Author: Paolo @ Victory Securities Partner, Andy @ VDX Senior Researcher
TL;DR
Market Space: The stablecoin market relies on two core rigid demand scenarios, trading and payments, and may see dozens of times growth in the future. Stablecoins are the first in various crypto sectors to be included in compliance and regulation; compliance, institutionalization, and mainstreaming are long-term trends. In the future, stablecoin users may even surpass BTC holders, becoming the biggest Killer App in crypto.
Circle's advantages and barriers: 1) Compliance advantage and legitimacy: Benefiting from compliance dividends, it is expected to serve as the 'institutional stablecoin' carrying the on-chain dollar expansion strategy; 2) Open infrastructure and ecological network: USDC supports multi-chain capabilities, cross-chain protocols, and is deeply integrated with various exchanges and DeFi, cooperating with payment institutions to become the hub for cross-border payments and on-chain settlements; 3) Institutional-level trust and mainstream fund access: Asset security and transparency, regular audit reports, making it the only product currently widely accepted as an 'institutional-level stablecoin'.
Circle's risks and challenges: 1) Income structure is highly dependent on US Treasury yields, sensitive to interest rates and cyclical, with income growth under pressure during the dollar rate cut cycle; 2) High channel dependence, with about 60% of current income shared with channels like Coinbase and Binance. The future ability to expand other revenue sources (such as transaction commissions) and improve channel bargaining power is key to its growth.
Competitive comparison: The essence of the competition between USDT and USDC is the competition between black and white dollars in different markets and scenarios. Tether is a 'money printer', while Circle is a 'narrow bank'. USDT relies on trading platform liquidity, OTC off-exchange conversions, and gray payments, while USDC focuses on compliant cross-border payments, corporate clearing, DeFi, and serving as the underlying currency for RWA assets. The two form a parallel symbiotic relationship in different scenarios.
Investment Analysis: As the first compliant stablecoin leader to be listed after the introduction of the stablecoin legislation, Circle's IPO benefits from high market sentiment. However, compared to its projected 1.7 billion USD revenue and 160 million USD net profit in 2024, the current market's almost 50 times PE valuation has priced in a relatively optimistic outlook, necessitating caution against profit-taking under high valuations. In the long term, the potential growth space in the stablecoin sector is enormous. With its compliance advantage, ecological network construction, and access to mainstream institutional funds, Circle is expected to further consolidate its leading position, and attention should be paid to its long-term development.
Introduction | From gray arbitrage to institutional takeover: Stablecoins are at a watershed moment.
Circle's listing marks the first time stablecoins have entered the global capital market's main stage. From being seen as "casino chips" with USDT to today’s USDC representing "compliant digital dollars" on the US stock market, this is not only a turning point for business but also a preliminary battle for restructuring the financial order. Compliant stablecoins are no longer merely circulation tools on the blockchain but strategic agents for the dollar's "debanking and de-geographical" expansion globally.
By 2025, stablecoin regulations in countries like the US and Hong Kong will gradually be implemented, leading to the official divergence between 'gray market dollars' represented by Tether and 'white list dollars' represented by Circle. Circle's IPO is not only a capitalization event for the crypto industry but also a structural upgrade of dollar globalization, marking the starting point for compliant dollars to achieve financial sovereignty on-chain.
Market Size | Stablecoins as a new anchor for global liquidity.
According to projections from institutions like Citigroup, the total market value of global stablecoins is expected to be between 1.6 trillion and 3.7 trillion USD by 2030, with the incremental growth mainly concentrated in three areas: cross-border payments, on-chain finance, and RWA.
Cross-border payments will become the core driving scenario. The average clearing cost of stablecoins is over 90% lower than traditional SWIFT paths, and T+0 settlement efficiency is particularly attractive in high-friction regions like the Middle East, Latin America, and Southeast Asia.
RWA connects on-chain and real-world assets. Stablecoins serve as the on-chain funding end, while RWA serves as the asset end; the symbiotic relationship between the two forms a growth flywheel. Circle's partnership with BlackRock to launch the USDC Treasury Fund is a typical pilot: stablecoins serve as clearing and participation tokens while also providing yield access and asset packaging.
Native virtual asset scenarios serve as a continuous base liquidity carrier. On-chain lending, derivatives, and structured yield protocols continuously absorb stablecoins as collateral, forming an underlying 'dollar liquidity pool'.
Stablecoins will no longer just be a transition channel for funds in the cryptocurrency space but will gradually become the 'dollar liquidity core' in the Web3 native operating system.
Competitive Landscape | Circle is undergoing a dual race with on-chain native scenarios and new compliant players.
Circle currently faces a dual race: on one hand, competing with on-chain native players like Tether in liquidity coverage and usage flexibility; on the other hand, competing with traditional financial giants like PayPal and JPMorgan in the output rights of stablecoin systems.
Circle's core competitive advantages:
Compliance advantage and legitimacy: Benefiting from compliance dividends, it is expected to serve as the 'institutional stablecoin' carrying the on-chain dollar expansion strategy.
Open infrastructure and ecological networks: USDC supports multi-chain capabilities, cross-chain protocols, and is deeply integrated with various exchanges and DeFi, partnering with payment institutions to become the hub for cross-border payments and on-chain settlements.
Institutional trust and mainstream fund access: Asset security and transparency, regular audit reports, making it the only product currently widely accepted as an 'institutional-level stablecoin'.
Policy implementation raises market entry thresholds and will accelerate the exit of non-compliant players.
In on-chain native use cases, as global regulatory policies accelerate implementation, the operational thresholds and costs for non-compliant issuers continue to rise. Circle's institutional compliance and auditability gradually transform into competitive advantages, enhancing its ecological nesting capabilities in scenarios such as DeFi, wallets, and payment protocols.
Although Circle may struggle to surpass USDT in terms of liquidity scale in the gray market, it is building irreplaceability from an institutional level and capturing USDT's compliant market share.
If the US and Europe accelerate regulation, USDT's market share in compliant scenarios is expected to drop from 25% to 10%, releasing about 21.6 billion USD market space.
Circle is expected to capture about 60% of this, corresponding to an incremental 13 billion USD.
The likelihood of USDT 'compliance' is extremely low; it may maintain its role as a gray channel, reaching an 'informal agreement' with US authorities to continue as a black tentacle of dollar globalization.
Once market access rules are clarified, banks and payment institutions will accelerate their entry, challenging USDC's compliance lead window.
Circle's compliance license barrier advantage is relatively limited, with multiple players accelerating their pursuit (such as PayPal).
The leading advantage of compliant issuance to application transition still exists, while JPM, Fidelity, and others are still within their closed systems for self-minted stablecoins.
The capital market's flow dividend will also be diluted with the wave of compliant crypto companies going public, and there is a risk of dilution in early ecological dominance.
Can Circle maintain its compliant payment scenarios?
The three original stablecoin giants each have their core advantages: USDT deeply penetrates gray and black market scenarios, with a bottom-up multi-level acceptance distribution network; USDC has compliant banking and institutional channels; DAI is resistant to censorship and cannot be frozen.
Among them, the compliance channel barrier of USDC is most susceptible to impact. Stablecoins issued by banks leverage traditional bank account systems and compliant channels to deploy large-scale scenarios. In specific scenarios, USDC can be seen as a derivative of USDT, where users actually use USDT in cross-border trade, but the terminal on/off ramp will switch from USDT to USDC using its compliant fiat currency channel.
It remains to be seen whether Circle's current cooperative channels can establish strong binding relationships or if it will continue to burn money for subsidies.
Circle vs Traditional Financial Institutions
In the short term, Circle has an overwhelming advantage in the 'open global on-chain clearing network' due to its compliance advantage, native on-chain ecosystem, and open protocol capabilities.
In the medium to long term, if traditional financial players enter the market, their flow, user accounts, and inflow/outflow systems will pose the biggest threat, especially in retail payments and closed-system settlements (such as proprietary wallets), potentially forming local substitutes.
The key to victory lies in who can more quickly build compliant, composable, and accessible on-chain payment infrastructure and gain institutional trust. Circle is ahead but must not be complacent.
The core lies in network effects, widely accessed by both sides.
Bank-issued stablecoins may achieve liquidity recognition in B2B trade scenarios, but lack 'neutrality' in the on-chain ecosystem, making broad invocation difficult; accessing the neutral layer USDC is more feasible.
Circle's long-term advantages:
1) Compliance + Open Ecosystem: Circle has become the leader in the compliant stablecoin sector through early layout and has broken through traditional financial giants' technical barriers by leveraging multi-chain and cross-chain payment platforms.
2) DeFi and RWA Integration: Circle's leading position in DeFi and RWA (asset tokenization) allows it to expand into high-growth areas not covered by traditional finance.
Traditional financial competitive advantages:
1) Traditional payment networks and merchant base: Traditional financial giants can quickly promote stablecoin payments, especially in retail and B2B payment fields, leveraging their vast payment infrastructure, merchant networks, and customer trust.
2) Fiat currency inflows and bank integration: Traditional financial stablecoins have significant competitive advantages in fiat currency exchange and integration with banking systems.
Incremental scenarios for RWA; USDC must complete the upgrade from 'licensed stablecoin' to 'on-chain system coin'.
BCG predicts that by 2030, the global RWA market will exceed 16 trillion USD. Stablecoins need 'asset anchoring' to establish trust and expand scenarios, while RWA requires 'on-chain funds' to obtain liquidity, together forming a value loop connecting the real world with the on-chain world.
Simply having compliance and transparent reserves is no longer a competitive moat. For Circle to win the dominance in on-chain payments and transaction settlements, it must bind with the new asset class of incremental RWA. Otherwise, its application layer will continue to be eroded, and its valuation ceiling will also be suppressed.
Business Model | Interest rate sensitivity and channel dependence; Circle needs to move towards a diversified growth curve.
Currently, Circle's profit structure is singular, and its interest rate sensitivity is high.
In 2024, revenue is expected to be approximately 1.7 billion USD, with a net profit of 160 million USD, 99% of which comes from reserve interest.
Assuming the Federal Reserve cuts interest rates by 1% annually, based on 2024's AUM scale, revenue could decrease by about 20%, causing a significant impact on its profits.
High degree of channel dependence, Coinbase monopolizes realization efficiency.
Coinbase has exclusive rights to the USDC platform, and Circle heavily relies on Coinbase's promotional network.
After 2023, Coinbase became the sole issuance partner for USDC, with interest income generated on its platform belonging to Coinbase.
For non-Coinbase channels, Circle can only share profits evenly. In 2024, nearly all of the approximately 1 billion USD distribution expenses will flow to Coinbase, resulting in extremely low efficiency in Circle's interest margin realization.
Core transformation direction: The composable monetization of stablecoin infrastructure, expanding non-interest revenue.
Relying solely on interest cannot sustain long-term valuation expectations; in the future, it will need to expand income scenarios through on-chain payment APIs, stablecoin cross-chain channels, wallet accounts, and other modules to increase To B profitability.
CCTP (Cross-Chain Transfer Protocol) builds a bridge for USDC across different chains, establishing a foundation for it to become the 'on-chain payment layer'.
Circle Mint and API products have connected with dozens of platforms; if a closed loop of SDK-level calls can be formed, it will create a To B business loop.
Linking on-chain clearing with RWA (such as collaborations with BlackRock, Securitize) is the core scenario for long-term valuation reconstruction.
Financials and Valuation | The hedging structure of black and white dollars; the path of compliance is harder than profit margins.
Financial Status
Circle's IPO valuation is approximately 8.1 billion USD, with a PE of about 50 times and a PS of about 5 times (calculated based on 2024 financial report data). From the perspective of profit margins and cash flow structures, the valuation has already achieved a relatively optimistic pricing.
AUM has rebounded to 60 billion USD, surpassing the approximately 40 billion USD level before the SVB crisis.
Current interest rates support profitability, with gross profit approximately 660 million USD, while operating expenses are relatively high, with employee costs at 260 million USD.
Its comparison with Tether is as follows:
Tether's net profit exceeds 13 billion USD, which is 80 times that of Circle, and its AUM is only 2.5 times that of Circle.
Extremely high net profit margin: fully direct sales, no channel costs; fewer than a hundred employees, low compliance costs, making it the highest net profit per capita company globally.
USDT's reserve asset structure is more aggressive (85% US Treasuries, 5% gold, 7% BTC), with high risks also bringing high rewards.
Profit structure differences: Tether is a money printer, Circle is a narrow bank.
Tether has extremely low operating costs, not bearing compliance costs or paying channel profit shares, directly pocketing the interest margin; USDC is siphoned off at various stages.
Different application scenarios: gray market vs compliance.
Tether goes further in gray areas (bypassing KYC, engaging with sanctioned countries, etc.), achieving strong profitability.
Circle is highly compliant, with transparent financial disclosure.
USDC must enforce blacklisting, KYC, AML, and other systems.
Refusal to enter certain high-risk/non-compliant markets.
Profitability is suppressed by compliance costs (such as audits, compliance expenses).
Compliant profit margins are difficult to compete with non-compliant ones.
But compliance is necessary to attract mainstream and institutional funds.
Under the mainstream market's trend towards compliance, the survival space for non-compliance is shrinking; however, at the same time, under the globally fragmented context, the bottom-up real/regulatory external demand is growing.
Compliance is essential for creating capital market value and capital premiums.
Investment Strategy | Short-term sentiment-driven valuation has achieved relatively optimistic pricing, with emotional premium trading opportunities; long-term bets on systematic valuation reconstruction.
During the IPO phase, high market sentiment and crowded capital may create short-term trading opportunities due to the recognition of the narrative around 'compliant stablecoin leaders'.
However, attention must be paid to potential volatility from valuation corrections, with primary risks stemming from interest rate declines causing interest margin compression and the income sensitivity that may be exposed due to the incomplete establishment of channel bargaining power.
In the medium to long term, the key factors are new business expansion, reduction in channel dependence, and the ability to integrate into global payment networks.
Investors are currently buying compliance licenses and future pricing power of on-chain payment networks, not current profits.
Whether it will repeat Coinbase's 'peak listing' remains to be seen, with the focus on whether it can deliver on-chain payment progress and non-interest income growth data in the subsequent two quarters.
Conclusion | The stablecoin legislation opens the era of compliance; is the IPO just the prologue to a vast ocean of stars?
The stablecoin market is on the brink of an unprecedented explosion: the rigid demand for payments and transactions provides continuous growth fuel, while trends toward compliance, institutionalization, and mainstreaming are shaping it into the core infrastructure of on-chain finance.
Circle is at the core intersection of this trend.
The legitimacy of compliance brings institutional positioning advantages, making it a representative option for 'institutional stablecoins'.
Open infrastructure capabilities grant it multi-chain, composable, and nestable technical architecture, enabling neutral integration in scenarios such as payments, DeFi, cross-chain, and RWA.
Institutional-level trust structures allow it to become the preferred clearing and settlement asset for traditional institutions to compliantly access the crypto world.
However, at the same time, Circle still faces structural challenges such as income structure sensitivity to interest rates and high channel dependence. Whether it can break free from cyclical constraints in new business expansion and build a second growth curve will determine its valuation reconstruction path.
The competition between USDC and USDT is no longer a singular dimension 'market cap battle', but a full-stack competition representing the black and white dollar systems, different clearing and settlement paths, and regulatory compatibility.
Circle's IPO is not an endpoint but the starting point for global stablecoins to formally enter the institutional track.
What capital markets are truly betting on is not today's income but whether it can play a key protocol role in the global on-chain dollar consensus system. When USDC becomes the universal circulating base layer of 'on-chain dollars', Circle's story will truly begin.
