Circle, the company behind the USD Coin (USDC) stablecoin, recently went public on the New York Stock Exchange. Its stock price surged dramatically in the first two trading days, pushing the company’s market valuation above $20 billion. This event signifies more than just a successful market debut—it marks a critical moment in the intensifying global competition among stablecoin issuers.
The race involves Wall Street institutions, Silicon Valley tech firms, and native cryptocurrency companies. A proposed U.S. congressional bill known as the GENIUS Act could play a decisive role in shaping the future of this rapidly evolving sector.
This article explores Circle’s business strategy, its close relationship with crypto exchange Coinbase, the unique profit model of its main rival Tether (USDT), and the expanding role of stablecoins in the global financial system.
Regulatory Clarity: Driving Optimism Around Circle
The excitement around Circle’s initial public offering stems largely from market expectations of clearer regulation. The anticipated GENIUS Act is expected to establish a regulatory framework for dollar-backed stablecoins, providing much-needed legal certainty.
For years, stablecoins have operated in a regulatory gray area. A well-defined legal structure would encourage participation from institutional investors and traditional financial entities, significantly accelerating adoption. Industry experts project that the total market capitalization of stablecoins could reach $2 trillion by 2028. Some optimistic forecasts, including those from MicroStrategy’s Michael Saylor, even suggest a $10 trillion market in the future.
As a leading compliant dollar stablecoin, Circle is well-positioned to benefit from this growth. The GENIUS Act also includes extraterritorial provisions that could require all stablecoin issuers serving U.S. users to comply with U.S. regulations. This could directly impact Tether (USDT), which currently dominates the stablecoin market but is considered less transparent. Regulatory changes might level the competitive landscape, giving compliant operators like Circle a stronger foothold.
The Coinbase-Circle Partnership: A Strategic Alliance
To understand Circle’s market position, it's essential to examine its relationship with Coinbase. USDC was launched in 2018 through a joint venture named Center, founded by both companies. Coinbase provided the credibility and user base necessary for USDC to gain traction.
In 2023, as part of its preparation to go public, Circle acquired Coinbase’s stake in Center. However, the new commercial agreement between the two companies has been called "lopsided" by some analysts.
Although Coinbase accounts for only about 22% of the total USDC in circulation, it receives roughly 56% of the revenue Circle earns from USDC. In the previous fiscal year, Circle reported $1.6 billion in total revenue—nearly $900 million of which was paid to Coinbase as a "promotional fee."
This arrangement allows Coinbase to offer high-yield interest programs to its users who hold USDC, sometimes reaching up to 4% or even 12% APY. This strategy also helps circumvent potential regulatory restrictions on interest payments by issuers themselves.
Notably, the agreement includes an auto-renewal clause based on performance metrics, limiting Circle’s ability to terminate the partnership. While this deal constrains Circle’s profitability, it underscores the critical importance of distribution channels in the stablecoin ecosystem.
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Tether’s Dominance: High Risk and High Returns
In contrast to Circle’s compliance-first approach, Tether’s business model is characterized by aggressive investment tactics. The company behind USDT reported a staggering $14 billion in net profit last year.
Tether’s reserve breakdown shows that only about 82% of its backing consists of cash and short-term U.S. Treasury bonds—assets that would be considered fully compliant under the proposed GENIUS Act. The remaining 18% is allocated to higher-yield investments such as Bitcoin, gold, secured loans, and private equity positions.
This strategy allows Tether to generate significant returns, though it introduces substantial risk. In traditional finance, using customer reserves for speculative investments would be prohibited.
Tether has also developed relationships with influential political figures. A former U.S. Secretary of Commerce and his family are reportedly involved in brokerage and investment ventures connected to Tether. These ties may help the company navigate an evolving regulatory landscape.
The Future of Stablecoins: Revolutionizing Global Payments
The long-term potential of stablecoins extends far beyond trading and speculation. The real opportunity lies in transforming the global payments industry—a multi-trillion dollar market.
Industry observers often describe a two-phase development model:
First Phase: Business-Oriented Payment Solutions
Stablecoins can streamline cross-border payments, corporate transactions, and payroll processing by serving as a settlement layer behind traditional finance interfaces. Users may not even need to know they are interacting with blockchain technology.
For example, a migrant worker in Hong Kong could send money back to the Philippines through a convenience store app. In the background, the transaction could be settled instantly using stablecoins, reducing cost and increasing efficiency.
Second Phase: Tokenization of Real-World Assets
As regulations around security token offerings (STOs) mature, real-world assets such as real estate, art, and equities could be tokenized and traded on blockchain networks. Stablecoins would serve as the primary medium of exchange and unit of account in these markets.
The competition will involve not only Circle and Tether but also new entrants such as PayPal’s PYUSD, Stripe-supported USDB, bank consortium-led stablecoins, and others. The ultimate goal is not to make everyone a crypto expert, but to make stablecoins an invisible infrastructure that powers efficient, low-cost financial services worldwide.
Frequently Asked Questions
What is a stablecoin?
A stablecoin is a type of cryptocurrency designed to maintain a stable value by being backed by a reserve asset, such as the U.S. dollar. Examples include USDC, USDT, and others. They are widely used for trading, remittances, and as a safe haven in volatile markets.
How does Circle make money?
Circle earns revenue primarily through interest income from the reserves backing USDC. These reserves are held in short-term U.S. Treasury bonds and other interest-bearing assets. A significant portion of this income is shared with distribution partners like Coinbase.
What is the GENIUS Act?
The GENIUS Act is proposed U.S. legislation aimed at creating a regulatory framework for stablecoins. It would establish standards for reserve backing, disclosure, and oversight, potentially bringing clarity and legitimacy to the industry.
Why is Tether so profitable?
Tether generates high profits by investing a portion of its reserve assets in higher-risk, higher-return investments such as Bitcoin, gold, and private equity. This strategy is more aggressive than that of fully compliant stablecoin issuers.
Can stablecoins be used for everyday payments?
Yes, stablecoins are increasingly being integrated into payment systems for remittances, corporate transactions, and consumer payments. Their low transaction costs and fast settlement times make them attractive for global use cases.
What are the risks of holding stablecoins?
The main risk is whether the issuer holds sufficient reserves to redeem all tokens at full value. Regulatory changes, market instability, or poor reserve management could affect a stablecoin’s ability to maintain its peg.