The first stablecoin is unstable

On June 5, 2025, Circle (NYSE: CRCL), the first publicly traded stablecoin company, debuted on the New York Stock Exchange at an IPO price of $31 per share. In just 12 trading days, the stock surged to a high of $299.
By the close on July 18, it settled at $223.78, representing a 622% gain from its launch price and pushing Circle’s market capitalization close to $50 billion. Even after a 25% retreat from its peak, the stock remains highly volatile and risky.

Stablecoins: The Digital Depositary Receipt for Fiat

Stablecoins are cryptocurrencies pegged to fiat currencies, acting as digital stand-ins for traditional money. Put simply, you can think of stablecoins as “depositary receipts” for fiat currency.
A similar analogy is found in U.S.-listed Chinese stocks, which trade as American Depositary Receipts (ADRs). For example, an Alibaba ADR is equivalent to one common share, a Baidu ADR represents eight common shares, a Trip.com ADR equals one common share, and a JD.com ADR equates to two common shares, among others.

Stablecoins and ADRs share four notable similarities:

• First, both issue certificates of ownership. ADRs give holders rights associated with the underlying stock, such as dividends and voting. Stablecoin issuers create digital certificates that confer ownership of reserve assets (like fiat money or government bonds) to holders;
• Second, both utilize a dual-intermediary structure. ADRs are issued by depositary banks, while the underlying stocks are held at custodian banks. Stablecoins rely on issuers (such as Tether or Circle) and reserve custodians (such as BlackRock) working together to back the digital token with real assets;
• Third, both help bypass “legal barriers.” U.S. law generally allows only domestic companies to go public; ADRs let U.S. investors hold foreign stocks indirectly. Similarly, stablecoin users can hold fiat currencies (like USD, EUR, or HKD) without opening a traditional bank account;
• Fourth, both rely on a pegging mechanism. ADRs are strictly pegged to their underlying shares, while compliant stablecoins are backed 1:1 by reserve assets.

However, it’s essential to recognize the critical difference: ADRs are stock substitutes and classified as securities, whereas stablecoins are money substitutes and classified as currency. This is crucial—under the recently enacted “Genius Act,” stablecoins are specifically recognized as “payment instruments,” not as securities, commodities, or investment products.

The “Genius Act” was passed alongside the “Anti-CBDC Act,” which prohibits the U.S. government from issuing its own digital currency—a sharp contrast to China’s aggressive rollout of digital RMB (which, importantly, is a sovereign currency, not a proxy).
Circle’s Fluctuating Issuance Metrics

Founded in 2013 and based in Boston, Circle started as a bitcoin payments and cross-border remittance provider. Its Series A and B rounds raised $26 million. In the 2016 Series D, IDG Capital led with participation from Goldman Sachs and Baidu. China Everbright Holdings joined during the 2018 Series E round.

Circle’s breakthrough came in 2018 when, in partnership with Coinbase, it launched USDC. USDC established new standards for transparency through 1:1 dollar reserves and monthly audit reports, creating differentiated competition with USDT.

• In 2022, Circle saw $167.61 billion in gross issuance and $165.47 billion in redemptions, resulting in net new issuance of $2.14 billion and year-end circulating supply of $44.55 billion;
• In 2023, $95.83 billion was issued and $115.98 billion redeemed, leading to a net redemption of $20.14 billion and year-end circulation of $24.41 billion;
• After Silicon Valley Bank collapsed in 2023, $3.3 billion of Circle deposits were temporarily frozen. On March 11, USDC dropped by over 12% in a single day, bottoming at $0.878 before recovering its peg. Still, investor confidence was shaken, with USDC’s year-end circulation nearly halved;
• In Q1 2024, sentiment remained weak, with $32.15 billion in issuance and $24.14 billion in redemptions—circulation grew by $8 billion;
• In the remaining three quarters of 2024, USDC truly rebounded, with full-year issuance hitting $141.34 billion and net circulation rising by $19.44 billion to $43.86 billion.
• Q1 2025 saw $53.22 billion issued, $37.10 billion redeemed, and net circulation up $16.12 billion to $60 billion;

From January 1, 2021, to March 31, 2025, USDC’s gross issuance totaled $558 billion and redemptions $502 billion, surpassing $1 trillion in combined flows.
As of June 2025, USDC had a circulation of approximately $61 billion and a market share of 25%, making it number two in the market. Tether’s USDT led with about $150 billion in circulation and a 62% market share.
While most in China remain unaware, stablecoin transaction volumes have exploded at a staggering pace:
In 2024, stablecoins processed $15.6 trillion in transactions—outpacing Visa and Mastercard.
Circle’s IPO filing reveals that in Q1 2025 alone, total transaction volume hit $6 trillion. Since launch, cumulative USDC transaction volume stands at $25 trillion.
In July 2025, the 24-hour average daily trading volume for USDC and USDT reached $60 billion and $120 billion, respectively. The annualized transaction volume for these two leaders alone exceeds $70 trillion!
For comparison, total transaction value on China’s bank cards in 2024 was RMB 992.5 trillion, with RMB 791.7 trillion in transfers, RMB 133.7 trillion in consumption, and RMB 67.1 trillion in cash deposits/withdrawals.
Stablecoin trading has only erupted over the past two years, but its volume already equates to roughly half of China’s total bank card transactions.

The “Model Student”
Although Circle operates at half the scale of Tether, it was first to enter public capital markets and has attracted strong investor enthusiasm. The reason: its commitment to compliance and regulatory alignment—in other words, being the “model student.”

Circle’s “model behavior” stands out in two key areas:

• First, it aggressively pursues licenses. Circle holds payment and digital asset licenses across the US, UK, EU (with MiCA certification), Singapore, and other regions;
• Second, it ensures transparency. 100% of reserves are held in cash and short-term US Treasuries, with monthly audits by firms such as Deloitte (adhering to AICPA standards); users can verify holdings online in real time.

Tether, by contrast, is offshore, with its headquarters relocated to El Salvador. Even more concerning, over 60% of Tether’s reserves are in commercial paper—raising serious questions about its safety compared to Circle.
Circle’s USDC is a compliant stablecoin, whereas Tether’s USDT is not—though the non-compliant option currently dominates the market.

The new U.S. “Genius Act” mandates 100% backing of stablecoins with US dollar cash and Treasuries, directly benefiting USDC and putting USDT at risk of being delisted from U.S. exchanges. However, in many emerging markets, USDT’s lack of regulatory compliance is ironically its greatest appeal.

Circle’s “Missing Pieces”

Coinbase, founded in May 2012, has evolved from an exchange into a full-fledged crypto ecosystem, recording $3.99 billion in revenue in 2024.
Coinbase, too, is a “model student,” with credentials including a US Money Services Business (MSB) license, FinCEN registration, CFTC registration, SEC registration as a crypto investment advisor, and EU MiCA status.
Coinbase employs regulatory forecasting models and actively engages in policy development—for instance, the GENIUS Stablecoin Act.
Compliance is Coinbase’s top priority, but this leads to high fees and a limited selection of tokens.
Circle and Coinbase are a “natural pair.” In 2018, they co-founded the Centre Consortium, splitting ownership 50/50. Circle handled tech development and reserve management, while Coinbase focused on distribution.
In August 2023, Circle acquired all of Centre Consortium’s equity (for $210 million in Circle shares, representing a 4% stake).

Nonetheless, the two companies are deeply intertwined, and their collaboration agreement has a distinctly “one-sided” flavor:

• First, reserve asset revenue. Coinbase receives a fixed 50% of total reserve yield as distribution fees. If users deposit USDC on Coinbase, all reserve-related income goes to Coinbase. In short: “What’s mine is mine; half of yours is mine, too.”
• Second, issuance rights and trademarks. If Circle defaults (e.g., fails to make payments on time), Coinbase gains the right to issue USDC itself.
• Third, user rewards. Coinbase offers those who deposit USDC “variable yields” (set at 4.1% for 2025).
• Fourth, priority protection. If Circle faces a depegging crisis (as in 2023), Coinbase customers holding USDC are first in line for compensation.

With attractive yields and strong protections, Coinbase’s share of USDC holdings rose from 5% in 2024 to 20%, and further to 23% in Q1 2025.
Circle, lacking its own distribution and trading platform, is incomplete—dependent on partners like Coinbase.

Bad News—Rate Cuts

Over 90% of Circle’s revenue comes from returns on reserve assets, mainly short-term US Treasuries.

• In 2023, reserve asset income reached $1.43 billion, making up 98.6% of revenue;
• In 2024, it rose to $1.66 billion, or 99.1% of revenue;
• In Q1 2025, reserve asset income totaled $560 million, representing 96.4% of revenue;

USDC’s circulating supply is roughly equal to Circle’s interest-earning assets, making it the baseline for calculating reserve yield.

• In 2022, average USDC circulation was $49.86 billion, with $740 million in revenue and a yield of 1.5%;
• In 2023, average circulation dropped to $30.47 billion, but revenue climbed to $1.43 billion, raising the yield to 4.7%;
• In 2024, average circulation edged up to $33.34 billion, revenue to $1.66 billion, and yield to 5%;
• In Q1 2025, average circulation reached $54.14 billion, revenue $560 million, and the annualized yield 4.2%;
• In 2022, US short-term Treasury yields hit 4.7%, yet Circle’s reserve yield was only 1.5%—indicating nearly two-thirds of reserves were non-yielding cash collateral;
• In 2023 and 2024, reserve yields essentially matched Treasury yields, suggesting nearly all reserves were in bonds with minimal cash collateral.
  As of March 2025, USDC’s circulation stood at $60 billion. Every 1% drop in Treasury yields cuts annual revenue by $600 million.

Bad News—Coinbase Clampdown

With Fed rate cuts already in the cards, there’s more pain ahead: Coinbase is taking an ever-larger share of the pie.
In 2022, Circle’s distribution/trading expense was $290 million, absorbing 39% of investment returns.

• By August 2023, as Coinbase began “splitting the pot,” annual distribution/trading expenses soared to $720 million (50.3% of investment returns), with Circle’s net profit just $272 million;
• In 2024, distribution/trading expenses topped $1 billion ($908 million went to Coinbase), accounting for 60.9% of investment returns. Circle’s net profit dropped to just $157 million, making the economics of working with Coinbase less and less favorable.
• In Q1 2025, distribution/trading expenses were $350 million, or 62.3% of investment returns, with quarterly net profit at $64.79 million.

Rumor has it that Coinbase seeks to raise its share of all reserve asset returns from 50% to 70%.
Coinbase has become a noose tightening around Circle’s neck. Once it wanted a cut—now it threatens Circle’s survival.

Bad News—Big Tech Entering the Market

1) The US Doesn’t Love Stablecoins

Innovation in internet finance inevitably collides with the entrenched interests of traditional finance—a reality everywhere.
Circle’s vision is “frictionless exchange of value,” directly challenging SWIFT’s high fees.
SWIFT (Society for Worldwide Interbank Financial Telecommunication) connects over 11,000 financial institutions in more than 200 countries for cross-border payments. According to the World Bank, SWIFT charges an average fee of 6.01% of the remitted amount, a notorious “friction cost.”
SWIFT’s 1970s-era tech is woefully outdated, still relying on paper documents and manual processes, which means settlement can take two to five days.
Stablecoins threaten SWIFT’s business by enabling instant, low-cost cross-border transfers, making them natural targets for incumbents.
Moreover, SWIFT—dominated by the West—serves as a strategic lever of financial power. After the Russia-Ukraine conflict began, the US imposed thousands of sanctions on Russia, the most effective being ejecting Russia from SWIFT, dubbed a “financial nuclear bomb.” That move also sends an implicit warning to China.
Because stablecoins can sidestep SWIFT, it’s no surprise the US government views them with suspicion.

2) Washington’s Calculated About-Face

The US pivoted on stablecoins with a single goal: to create new demand for US Treasuries. This is an open secret strategy that’s almost impossible to counter.
It works on two levels:

• First, global dollar holders are eager to convert into stablecoins—they’re safe, convenient, quick, and low-cost, much like mobile payments in China. In countries plagued by fiscal instability, currency volatility, or high inflation, stablecoins have even greater appeal.
• Second, stablecoin issuers have every incentive to buy Treasuries, because the “Genius Act” requires them to fully back tokens with dollar cash and Treasuries, creating strong, structural demand.

These two effects mean dollar holders are subtly converted into Treasury holders. Analyst Besant expects stablecoin issuance to hit $3.7 trillion by 2030—all of which must be matched with dollar cash or Treasuries.

Some pundits argue stablecoins only boost demand for short-term bills, which aren’t hard to sell—the real problem is long-dated bonds.

But in reality, short-term Treasuries only move if yields are attractive:

• In 2021, the 3-month Treasury yielded just 0.02–0.06%;
• In 2022, yields spiked to 4.7%;
• 2023, up to 5.4%;
• 2024, yields fell to 3.36% (the rate-cutting cycle started in September);
• On July 11, 2025, they were at 3.79%—95 times higher than 2021 averages!

Of course, companies like Evergrande would prefer selling 10-year bonds but won’t say no to three-month paper. When cash is tight, any maturity will do. For Trump, selling as many bonds as possible is key—maturity is someone else’s problem in ten years. He’s pushed the Fed for rate cuts, but the Fed must consider if lower rates could make bonds unsellable, forcing the central bank to step in and buy.

Another take: if bondholders dump Treasuries for stablecoins, that doesn’t spur new bond demand. But giving up interest for liquidity (since stablecoin issuers now earn the yield) begs the question: what’s the motivation?

The so-called “Mar-a-Lago Plan” aimed to force foreign Treasury holders—using tariffs and other tactics—to buy 100-year, zero-coupon “century bonds.” Even Japan, the likeliest “victim,” balked, and the plan failed.
The current American playbook—coined the “Pennsylvania Avenue Plan” after the Treasury’s address and orchestrated by Besant—relies on stablecoins to address US debt woes. But the likely champions are tech giants like Apple or Amazon (“AppleUSD,” “AmazonCoin”), not Circle (and certainly not Tether).
With their global reputation and the strength of US Treasury backing, Big Tech could snatch most of the stablecoin market—bad news for Circle, but less so for rule-bending Tether.
It’s also possible that, under political pressure, Apple and peers could use part of their vast cash hoards to back their own stablecoins.
In short, Circle’s biggest challenges are: rate cuts, Big Tech’s entry, and the Coinbase squeeze.

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