The stablecoin battle heats up: Circle's rebound faces regulatory resistance, while Tether aims to restore its reputation through audits

Today’s stablecoins are no longer just a medium for crypto trading. With a scale exceeding $300 billion, this new financial building is just beginning to be constructed, with native crypto institutions steadily expanding and traditional financial forces testing the waters to enter.

From the latest developments of the two major native stablecoin giants, Tether and Circle, it’s clear that the rules of the game are changing. Competition is no longer just about market capitalization. On one hand, rapid policy developments bring compliance benefits but also force adjustments in business models and expansion strategies. On the other hand, the influx of more professional newcomers and massive capital opens up market potential, but trust remains a key challenge for all players involved.

Largest single-day decline, Circle’s rebound faces policy resistance

Circle, the leading stablecoin company, benefits from compliance but is also constrained by policy.

On Tuesday, Circle’s stock price plummeted about 20%, marking its largest single-day drop in history. The market generally attributes this volatility to uncertainties surrounding the latest draft of the US Clarity Act.

According to Coindesk, a source familiar with the draft revealed that the new provisions would prohibit earning profits solely from holding stablecoins, restrict practices that equate such plans with bank deposits, and impose further restrictions on other potentially permissible activities. The specific criteria for activity-based stablecoin rewards remain unclear.

This compromise stems from lobbying battles between the crypto industry and the banking sector. Banks insist that stablecoin rewards should not resemble interest-bearing bank deposits, arguing that such competing products could harm banking and suppress lending. The final compromise allows reward programs based on user activity with stablecoins but prohibits rewards based on account balances. Read more: US Stablecoin “Civil War”: Banks Block Earnings, Crypto Industry Strikes Back.

Market analysis suggests this is undoubtedly negative for Circle, as its revenue growth heavily depends on increasing the average circulation of USDC. Banning interest-earning mechanisms could dampen stablecoin demand.

Previously, Circle’s stock price had been rising due to crypto compliance, with its market cap surpassing $70 billion. But as policy directions become uncertain, concerns about its reliance on USDC have resurfaced, leading to significant stock fluctuations.

The turning point came with Circle’s 2025 financial report. Not only did it deliver better-than-expected results, but it also painted a new growth story, directly driving a strong rebound in stock price to a six-month high.

Circle is working to shed its stablecoin label and transform into a global digital dollar infrastructure platform, focusing on three main areas: Arc blockchain, programmable currencies and tokenization products, and institutional solutions, to enhance network effects and ecosystem barriers.

Circle’s performance in new payment scenarios also supports the short-term stock rebound. In AI payments, over the past nine months, about 400,000 AI agents have completed 140 million transactions, with 98.6% settled in USDC, averaging $0.31 per transaction. In prediction markets, the trading volume is projected to surpass $60 billion in 2025, with USDC being the primary settlement tool for leading platforms like Polymarket and Kalshi.

The market is gradually recognizing Circle’s new story, but growth remains constrained by the pace of business transformation and ongoing policy changes.

Tether’s first-ever comprehensive audit signals industry transparency and compliance

As the compliance window opens wider, the stablecoin market is becoming more lively. However, the inflow of funds into this pool is not just a race of technological speed but also a battle for trust.

Compared to native crypto institutions, traditional financial players have an inherent advantage in compliance, allowing them to quickly penetrate markets once dominated by crypto. Increasing regulatory pressure and fierce competition make compliance an unavoidable dimension in the game.

Recently, the actions of Tether, the world’s largest stablecoin issuer, have sent clear signals of industry transparency and compliance.

In addition to launching a compliant stablecoin USAT in the US, Tether announced it has officially hired one of the Big Four accounting firms to initiate its first full independent financial audit. This audit is considered the largest of its kind in financial markets, covering complex assets such as digital assets, traditional reserves, and tokenized liabilities.

For years, Tether has faced doubts about reserve transparency. Although quarterly attestation reports have been issued to address concerns, these only provide snapshots at specific points in time and cannot fully dispel external worries.

To build trust, Tether has continuously strengthened its reserve assets, provided transparency updates, maintained close cooperation with global law enforcement, and established robust compliance and risk management systems. Last year, Tether appointed Simon McWilliams as CFO to lead the full independent audit and liaise with the Big Four firms. Under his leadership, Tether has the internal capacity and financial structure necessary for a comprehensive audit.

The Big Four’s full audit is one of the most rigorous and recognized financial assessments worldwide. Tether states that this audit aims to go beyond the industry-standard proof, demonstrating that USDT is fully backed, highly liquid, and managed with world-class risk controls.

Currently, USDT’s market cap exceeds $184 billion, with over 550 million global users, though core users are mainly in emerging markets. If the audit is successfully published, it will significantly boost market confidence.

It’s noteworthy that PwC, Deloitte, KPMG, and Ernst & Young, the Big Four firms, had in 2022 expressed reluctance to perform reserve attestations for private crypto companies. The shift in attitude now is driven by Tether’s improved reputation, better regulatory environment, and the industry’s maturing landscape.

However, Tether’s full financial audit may also be motivated by fundraising needs. According to Bloomberg, sources say Tether has paused a $20 billion fundraising plan, awaiting the results of its first full audit, and may restart fundraising afterward. During this process, potential investors and banks have urged Tether to increase transparency, though some are still willing to support the company before the audit results are out.

Regardless of the motivation, if Tether successfully passes the audit, it will not only deepen trust in USDT but also accelerate the industry’s move toward full transparency.