Original author: Cao Lejue
Original source: The Adventures of a Financial Dog
In just 5 days, the market value of Circle, the issuer of stablecoin USDC, increased from more than 6.9 billion to more than 20 billion US dollars. The founder Jeremiah and his team may not have expected such a rise in Circle. The impression I got from communicating with the Asian Dollar Fund is that Circles uniqueness in the compliant stablecoin track is the core of oversubscription.
There is no doubt that Circle is a pioneer. As early as July 2024, Circle became the first compliant stablecoin company under the European MICA framework. Founder Jeremy shared at a closed-door event in Switzerland that MICA was only the first step in compliance and legality, and I was still very convinced. After Trump came to power at the end of 2024, the market clearly began to accelerate. In the US GENIUS ACT and Hong Kong Stablecoin Ordinance, which were gradually implemented in 2025, Circle has assumed the role of evangelist and promoter. At the same time, Circle is the stablecoin company with the most deposit and withdrawal cooperative banks in the world, including systemically important banks (GSIBs).
While the market was rushing to buy Circle, the stock price of Coinbase, Circles most important distribution channel, showed a flat trend during the same period, which was inconsistent with Circle. This raises a core question: In the stablecoin market, is the real value in the hands of the issuer or the traffic channel? This article will deeply dismantle Circles business model.
The “Exchange Center” of the Crypto World
If you imagine the crypto world as an offshore archipelago, Bitcoin is like the gold circulating on the island, and its value rises and falls with the tide; while stablecoins are like a stored-value card that can be exchanged for US dollars at any time, allowing you to buy coconuts on the island and pay with a card at a supermarket on the mainland.
Circle, the company that issues this stored value card, plays the role of an exchange center: when you deposit $1, it locks an equivalent amount of cash or short-term U.S. Treasury bonds in the vault, and at the same time mints 1 USDC on the blockchain to ensure that the channel between the digital island and the real banking system is always open.
The “Song Jiang Surrender” Path of Stablecoin
Before discussing Circle, it is necessary to clarify a perception: the birth of crypto assets (such as Bitcoin) is often seen as a resistance to the over-issuance of traditional currencies. However, stablecoins, especially those pegged 1:1 to the US dollar, have taken a completely different path.
If Bitcoin is a Liangshan hero who tried to start a new business outside the system, then compliant stablecoins are more like Song Jiang who accepted the amnesty. It invests most of its reserve assets in real-world assets such as short-term U.S. Treasury bonds, serving as a reservoir for the U.S. Treasury Department, in exchange for compliance and legitimacy.
This surrender has made it a key bridge connecting the real worlds fiat currency and the crypto world, but its essence has also changed from a disruptive monetary innovation to a supplement and subsidy to the existing financial system.
Can Stablecoins Save U.S. Debt? An Impossible Triangle
In the process of promoting the US Stablecoin Act (GENIUS Act 2025), stablecoins save US debt is a patriotic narrative that has been repeatedly mentioned. However, this may not stand up to business logic.
I propose an “impossible triangle” of stablecoins, that is, it is difficult for a stablecoin solution to meet the following three points at the same time:
Good for issuers: The business model is sustainable and profitable.
Good for reserve assets: Can support a certain type of asset (such as US Treasuries) on a large scale and without risk.
Good for users: zero risk, high returns, and low fees.
The so-called stablecoins are good for U.S. Treasuries is based on the premise that the market has unlimited demand and confidence in U.S. Treasuries. However, if U.S. Treasuries themselves face a crisis of repayment or trust, the 1:1 anchored stablecoins will inevitably be impacted, and the trust chain will be broken instantly. This is like a trust company that uses low-risk customer funds to invest in high-risk real estate projects. Once the underlying assets are exposed, the upper-level financial products will not be spared. In the context of the stablecoin bill requiring monthly audit disclosures, the inherent risks of U.S. Treasuries are difficult to hide.
Circle’s business model and valuation mystery
Circles core profit model mainly consists of two points:
1. Net Interest Margin: USDC holders do not receive any interest. Circle invests its reserve assets in short-term U.S. Treasury bonds and earns interest, and the interest margin belongs entirely to it.
2. Payment and clearing fees: Wholesale USDC through its enterprise platform Circle Mint. If corporate customers need to exchange USDC back to US dollars on the same day (T+0), Circle will charge a channel fee of 0.1%-0.4%. This can be understood as a combination service of cross-border payment wallet + 7 × 24-hour settlement.
However, this business also faces regulatory constraints. Both the US GENIUS Act 2025 and Hong Kongs Stablecoin Ordinance (Draft) prohibit issuers from short-term money long-term investment (using short-term liabilities to purchase long-term assets) or leverage. This means that Circle cannot use the money multiplier effect to create profits like traditional banks. On the contrary, both the US and Hong Kong plans allow traditional banks to issue stablecoins.
A quasi-bank with limited business has a price-to-earnings ratio (PE) of 147 times (as of June 9, 2025), while the PE of traditional financial giant JPMorgan Chase is only 13 times. What investors are chasing after is the safe interest rate spread or the imagination space under the Web3 narrative? The valuation logic behind this is worth pondering.
Core driving force: The world has suffered from SWIFT/VISA for a long time
A friend of mine once pointed out: Stablecoins have only one theme: the world has suffered from SWIFT/VISA for a long time.
The traditional cross-border wire transfer network is like a century-old railway. It is not only expensive (20-40 USD), but also has an opaque process and can take up to 3-5 days. In contrast, the blockchain-based USD token is like a newly built maglev train: although it also needs security checks (compliance), the ticket price is transparent and the speed is calculated in seconds. Not everyone cares about the consensus algorithm, but almost everyone feels the pain of high fees. This simple cost reduction and speed increase appeal is the fundamental driving force behind the rapid penetration of stablecoins such as USDC.
Of course, the cost of transferring money between crypto wallets is extremely low, but once digital assets are converted into legal tender in a bank account, the compliance friction of the traditional system cannot be avoided. For example, if you remit $200 from Singapore to the United States, the remitting bank charges 40 Singapore dollars, and the receiving bank deducts another 10 US dollars, and the final amount may be only $150. This fee is nominally a SWIFT fee, but the bulk of it is actually the compliance cost paid by the bank for anti-money laundering (AML) and anti-fraud.
Therefore, from crypto wallets to bank accounts, compliance costs are inevitable, and the key lies in who will bear them.
Circle’s Strategy and Channel Reality
Circle closed its fiat currency exchange service for retail investors at the end of 2023, which just shows how high the cost of compliance and anti-laundering is on the retail side, which is a common pain point for all fintech companies.
Its response strategy is to launch the Circle Payment Network, which no longer directly serves retail investors, but connects institutions and corporate customers into a distribution network, with the partner banks of these institutions and companies responsible for the final deposits and withdrawals. This is an innovation of the traditional SWIFT model, removing the transit bank model and transferring the compliance and anti-laundering costs to the network participants.
But the more realistic problem is the channel. Although Circle is labeled as a crypto concept stock, the figures in its income statement show that up to 58% of its revenue needs to be distributed to channel partners as distribution and transaction costs, and Coinbase is the biggest beneficiary. It is the same story as in the mobile Internet era: whoever controls the traffic and scenarios takes the biggest piece of the pie in the value chain.
Since their listing, the divergence in the stock price trends of Coinbase and Circle (commonly known as the scissors gap) has continued to widen, further confirming this point: the channel party earns real money, while the issuer is responsible for telling the grand narrative.
The issuance of stablecoins is a business that seems simple, but actually has high barriers: the regulatory costs are becoming more and more similar to those of commercial banks, but the money multiplier that banks rely on for survival is missing. Interest income is completely subject to the interest rate policy of the Federal Reserve, and it is difficult to stabilize expectations. If the channel traffic is strangled by platforms such as Coinbase, the issuer can only rely on high commissions in exchange for market share.
Therefore, for most companies and institutions, it is not a wise move to simply rely on issuing coins for revenue. The real opportunity lies in using stablecoins, an efficient financial tool, to empower their own business scenarios. As for how to do it specifically, I will discuss it in detail in the next article My boss asked me, how can the company participate in stablecoins?
Conflict of interest: The author is a stablecoin practitioner.
