Key Points
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Over 140 companies have partnered on a new stablecoin with the potential to take a big chunk out of Circle’s future revenue.
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The new Open USD stablecoin has a much more favorable revenue-sharing model than Circle’s USDC, making it attractive to partners.
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While Open USD is obviously a threat, it is likely not the type of existential threat that some investors think it might be.
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At the end of June, a consortium of 140 different fintech companies, banks, tech companies, and crypto-native companies announced their support for a brand-new stablecoin known as Open USD.
The launch of Open USD could have an immediate effect on Circle Internet Group (NYSE: CRCL), issuer of the USDC (CRYPTO: USDC) stablecoin. While USDC currently ranks as the second-largest stablecoin in the world, with a $73 billion market cap, it has never looked more vulnerable. So what happens next for Circle and USDC?
Short-term effect
Many investors think the launch of the new Open USD stablecoin could be the death knell for Circle’s highly lucrative stablecoin business. Stablecoin issuers hold U.S. treasury assets to ensure a 1:1 peg to the U.S. dollar, and earn interest on those holdings. Thus, the bigger a stablecoin becomes, the more money a stablecoin issuer can earn from its dollar reserves.
So it’s easy to see why shares of Circle fell 16% immediately on the news about Open USD. Wall Street investors are pricing in a mass-scale migration of users from the USDC stablecoin to the new Open USD stablecoin. The new consortium includes a “who’s-who” of the fintech world, and this is obviously a huge source of concern if you’re a Circle investor.
The big name on the list was Coinbase Global (NASDAQ: COIN). That’s because Coinbase was one of the early supporters of USDC, and maintains a highly lucrative revenue-sharing partnership with Circle. In 2024, Coinbase earned nearly $1 billion from this partnership. So if Coinbase is willing to abandon USDC, things must be very dire indeed.
Long-term effect
However, as Circle CEO Jeremy Allaire pointed out, it’s almost impossible for a new stablecoin to replicate the liquidity advantages and network effects of an established stablecoin such as USDC. He refers to this as an “operational moat” around the business that has been built up over a decade.
As Open USD’s founding partners could find out, it’s easy to make a splashy announcement about a new crypto project, but it’s a lot harder to get it off the ground. Getting so many companies (140+) to agree on anything might be close to impossible, and the build-out of the new stablecoin could take much longer than anyone expects.
Where does Circle go from here?
The decision to support a new stablecoin seems to be based on nothing more than a growing desire by companies to collect some of the massive amounts of money that the $300 billion stablecoin industry makes each year. That’s because Open USD has pledged to share a much greater amount of the revenue with its biggest partners than USDC does.
If Circle is willing and able to adapt its business model, it might expose Open USD as nothing more than a bluff. That being said, it might be time to dial back the expectations for Circle Internet Group. The more lucrative stablecoins become, the more likely it is that a growing number of companies will demand a say over how the revenue is distributed.
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Dominic Basulto has positions in Circle Internet Group and USDC. The Motley Fool recommends Coinbase Global. The Motley Fool has a disclosure policy.
