to software developers, front-ends, wallets, and messaging systems in the draft regarding safe harbor and rule-of-construction is also worth noting.

On one hand, the bill states that those who simply compile, validate, provide nodes, or develop wallets and software should not be constrained by the Act solely for those reasons; on the other hand, it clearly states that this does not naturally change the applicability of laws like money transmitter, AML, and CFT to behaviors beyond the scope.

In other words, the U.S. is not completely denying DeFi a path to survival, but is trying to separate "those who write code" from "those who actually control user funds, execute user transactions, and provide regulated entry."

But how this line will be drawn in the future still heavily depends on regulatory interpretation.

Short-term is negative, long-term may not be a bad direction

So my current judgment is not entirely aligned with the market's initial reaction.

In the short term, banks have indeed gained a small step.

Coinbase is hurting the most, and Circle is inevitably getting hurt as well.

Because over the past few years, the easiest narrative to tell and the most user growth data to produce in the U.S. market for stablecoins has been "turning on-chain dollars into a more attractive dollar balance."

Once this path is blocked, the platform's product strength, distribution efficiency, and the growth multiples provided by capital markets will be re-priced.

But in the long term, I actually don't think this is necessarily a bad thing for the entire stablecoin industry.

It feels more like a forced pivot. If U.S. regulators ultimately pin stablecoins to the payment tool pathway, the industry will be compelled to talk less about APY and more about real payment scenarios.

Whoever can integrate stablecoins into B2B settlements, cross-border payments, merchant acceptance, corporate treasury, and e-commerce payments will have more long-term value.

The same goes for Circle.

The market has recently dressed it up as an AI payment stock one moment and as a policy victim stock the next, but the more likely future is that it is pushed to transition more quickly from being a "company that benefits from interest rate cycles" to "a company that builds payment networks and B2B infrastructure."

This path is harder than issuing rewards, and growth is not as straightforward, but once achieved, the quality of valuation may actually be higher.

The market has finally realized that a technical clause regarding stablecoin yields actually buries three larger wars behind it—banks defending the liability side, Coinbase fighting for entry rights, and Wall Street vying for the legitimate dominance of tokenization.

Many historical turning points are not found in grand speeches, but in seemingly inconspicuous legal sentences.