Author:@HadickM, Partner at Dragonfly
Compiled by: WuBlockchain
TL;DR:
- The impact of OUSD on Circle is not purely negative. While the market's reaction to CRCL's stock price falling 15% to 20% has some rationale, it does not mean Circle faces a "death sentence." Circle still possesses deep liquidity, existing integrations, and a first-mover advantage. Particularly, if the Coinbase partnership is restructured or terminated, near-term net income could nearly double in the short term, providing Circle with greater competitive space.
- OUSD could become the default stablecoin choice within the Stripe ecosystem. Stripe has clear advantages in engineering, product development, and building payment tools. If OUSD can establish sufficiently deep liquidity, it might replace USDC as the preferred choice for many Stripe partners and customers. However, migration for products already built on Circle APIs requires sufficient incentive and is not solely determined by revenue sharing.
- The core barrier to enterprise stablecoin adoption remains unresolved. If OUSD is issued by a Bridge-related entity, it essentially still represents credit exposure to the issuer, and neither Circle nor Bridge are currently investment-grade credit entities. Unless Stripe or other consortium members provide a parent company guarantee, large banks and asset management firms entering the market later may still compete for the largest and most profitable enterprise-level use cases.
- Circle needs to accelerate development of payment and fintech products and consider more proactive defensive M&A. OUSD won't be the last new competitor, so Circle must respond more aggressively in product development, distribution, and ecosystem partnerships.
- For Tether, OUSD does not directly impact its core market. Tether will continue focusing on distribution channels not prioritized by Stripe or Circle. Although its market share may decline over time, the overall stablecoin market size is still expected to grow.
- Compared to Circle and Tether, Paxos faces greater pressure. OUSD undermines the main selling points of USDG, and as regulatory frameworks improve, Paxos's regulatory advantages may also erode. Therefore, this project poses a challenge closer to existential for Paxos.
I believe the correct interpretation of OUSD is actually quite nuanced. It involves not only what OUSD means for stablecoin issuers like Circle, Tether, and Paxos respectively but also relates to the broader prospects for stablecoin adoption and the ultimate likelihood of this new project's success.
Let's start with CRCL. I'm not sure if it's just a coincidence: The OUSD announcement came out just as Circle CEO Jeremy Allaire was speaking at Goldman Sachs's largest-ever and hottest digital asset conference. Jeremy, Goldman, and many in the audience clearly knew this news would be released before the US market opened and that it would negatively impact the stock price. That in itself may not indicate anything, but it's certainly interesting because, during his interview, people at the venue were already discussing it, and CRCL opened down about 6% while he was speaking.
From a business impact perspective, the market has long understood that the revenue share stablecoin issuers give to distribution partners will continue to increase, and redemption fees in payment scenarios must also be gradually eliminated. Circle has already been responding to these trends: on one hand, forging partnerships with payment companies for minting and redemptions, and on the other, making revenue-sharing arrangements with distribution partners.
The potential restructuring or termination of the Coinbase partnership has also been hinted at for a while. If this happens, Circle's net income would nearly double immediately, which is very positive for the company. Of course, over a reasonable timeframe, these gains will likely gradually flow to new distribution partners amid competition. But Circle would also be freed from the constraints of the Coinbase agreement, enabling it to compete more aggressively in ways it couldn't before. Therefore, even if the portion of net income Circle can retain continues to face pressure in the future, the restructuring or cancellation of the Coinbase agreement itself is not necessarily bad and could even be a net positive.
Furthermore, Circle's existing deep liquidity is difficult to replicate or quickly integrate into other systems. This point should not be easily overlooked or dismissed as irrelevant.
However, it is clear that for many Stripe partners, customers, and ecosystem participants, as long as OUSD can establish sufficiently deep liquidity, it is likely to replace the previously favored USDC as the default stablecoin. It is indisputable that Stripe is a stronger engineering and product organization and more likely to launch the supporting products and tools needed for stablecoin usability and distribution.
On the other hand, Circle still holds a clear first-mover advantage and existing integrations, which should also not be ignored. Switching costs might not be very high, but if a product is already built on Circle APIs, significant incentive is required to migrate. This is harder than many imagine and will not simply depend on revenue sharing.
Of course, the truly bigger opportunity lies in the underserved greenfield market. For these new scenarios, OUSD might be more attractive. But for non-payment scenarios, or for payment companies that compete with Stripe and have different incentive structures, it's currently unclear whether OUSD would necessarily be superior to existing stablecoins or other new options that may emerge.
Finally, if OUSD is ultimately issued by a Bridge-related entity, it does not solve a core problem USDC faces in deeply penetrating the enterprise market: these tokens still essentially represent credit exposure to the issuer, and neither Circle nor Bridge are currently investment-grade credit entities. Bridge is also not yet ready to meet the compliance requirements of the GENIUS Act, although it is working towards them.
The situation would be different if the Stripe parent company or other consortium members provided a parent company guarantee. But both Circle and Bridge still face the risk of large banks and asset management firms entering the market and capturing the largest and most profitable use cases. Meanwhile, significant work remains in obtaining global licenses. Therefore, I don't believe the OUSD announcement has changed this existing competitive risk.
Overall, the day before the OUSD announcement, I told someone I expected CRCL to fall 15% to 20% that day, and it indeed fell in the middle of that range. I believe the market reaction is reasonable, but I don't think it is the "death sentence" for Circle as many commentators have suggested.
Circle does need to accelerate development of payment and fintech products and also needs to consider M&A more proactively. As the stock price falls, this window may have partially passed, but there are still interesting options in the market to explore, and some of these transactions could still be accretive. New competitors won't stop at OUSD, so Circle needs to make some defensive moves.
For Tether, OUSD does not target its core market. Tether will continue focusing on distribution channels that neither Stripe nor Circle prioritize, so it should not be significantly impacted. However, as Paolo Ardoino said on the Token 2049 stage a few years ago, Tether's market share may continue to decline over time, but this will happen in a market whose overall size grows substantially.
In contrast, Paxos faces greater pressure. OUSD undermines the current main selling points of USDG, and as regulatory frameworks gradually improve, Paxos may also lose its relative regulatory advantage. Compared to Circle and Tether, I believe the impact of OUSD on Paxos is closer to an existential challenge. However, this also explains why Paxos has refocused its efforts on brokerage-as-a-service business over the past year.
