Author: Eddie Xin, Chief Analyst, OSL Research

Email: [email protected]

Abstract

On March 24, the latest regulatory text for stablecoins in the United States was updated, further clarifying a core boundary: customers cannot earn stable interest or similar returns solely by holding stablecoin balances. However, incentives related to specific usage behaviors—such as payments, transfers, trading, and consumption—retain some regulatory flexibility. Market attention is currently focused on the latest compromise text surrounding the CLARITY Act.

This implies that the regulatory positioning of compliant stablecoins is shifting away from "potential interest-bearing digital dollar accounts" back toward "digital payment and clearing tools." Products, distribution channels, and user retention logic built around yield-bearing stablecoin balances face the greatest impact. Conversely, sectors such as payments, cross-border settlement, corporate Treasury, institutional clearing, and API-based financial infrastructure stand to benefit or remain relatively unaffected.

Key Takeaways

Following the news on March 24, regulatory signals were rapidly transmitted to the market, putting significant pressure on the share prices of Circle and Coinbase. Circle Internet Group Inc. saw its largest single-day drop on record on Tuesday, as investors re-evaluated the potential shifts in stablecoin regulation and intensifying industry competition.

This decline occurred as investors processed the implications of proposed U.S. legislation, including the Clarity Act. The bill could prohibit trading platforms from offering yield rewards to users holding stablecoins like USDC. Previously, driven by expectations for the Genius Act (stablecoin-related legislation), Circle's valuation had surged as much as 750% from its IPO benchmark. However, as expectations cooled, its share price has fallen more than 60% from its peak.

Regulation Enters the Phase of Business Boundary Refinement

Connecting these developments, U.S. stablecoin regulation has transitioned from principle-based discussions to the refinement of operational boundaries. While incentives can still be designed around "usage behavior," the scope for offering consistent returns on "static balances" has narrowed significantly. Regulators have preserved some room for industry innovation while retaining ultimate oversight authority.

Whether an incentive design qualifies as a "use-driven incentive" or effectively functions as a "hold-driven return" will likely be subject to individual scrutiny. The OCC’s proposed rules specifically include anti-evasion frameworks for affiliates and related third parties, indicating that regulatory focus has moved beyond product nomenclature to economic substance.

Reshaping Industry Growth Logic

From a macro-regulatory perspective, this shift will directly alter how the stablecoin industry defines growth. In recent years, balance size, platform retention, AUM, and float were the primary metrics for success.

As the space for balance-based rewards tightens, the business focus will shift toward payment volume, settlement value, cross-border flow, enterprise API call frequency, on-chain velocity, and authentic transaction activity. Key Performance Indicators (KPIs) will pivot from "balance scale" to "utilization scale." Velocity in real-world scenarios will represent growth quality more accurately than static balances. This aligns with the distinction between activity rewards and balance rewards in the March 23 draft.

Transition in Competition and Valuation Frameworks

The industry's competitive landscape is also set to change. The search for yield will not stop, but product innovation will increasingly center on payment, transfer, trading, settlement, consumption, market making, and on-chain participation. The focus of competition will shift from "capturing balances" to "capturing flow." Incentives will increasingly be embedded within specific use cases to attract users and market share through real transaction volume.

Simultaneously, regulators maintain the right to review these incentive mechanisms. A design classified as a use-driven incentive today could be re-characterized in the future if its economic effect mirrors a balance-based return. For the industry, while paths are not entirely blocked, the power of audit and re-interpretation remains with the authorities.

Market reactions were swift for clear reasons. Capital markets previously valued stablecoin-related companies based not only on payment and clearing stories but also on the potential for balance retention, yield extensions, and user lock-in. A report by Barron’s on March 24 noted that the core concern behind Circle's sharp decline was that legislative text might restrict platforms from providing yield on stablecoin balances.

The OCC’s rule text also explicitly incorporates language regarding activities "solely in connection with the holding, use, or retention." This adjustment reflects a fundamental re-evaluation of growth models and valuation frameworks within the stablecoin sector.

This logic is evident in the public disclosures of compliant U.S. platforms. Coinbase disclosed in its Q4 2025 shareholder letter that stablecoin revenue reached $364.1 million, with full-year revenue at $1.3488 billion. The company noted that growth was driven by record highs in average USDC held and average USDC market capitalization within Coinbase products. While platform balances were previously a key metric, the market will now focus on whether these balances can be converted into more sustainable and authentic payment and usage volumes.

Traditional Finance Perspectives and On-chain Adjustments

From the perspective of banks and traditional financial institutions, this regulatory direction maintains strong continuity. If stablecoins were to evolve as interest-bearing instruments, they would closely resemble cash management accounts, demand deposit substitutes, or other short-duration dollar liabilities. Current policy arrangements provide space for payment-type stablecoins while maintaining a clear boundary with traditional deposit-taking activities.

According to rule explanations in the Federal Register on March 2, the formal effective date of the GENIUS Act is tied to final implementation rules, and regulators expect to update these rules as business practices evolve.

On-chain activities and DeFi will also adjust accordingly. The market will become more proactive in distinguishing between two types of yield: one derived from lending, market making, liquidation, funding rates, and authentic protocol activities; the other from packaging the static balances of compliant stablecoins into continuous returns. The former is tied to real financial behavior and counterparty risk, while the latter is tied to static holdings.

The CLARITY draft released on March 23 focuses heavily on this distinction. Future on-chain products are likely to design incentives around trading, liquidity provision, payments, transfers, and task participation, with transaction volume supported by real financial behavior becoming the core growth metric.

Conclusion

The latest changes in U.S. stablecoin regulatory texts do not represent a rejection of stablecoins but rather a further definition of their end-state: compliant stablecoins should primarily serve as tools for payment, transfer, clearing, and cross-border flow, rather than evolving into interest-bearing digital dollar accounts.

For the industry, this will compress the space for balance-yield products and yield-distribution models, while enhancing the strategic value of payment networks, settlement networks, corporate Treasury services, and API infrastructure. For DeFi, the crackdown is not on yield itself, but on the path of financializing and "depositizing" static balances of compliant stablecoins.

What will remain are yields derived from lending, market making, collateralization, and liquidation—all supported by authentic financial activities.

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