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Citi says stablecoin rewards restrictions could slow Circle’s USDC, not stop it

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Citi says stablecoin rewards restrictions could slow Circle’s USDC, not stop it

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

SEC is no longer a 'cop on the beat‘ on crypto, says US lawmaker

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SEC is no longer a 'cop on the beat‘ on crypto, says US lawmaker

Representative Stephen Lynch voiced concerns about the direction of the SEC under Donald Trump, citing dropped investigations and enforcement actions on crypto companies.

regulating zero-knowledge finance in the EU and beyond

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regulating zero-knowledge finance in the EU and beyond

Financial compliance has always been balanced on a delicate line: regulators need sufficient visibility to keep bad actors out, but users want their financial lives kept private just to make a payment or trade. In 2025, that tension is sharper than ever. We have stricter anti-money laundering (AML) rules, broader data-protection regimes, more cross-border activity and, at the same time, better privacy-enhanced technology than we’ve ever had.

The good news is we no longer have to sacrifice privacy to ensure compliance. Zero-knowledge proofs (ZKPs) provide a solution to the so-called privacy paradox: regulators need assurance that rules are followed, but exposing full identities and transaction details creates security, legal, and data protection risks. ZKPs let us flip the model from “show me the data” to “show me a proof,” enabling firms to demonstrate compliance without revealing underlying information.

This approach is not designed to obscure regulatory oversight. Instead, it modernizes the compliance toolset so regulated firms can demonstrate compliance with their legal duties (sanctions screening checks, KYC obligations, segregation of client assets, capital checks) without transferring or exposing the underlying data. ZKPs may be better for users and, in the long term, for regulatory compliance, because proofs are verifiable and tamper-evident.

What zero knowledge actually does

A zero-knowledge proof is a cryptographically powered way of saying: “I can prove to you that I followed rule X, but I won’t show you the sensitive information usually required to prove that.” In finance, “rule X” can be very concrete: “this wallet was screened against the current sanctions list”; “this user holds a valid KYC credential from a trusted issuer”; “this exchange holds client assets 1:1 and they reconcile to liabilities”; “this transaction is below (or within) an allowed range,” and so on.

Today, we can be required by law to report large datasets to specific regulators. We comply with applicable data protection laws, but this also increases the risk of cybersecurity breaches and misuse. A ZK-based approach proves the outcome, not all the inputs. If a regulator needs to go deeper, a process can be designed for selective disclosure of particular required data (viewing keys, time-bound access, and full audit logs, granted under due process as necessary), like a permissioned regulatory portal or window.

Why this matters now

Three trends are converging.

In the EU, supervisors are making anti-money laundering (AML) controls more granular, while GDPR and other privacy regimes emphasise data minimisation and purpose limitation. These can be complementary rather than opposing each other: compliance should provide the same or better assurance with less routine exposure of personal data. This objective may be achieved by utilising privacy-preserving reporting techniques.

Second, digital identity frameworks (such as those envisaged under eIDAS 2.0) are getting closer to reality. They are built on the same building blocks as ZK: verifiable credentials, selective disclosure and cryptographic attestations. That makes it far more realistic to issue portable “I passed KYC” or “I am not sanctioned” credentials that can be proven, not re-collected, across multiple services.

Third, supervisors are exploring privacy-enhancing technologies, including proof verification models.

What a proof-based compliance stack could look like

We already have live examples. ZK-enhanced proof-of-reserves is the best-known one: an exchange proves it has the assets to meet customer liabilities without revealing individual balances. That is a zero-knowledge assurance.

You can do the same for sanctions screening. Instead of sending the full identity every time, a wallet presents a proof that it was checked against the latest list at a specific time. The regulator, or a regulated VASP on the other side, runs a verifier node to confirm the proof is valid and up to date. It is important to note that ‘verifier nodes’ are a policy proposal that operate as an oversight infrastructure for supervisors to validate proofs without collecting bulk data.

You can also do it for segregation: a custodian proves that client assets are not co-mingled with house funds via a range or sum proof, without publishing the entire ledger. You can even layer this into smart contracts: transactions don’t execute unless the proof passes. That is “programmable compliance” – rules enforced at transaction time in ‘real time’, rather than afterwards.

For regulators, the key shift is from collecting raw data to verifying cryptographic evidence. They still get assurance, auditability and traceability when there is a legal basis to unmask. But they do not have to hold or process significant amounts of personal data by default, reducing both operational and legal risk.

Answering key questions

Regulators are already beginning to embrace targeted ZK pilots, ranging from verifiable proof-of-reserves to Travel Rule compliance that validates user attributes without exposing full datasets. As these primitives mature, they naturally scale into market-integrity controls, allowing firms to demonstrate they are within concentration and exposure limits through range and sum proofs without revealing underlying positions.

Critically, ZK is not a synonym for opacity; well-architected systems utilize selective disclosure via viewing or multi-party keys. This ensures that law enforcement access is narrow, provable and subject to due process rather than remaining universal and silent.

What regulators could require

To work across borders, we need standards: standard proof types (e.g., “not on sanctions list X as of date Y”), standard credential formats and standard verifier logic that can be inspected. That is how you avoid every exchange, wallet, or bank building its own version and creating unnecessary supervisory complexity for supervisors.

Concretely, regulators may benefit from six things:

  1. Outcomes over data (tell me what you proved, not everything you hold);
  2. Least-information proofs (prove only what is necessary for this obligation);
  3. Programmable checks (enforced at transaction time where appropriate);
  4. Strong data-availability and exit mechanisms (users can always confirm their balances and withdraw);
  5. Verifiable verifier logic (inspections, test vectors, audit logs);
  6. No generalized backdoors (disclosure only under lawful, narrow, logged processes).

Binance is a global exchange that already uses ZKPs for demonstrating reserves. Our proof-of-reserves (POR) system uses a Merkle tree – a cryptographic structure that condenses many account entries into a single “fingerprint” – together with zero-knowledge proofs to demonstrate that customer assets are fully backed without revealing individual balances. With each POR update, users can confirm that their balance is included in the tree, while ZKPs ensure that the overall totals are correct and that no negative or fake balances are included. The result is independent, privacy-preserving verification of reserves that builds trust without compromising personal data.

But this is bigger than one company. If we get this right, we can make financial compliance more precise, more respectful of privacy law, and easier to supervise.

This will take collaboration. Regulators will need to develop proof standards they accept; industry will need to align on, and incorporate the proof standards, and standard-setting bodies will ensure proof standards are interoperable across borders.

What success looks like

Success is when a user can prove legitimacy without oversharing; a bank, VASP, or exchange can meet AML/Travel Rule obligations with smaller data disclosures; a regulator can run a verifier node and get real-time assurance; and bad actors can be unmasked under clear, narrow, lawful conditions.

In short, assurance with less disclosure. As cyber risk rises, privacy laws evolve, and cross-border digital finance grows, moving from routine bulk data collection to verifiable proofs is a pragmatic upgrade to supervisory practice.

References to EU privacy law in this op-ed reflect the framework as of November 2025; the Commission’s Digital Omnibus proposals remain subject to change through the ordinary legislative process.

Are stablecoins the infrastructure reshaping global finance?

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Are stablecoins the infrastructure reshaping global finance?

In today’s newsletter, Claudia Marcela Hernández analyzes how stablecoins have evolved past volatility-fixers to become the foundational settlement asset for global tokenized markets and cross-border payments, following the clarity provided by the GENIUS Act.

Then, in Ask an Expert, Morva Rohani breaks down how stablecoin regulation serves as a foundation for tokenized capital markets, why some jurisdictions see U.S. stablecoin policy as a risk, and the key factors advisors must use to assess a stablecoin’s credibility.

Learn about the latest advancements in the Clarity Act in Keep Reading.

Happy Reading.

– Sarah Morton

Are stablecoins the infrastructure reshaping global finance?

Stablecoins were originally designed to solve one of crypto’s earliest problems: volatility. By pegging their value to fiat currencies such as the U.S. dollar, stablecoins gave traders a reliable unit of account that could move across blockchains without the price swings associated with assets like bitcoin. For years, they functioned primarily as liquidity tools inside crypto markets. But that role is rapidly changing.

Stablecoins are evolving from niche trading instruments into a foundational layer of global financial infrastructure. They now serve as settlement assets in decentralized finance (DeFi), payment rails for cross-border transfers and the preferred settlement currency for tokenized financial markets.

Institutions that once approached crypto cautiously are beginning to acknowledge the technology’s potential. The International Monetary Fund (IMF) has noted that stablecoins could improve the efficiency of cross-border payments by reducing the number of intermediaries involved in global transactions. Meanwhile, policymakers in the United States are moving to integrate stablecoins into the regulated financial system.

Because most of these tokens are pegged to the U.S. dollar, they may also be doing something far more consequential: quietly extending the reach of the dollar across the blockchain-based global economy.

How a Stablecoin Is Issued and why they matter?

A user provides fiat currency, typically U.S. dollars, to a licensed issuer. In return, the issuer mints an equivalent amount of stablecoins on a blockchain, maintaining a 1:1 peg. The fiat received is placed into reserve accounts, usually held in cash or short-term U.S. Treasuries, which back the value of the tokens in circulation.

When a user wants to exit, the process works in reverse: the stablecoins are redeemed, and the user receives fiat from the reserves. This issuance-redemption mechanism is what anchors the stablecoin’s price to its reference asset.

Stablecoins enable near-instant, 24/7 settlement, independent of banking hours. They allow for programmable transactions, where payments can be automated and embedded into digital systems. And they provide access to dollar-denominated value, often without requiring a traditional bank account.

The World Economic Forum established that stablecoins transaction volumes have reached tens of trillions of dollars annually, underscoring their growing role as a core component of digital financial activity.

For policymakers, this presents both an opportunity and a challenge. The U.S. Treasury has noted that digital payment innovations, including stablecoins, can enhance efficiency, reduce costs and promote financial inclusion, provided that appropriate safeguards are in place.

Use cases and applications

· Cross-border payments: Stablecoins enable near-instant international transfers at a fraction of the cost of traditional correspondent banking systems.

· Remittances: In many emerging markets, stablecoins offer faster and cheaper alternatives to traditional remittance providers, which often charge significant fees.

· Decentralized finance (DeFi): Stablecoins serve as collateral, liquidity pools and settlement assets across lending protocols, decentralized exchanges and derivatives markets.

· Tokenized real-world assets: As tokenization expands to include bonds, real estate and commodities, stablecoins increasingly function as the settlement currency for digital financial markets.

· Corporate treasury and global settlement: Fintech companies and multinational firms are experimenting with stablecoins to facilitate cross-border treasury operations and instant settlement of international transactions.

In short, stablecoins are gradually becoming the base layer of digital financial activity.

The Regulatory Turning Point: The GENIUS Act

The transition of stablecoins from niche crypto instruments to recognized financial infrastructure accelerated significantly in 2025 with the passage of the GENIUS Act (the Guiding and Establishing National Innovation for U.S. Stablecoins Act in the United States).

The legislation created the first comprehensive federal framework governing the issuance of payment stablecoins. Under the law, regulated entities, including banks and approved non-bank financial institutions, are allowed to issue stablecoins backed by high-quality liquid assets and subject to strict requirements including reserve transparency, regular audits, anti-money laundering and counter-terrorism financing (AML/CTF) under the Bank Secrecy Act.

One of the most important aspects of the GENIUS Act was regulatory clarity. For years, uncertainty around whether stablecoins should be treated as securities, commodities or banking products created hesitation among institutional players. The law addressed this ambiguity by establishing stablecoins as a distinct category of digital payment instruments.

Stablecoins and monetary power

Dollar-denominated stablecoins dominate the market by a wide margin compared with those linked to other currencies. That dominance has an important implication because stablecoins may extend the reach of the U.S. dollar beyond the traditional banking system.

Other jurisdictions are responding with their own regulatory strategies. For example, the European Union, through its Markets in Crypto-Assets (MiCA) framework, has introduced strict requirements for stablecoin issuers operating within the EU, including reserve requirements and limits designed to protect monetary sovereignty — but is also exploring the creation of a Central Bank Digital Currency (CBDC)

In Asia, financial hubs such as Hong Kong and Singapore are developing licensing regimes aimed at supervising stablecoin issuance and integrating the technology into regulated financial markets. China, meanwhile, has taken a different path by prioritizing the development of a central bank digital currency and exploring digital yuan settlement systems that could expand its monetary influence internationally.

The future of stablecoins will depend on trust in their reserves, in their governance and in the systems that oversee them. And ultimately, their long-term value will not be defined by how fast they scale, but by how safely and sustainably they become part of the global financial system.

– Claudia Marcela Hernández, digital assets specialist

Ask an Expert

Q. How important is stablecoin regulation to tokenized capital markets?

Stablecoin regulation is important because tokenized capital markets need a credible on-chain settlement asset. But regulation alone is not enough. For stablecoins to support institutional tokenized markets, there must also be legal certainty around settlement finality, redemption at par, issuer credit risk and how stablecoin-based settlement fits within payment system and securities laws.

In that sense, stablecoin regulation is a necessary foundation for tokenized capital markets, but not the whole framework. What institutions ultimately need is confidence that the settlement asset is reliable, that obligations are legally discharged when transactions settle on-chain and that the broader market structure can operate with clear, coordinated oversight.

Q. Are some jurisdictions starting to see U.S. stablecoin policy as a risk?

Yes, there is growing recognition that stablecoins carry geopolitical and monetary implications. Because the vast majority of fiat-backed stablecoins are denominated in U.S. dollars, their adoption could extend the reach of the dollar into blockchain-based financial systems. As U.S. policy frameworks formalize regulated dollar-backed stablecoins, this dynamic becomes more entrenched, positioning the U.S. to shape both the currency and standards of digital financial infrastructure.

In Canada, for example, proximity to the U.S., deep financial integration and broader geopolitical uncertainty have sharpened this focus. The concern is less about direct competition and more about dependency. Without a domestic framework, Canadian users and institutions could default to foreign-issued, USD-based stablecoins.

Canada’s approach has been to create a framework that enables innovation and competition while ensuring safety, consumer protection, and interoperability with global regimes. The objective is to allow both domestic and foreign stablecoins to operate under Canadian oversight, while preserving monetary relevance and ensuring Canadians have trusted, regulated options in a digital financial system.

Q. How can advisors assess whether a stablecoin is credible?

As stablecoins integrate into regulated systems, credibility comes down to a few core factors. First, reserve quality and transparency: assets should be fully backed by high-quality liquid instruments with regular disclosure or audits. Second, redemption: holders must have a clear, enforceable right to redeem at par. Third, regulatory oversight: credible issuers operate within defined legal and compliance frameworks. Governance also matters, including issuer structure, jurisdiction and custody of reserves. Ultimately, the key question is not just whether a stablecoin trades at $1, but whether its structure ensures it can consistently meet redemptions and retain user confidence during periods of stress.

– Morva Rohani, executive director, Canadian Web3 Council

Keep Reading

Cohere Unveils Open Source Speech Model for Edge Devices

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Cohere Unveils Open Source Speech Model for Edge Devices

Cohere is looking to capitalize on an enterprise trend of embedding automatic speech recognition into applications with a 2 billion parameter open source speech model. 

Cohere Transcribe, introduced on Thursday, is trained on 14 languages, including Chinese, Japanese, Polish, French and Greek. Cohere released the model under the Apache 2.0 license and said the model outperforms alternatives on the Hugging Face Open ASR Leaderboard, including ElevenLabs Scribe and Qwen3.  The model will soon be integrated into Cohere’s AI agent orchestration platform, North, according to the company. 

Cohere Transcribe is an example of the evolution of speech recognition models. Previously, speech models were designed using deep learning techniques such as long short-term memory, recurrent neural networks, and later, transformer-based architectures, which struggled to achieve low latency because of model size. 

Related:Grammarly Rebrands as Superhuman, Intros Productivity Agents

New models such as Transcribe, however, are small enough to be deployed on edge devices. As the technology, infrastructure and capabilities have matured, ASR use cases have expanded, especially in customer service, banking, sales and marketing, which has led to an increase in ASR models from vendors such as IBM and Alibaba.  

Even video conferencing company Zoom has joined in the competition. In 2025, the video conferencing platform provider introduced AI Companion 3.0, which included real-time voice translation capability. It later introduced a separate feature that allowed participants to hear exchanges in their own language. 

“Speech is always going to be fundamental to AI,” said Lian Jye Su, an analyst at Omdia, a division of Informa TechTarget. “That’s how the whole AI movement started — because humans started to be able to interact with Siri.” 

He pointed to a couple of Cohere Transcribe’s features as being noteworthy, including its small size and the company’s decision to make the model open source. 

“When it’s open source, you get developers to test it and then they will come back to you if they find the result to be good enough,” Su said. “Then you can obviously commercialize a much better model.” Meta has found success with this business model, influencing others such as Alibaba and Nvidia to follow suit. 

“Cohere is trying to copy that,” Su said. But the company is focused on an area where it excels — speech recognition and speech-to-text model, he added. 

While Cohere has traditionally focused on text generation, it could find an opportunity within speech recognition, especially as some enterprises look to upgrade traditional speech models that use transformers to the growing line of small ASR models that can be used on edge devices, Su continued. 

Related:Adobe introduces custom generative AI service

TradFi Is Buying Bitcoin Again, But War, Inflation May Unravel The Rally

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TradFi Is Buying Bitcoin Again, But War, Inflation May Unravel The Rally

Bitcoin’s (BTC) consolidation continued into Thursday as bulls struggled to keep hold of $70,000, and competing narratives on BTC’s market structure versus its increasing institutional adoption clashed with the bearish overarching factors negatively impacting US equity markets. 

Citing Bernstein’s $150,000 by the end of 2026 price estimate, Bloomberg analysts said that data shows institutional investors returning to the Bitcoin markets in droves, reinforcing the view that BTC had “reached a floor.”   

In early March, a week-long stretch of inflows to the spot Bitcoin ETFs nearly topped $1 billion, while Strategy purchased 22,237 BTC for $1.6 billion through its new perpetual preferred equity, Stretch (STRC). In addition to the success of STRC, Strategy also unveiled plans to raise capital to buy $44.1 billion in additional Bitcoin. 

Further proof of institutions stepping back into the crypto market came from $10 trillion asset manager Morgan Stanley filing documents to launch its own spot Bitcoin ETF. Morgan Stanley recommends investors maintain a 2% to 4% allocation to cryptocurrencies, and on March 26, a proposed Labor Department rule, which would permit brokerages that manage and offer services in the $10 trillion 401(k) retirement plan market to invest in Bitcoin, progressed through the White House’s regulatory review process.  

On Thursday, Coinbase also launched token-backed down payments for Fannie Mae loans, essentially permitting Bitcoin holders to use BTC and USDC to fund home mortgages. The offering allows investors holding Bitcoin to unlock the trapped liquidity of BTC without selling or generating a taxable event. 

Related: US Bitcoin ETFs post 6-day inflow streak as crypto rallies

How important is Bitcoin’s $70,000 support?

While institutional investors’ renewed interest in buying Bitcoin has clearly returned, BTC’s price volatility and its inability to break out of a near 6-month price downtrend remain clear hurdles. The ongoing US-Israel and Iran war, along with President Trump’s threat to send ground troops to Iran continues to negatively impact stock markets and cryptocurrencies. 

On Thursday, in a Truth Social post, President Trump said Iran’s negotiators had “better get serious soon, before it is too late, because once that happens there is NO TURNING BACK, and it won’t be pretty!” The clear buildup of US military assets deployed to the Middle East has markets worried that a ground operation could begin as early as this weekend. 

Truth Social post from President Donald Trump. Source: Truth Social

Following a series of comments from the President, US markets sold off, with the DOW shedding 400 points, while the S&P 500 and Nasdaq saw 1.49% and 2.07% respective losses. On the other hand, WTI crude oil and Brent Crude rallied, with each seeing gains of over 4%.

With growing uncertainty on which direction the US-Israel and Iran war takes and the longer-term impact of record-high oil prices on US inflation and the wider economy, investors are electing to decrease their exposure to volatility. 

BTC/USD 1-day chart. Source: TradingView

This explains Bitcoin’s frequent re-visits to prices below $70,000 along with the short-lived nature of rallies in the $71,000 to $76,000 range. That said, one positive is that institutional and retail investors appear to view $70,000 and below as an optimal buying zone, thus reinforcing the level as support.