Author:@HadickM, Partner at Dragonfly
Compiled by: WuBlockchain
TL;DR:
- The impact of OUSD on Circle is not purely negative. The market's reaction of a 15% to 20% drop in CRCL's stock price is somewhat reasonable, but this does not equate to a "death sentence" for Circle. Circle still possesses deep liquidity, existing integrations, and first-mover advantages. Particularly if the Coinbase partnership is restructured or terminated, net income could nearly double in the short term, granting Circle greater competitive freedom.
- 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 may replace USDC as the preferred option for many Stripe partners and clients. However, for products already built on Circle's APIs, migration requires strong incentives and won't be driven solely by revenue share.
- A core barrier to enterprise stablecoin adoption remains unresolved. If OUSD is issued by a Bridge-related entity, it essentially remains a credit exposure to the issuer, and neither Circle nor Bridge are currently investment-grade credit entities. Unless Stripe or other alliance members provide parent-company guarantees, large banks and asset managers entering the market could still compete for the largest and most profitable enterprise use cases.
- Circle needs to accelerate its payment and fintech product development and consider more proactive defensive M&A. OUSD won't be the last new competitor, so Circle needs to respond more actively in product, 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 and 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 may face greater pressure. OUSD could undermine the main selling point of USDG, and as regulatory frameworks mature, Paxos's regulatory advantage could also be diminished. Thus, this project poses a challenge closer to an existential threat 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 adoption prospects for stablecoins and the likelihood of this new project's ultimate success.
First, let's talk about CRCL. I'm not sure if it's just a coincidence: the OUSD announcement was made just as Circle CEO Jeremy Allaire was speaking at Goldman's largest and most talked-about digital assets conference ever. Jeremy, Goldman, and many in the audience clearly knew the news would be released pre-market and that it would negatively impact the stock price. That alone may not signify much, but it's certainly interesting, as people were already discussing it when he gave the interview, and CRCL opened down about 6% during his remarks.
From a business impact perspective, the market has long understood that the revenue share stablecoin issuers give to distribution partners would continue to increase, and redemption fees in payment scenarios must also be phased out. Circle has already been responding to these trends: on one hand, partnering with payment companies on minting and redemption, and on the other, engaging in revenue-sharing arrangements with distribution partners.
The potential restructuring or termination of the Coinbase partnership has also been hinted at for some time. If this happens, Circle's net income would immediately nearly double, which is very positive for the company. Of course, within a reasonable timeframe, much of these gains would likely flow to new distribution partners due to competition. However, Circle would also be freed from the constraints of the Coinbase agreement, allowing it to compete more aggressively in ways it couldn't before. Therefore, even if the proportion of net income Circle can retain continues to face pressure, the restructuring or cancellation of the Coinbase agreement itself might not be bad; it could actually be a net positive.
Additionally, Circle's existing deep liquidity is difficult to replicate and hard to quickly integrate into other systems. This should not be easily overlooked or dismissed as irrelevant.
However, it's clear that for many Stripe partners, customers, and ecosystem participants, as long as OUSD can establish sufficiently deep liquidity, it will likely replace the previously favored USDC as the default stablecoin used. It's undeniable that Stripe is a stronger engineering and product organization and is more likely to develop the supporting products and tools needed for stablecoin usability and distribution.
On the other hand, Circle still has clear first-mover advantages and existing integrations, which should also not be ignored. Switching costs might not be high, but if a product is already built on Circle's APIs, significant incentives are needed to migrate. This is harder than many imagine and won't simply depend on revenue share.
Of course, the truly bigger opportunity lies in the underserved greenfield market. For these new scenarios, OUSD's appeal might be stronger. But for non-payment scenarios or payment companies that compete with or have different incentive structures from Stripe, it's currently unclear whether OUSD will definitely be superior to existing stablecoins or future new options.
Finally, if OUSD is ultimately issued by a Bridge-related entity, it does not solve a core issue USDC faces when trying to deeply penetrate the enterprise market: these tokens essentially remain credit exposures to the issuing entity, 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, though it is making progress on this front.
The situation would be different if Stripe's parent company or other alliance members provided parent-company guarantees. But both Circle and Bridge still face the risk of large banks and asset management companies entering the market and capturing the largest and most lucrative use cases. Meanwhile, there remains a huge amount of work in global licensing. Therefore, I don't believe the OUSD announcement alters 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 the drop indeed landed in the middle of that range. I think the market reaction was reasonable, but I don't see it as the "death sentence" for Circle that many commentators described.
Circle does need to accelerate its payment and fintech product development and also consider acquisitions more actively. As the stock price has fallen, this window may have partially closed, but there are still some interesting options in the market for it to explore, and some of these deals could still be accretive. New competitors won't stop at OUSD, so Circle needs to make some defensive moves.
For Tether, OUSD isn't targeting its core market. Tether will continue focusing on distribution channels not prioritized by Stripe and Circle, so it shouldn't be significantly affected. However, as Paolo Ardoino said on stage at Token 2049 a few years ago, Tether's market share may continue to decline over time, but this would happen in a market whose overall size is growing substantially.
In comparison, Paxos faces greater pressure. OUSD could undermine the main current advantage of USDG, and as regulatory frameworks gradually mature, Paxos might also lose its relative regulatory advantage. Compared to Circle and Tether, I believe OUSD's impact on Paxos is closer to an existential challenge. However, this also explains why Paxos refocused on brokerage-as-a-service business over the past year.
