Circle, the first stock of stablecoin, continues to surge—can investors still make sense of it?
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Circle, the first stock of stablecoin, continues to surge—can investors still make sense of it?
From an investor's perspective, the current focus should be on Bitcoin and stocks. Attention can shift back to altcoins once the macro environment becomes more accommodative in the future.
Navigating Web3 tides with focused insightsAuthors: Hazel & Ivy
[This article is long. Table of contents below.]
1. The Frenzy Around Crypto Stocks
- Circle's fair valuation and the information gap between insiders and outsiders
- Hong Kong stocks also go wild: what stories did ZhongAn and LianLian tell?
- Disadvantages of Hong Kong dollar stablecoins
2. The Licensing Landscape for Payment Companies
- Understanding Money Transmitter Licenses
- The hardest license to obtain: New York State’s BitLicense
- The American-style quid pro quo logic behind BitLicense
3. Circle and Coinbase: Entangled Beyond Separation
- Why does Coinbase take 56% of revenue?
- Two agreements between Circle and Coinbase, and potential paths to independence
4. Unpacking Coinbase’s Risks and Opportunities
- Where does Coinbase’s 12% annual yield promotion come from?
- How spot crypto ETFs disrupt Coinbase’s business model
- Acquiring Deribit to open a second growth curve
5. The GENIUS Act and the Future of Stablecoins
- Stablecoin development has become bipartisan consensus; debate centers on preventing regulatory arbitrage
- Tether’s “strategic alliances” and its $30 billion war chest
6. The Two-Stage Rocket of Stablecoin Growth
- Payment-driven growth led by traditional financial institutions
- Transaction-driven growth fueled by tokenization of everything
- The next battleground is B2B
7. Big Tech and Stablecoins
- Can Meta issue its own stablecoin?
- Web3 enters the era of scenario dominance
8. Yield-Bearing Stablecoins or Tokenized Money Market Funds?
- After compliance, yield-bearing stablecoins may remain niche
- Circle’s acquisition of Hashnote reveals alternative competition
9. What Changes and What Stays in the Old System
- Potential business disruptions for Visa and Mastercard
- Small and medium banks face disintermediation risks
- Stablecoin lending and on-chain banking
10. Circle Founder Jeremy Allaire and His Connection with China
11. What Circle Can and Cannot Do in the Future
- Can Circle tell a new story?
- Offshore RMB stablecoins should not be absent
- Speculation: Could Circle align itself with Meta?
12. Are There Still Investment Opportunities for Ordinary People?
[Preface]
The original title of this post was "Circle, the First Stablecoin Stock: Near-Term Worries and Long-Term Concerns."
On the day this podcast episode was released, Circle briefly touched a market cap of $30 billion, significantly surpassing its IPO price. After recording, guest Di Zong ran the numbers for me: if by 2028 Circle maintains its current 24.35% market share, assuming stablecoin supply reaches $2 trillion and interest rates stay at 2%-3%, and deducting a slightly reduced 50% revenue share (down from today’s 60%), then a $30–40 billion market cap could be justified. But this neutral-to-optimistic calculation heavily depends on assumptions about market size, market share, interest rates, and marketing fees.
But I didn’t expect that by the evening of June 16—when I finished editing—the stock had already surged to $35 billion. So quietly, I changed the headline to: “Circle, the First Stablecoin Stock, Keeps Soaring—Do Investors Still Understand It?”
Fundamentals and short-term price movements are two different things. Respect the market. Fear the market. This piece does not constitute any investment advice.
[Episode Overview]
Guest Zheng Di / Didier: Frontier tech investor, runs the knowledge community “Dots Institutional Investor Network”
Host Hazel Hu: Host of the podcast “Zhiwu Bu Yan,” over six years of experience as a financial journalist, core contributor to the Chinese Public Goods Fund (GCC), focused on real-world applications of crypto. Twitter/X: 0xHY2049; Jike: Yi Zhi Bu Zou Xin De Yue Yue
1. The Frenzy Around Crypto Stocks
Hazel: Let’s start with the most talked-about topic—stock price. Di Zong, how do you evaluate Circle’s performance in its first two trading days?
Zheng Di: Regarding Circle’s IPO pricing, I think the initial level was reasonable and indeed presented an investment opportunity. But I’ve always believed there are many long-term concerns about Circle’s business model. So I don’t understand why it could be hyped up to $25 billion (note: by the time this article is published, Circle has surged to $35 billion). Some even talk about $80 billion or $100 billion. Honestly, I haven’t been qualified to comment on this stock lately—I’ve been schooled repeatedly by the speculative crowd saying, “You need to look further ahead.” But in reality, I see a massive information asymmetry between those inside and outside the crypto world.
In the cryptocurrency space, we’re all used to using USDT and deeply understand Tether’s real power. There’s a view that although Tether and Circle both operate in stablecoins, they are entirely different species.
This difference mainly stems from two key factors:
1. Compliance differences: Circle is nearly 100% reserve-compliant, while Tether complies with regulations for about 80%, with the remaining 18% falling outside the requirements of the GENIUS Act. Notably, Tether’s primary profit source comes precisely from this 18% non-compliant portion.
2. Capital scale: Tether currently has around $30 billion deployed in external investments and loans. Despite frequent questions about compliance, when a non-compliant company has already aligned itself with the current U.S. Secretary of Commerce, and giants like SoftBank and Masayoshi Son have joined its side, and it holds a $30 billion checkbook ready to deploy—can’t it simply buy its way into compliance? Of course it can. With capital and political connections, hard truths prevail. Therefore, in my view, Circle faces substantial challenges in justifying a $25 billion or higher valuation.
Hazel: Personally, I feel that quality Web3 assets within the Web2 ecosystem are still too scarce, so whenever a decent candidate emerges, people rush in.
Zheng Di: The past year’s meme coin frenzy and Trump coin success, while personal triumphs, might be a tragedy for the broader Web3 industry. They reinforce the sector’s image as a “casino” and absorb vast liquidity.
Meme seasons usually require loose liquidity, but the Fed hasn’t cut rates yet. Market expectations have dropped from five cuts earlier this year to just two (possibly starting in September). Dallas Fed former president Rob Kaplan (now vice chairman at Goldman Sachs) predicted over a month ago there would only be two cuts. Some large U.S. buy-side firms even believe no rate cuts will happen this year.
Yet under these conditions, Bitcoin remains strong, maintaining a 60%-65% market dominance. Altcoin liquidity continues to stagnate, with funds concentrated in Bitcoin and a few top-tier projects. This explains why core Ethereum teams like Consensys are pushing Ethereum-based “MicroStrategy” plays (e.g., SBET). During Dubai 2049, people were debating whether Ethereum could no longer be shorted—whether there was a regime change. I believe they meant Consensys entering via SBET. Their initial $400 million raised allowed them to buy over $300 million worth of ETH. Then came a $1 billion ATM—they’ll keep buying. Whether they continue depends on their fundraising ability and premium, which are crucial. We’ll see how they execute.
I once posted in my community—paraphrasing someone else—that currently, U.S. equities have five main themes: Web3, autonomous driving, robotics, nuclear fission/fusion, and quantum computing. In times of ample liquidity, betting on these five themes generally leads to profits. This year, crypto-linked stocks have delivered far greater wealth effects than altcoins, and their elasticity exceeds even Bitcoin’s. What I’ve observed is that many big crypto holders and mining bosses are shifting their capital en masse into these “crypto stocks” to speculate.
A friend recently approached me asking for help analyzing a question—essentially commissioning free “research.” He asked why MetaPlanet and Hong Kong’s Hongya stock, both advised by Jason from Solar Ventures, performed so differently in the market?
I’ve been pondering this too. One possible reason is that Hong Kong lacks local capital; investors have many other options and don’t necessarily have to buy Hongya. Japan’s market, however, is relatively closed with massive domestic capital pools. When a concept like MetaPlanet—a “Japanese version of MicroStrategy”—emerges, the market is willing to pay up. It could also be due to better and more concentrated shareholding structures, making them easier to manipulate. I haven’t studied this deeply yet, just some preliminary observations.
But this highlights a phenomenon: the craze for “crypto stocks” isn’t limited to U.S. markets. We’ve seen MetaPlanet in Japan, and in Hong Kong, companies like Boya and Hongya have also surged—though not as spectacularly as MetaPlanet, they’ve still achieved multi-bagger gains.
Hazel: It’s not just companies holding crypto—some Hong Kong payment firms with little direct connection to crypto have also seen astronomical rises.
Zheng Di: That’s right. Even if you claim you’re not involved, the market believes you are. You can’t say otherwise. If I say you are, then you are. For example, ZhongAn, LianLian, YeeCard, etc.—they’ve exploded, often doubling within a week.
What story is ZhongAn telling? Essentially, ZhongAn owns 43% of ZhongAn Bank, and is one of the early shareholders (single-digit percentage, likely under 10%) participating in the Hong Kong Monetary Authority’s stablecoin sandbox trial for “Yuanbi.” So first, the Yuanbi asset will become valuable. Second, if Yuanbi eventually achieves a stablecoin scale of HK$500 billion, most of its reserves will be deposited in ZhongAn Bank, where ZhongAn only needs to pay 2% interest. That’s the narrative—and the stock doubled in a week.
Why do I find this story shaky? First, the idea of “crypto-friendly banks” is largely outdated. Recall why banks like Metropolitan Bank, Signature Bank (before going public), and Silvergate were so popular back then. Silvergate even became a rare ten-bagger among U.S. bank stocks, rising tenfold in two or three years. Why? Because even a giant like Coinbase could only bank with three U.S. institutions—Metropolitan, Silvergate, and Signature. All fiat deposits from users had to go through these three banks.
These banks faced zero competition. They collected fiat deposits from Web3 firms and exchanges without paying interest—zero-cost funding. Then they invested in Treasuries and MBS, earning spreads of over 2.5%. But as more banks began serving Web3 firms and exchanges, the era of zero-interest deposits is long gone.
Of course, ZhongAn isn’t claiming zero interest—it says 2%. But several issues remain. First, we know that in Hong Kong, the primary banking partner for Web3 is Standard Chartered, not ZhongAn. ZhongAn is a virtual bank—friendly, yes, but not a primary custodian. We also know Coinbase Singapore uses Standard Chartered as its receiving bank. Standard Chartered is simply more aggressive, hungrier, and more willing to take on such business, making it more accommodating than others. Thus, in Hong Kong, Standard Chartered is the de facto main bank—there’s little chance that most or all of Yuanbi’s reserves would be held at ZhongAn Bank.
Second, both the U.S. GENIUS Act and Hong Kong SFC’s July 2023 draft stablecoin regulations prohibit stablecoin issuers from directly paying interest to users. Why? Likely because regulators fear excessive competition—if later entrants offer yields while incumbents don’t, they’ll aggressively promote, weakening issuers’ financial strength and increasing bankruptcy risk, which could trigger serious social consequences. Hence, direct interest payments to users are banned. Workarounds exist—like marketing rebates—but outright interest payments are prohibited.
We must also consider: what’s your biggest disadvantage issuing a Hong Kong dollar stablecoin versus a U.S. dollar one? Lower interest rates. Whether investing in CNH Treasuries, Panda Bonds, or Hong Kong dollar instruments—I’m not sure if Hong Kong issues sovereign debt—I haven’t looked closely—but whatever you buy, your yield will be lower. U.S. Treasuries easily yield 4%. That’s a structural disadvantage.
Many overlook a key point: Hong Kong SFC’s July 2023 consultation paper actually allows mismatching. While you issue a Hong Kong dollar stablecoin, you’re allowed to invest in higher-yielding assets like CNH Treasuries or Panda Bonds (currently ~$30 billion outstanding), or even U.S. Treasuries, to earn higher yields. But this requires special approval from the SFC, plus over-collateralization to hedge currency mismatch risks. Meet both conditions, and you can invest in high-grade sovereign debt of other currencies—not limited to HKD deposits.
So you see, the information gap between stock investors and long-term stablecoin researchers is enormous. Hence, people readily believe such narratives—leading to instant doubling.
2. The Licensing Landscape for Payment Companies
Zheng Di: LianLian and YeeCard both claim to hold the U.S. Money Transmitter License. Back in 2018, crypto exchanges were eager to obtain U.S. money transmitter and payment licenses. We knew these licenses weren’t particularly difficult to get. Especially MSB (Money Service Business) licenses—they’re easy. You could probably buy one for $1 million—I don’t know the current price, but that was the cost back then.
At the time, we felt the Web3 industry was engaging in busywork—efforts that didn’t really help the business. Now, suddenly, these become compelling narratives for listed companies. The stock market crowd doesn’t understand this—they assume such licenses are hard to get. But those of us deep in Web3 know what’s truly difficult: New York State’s BitLicense. Circle holds this license—only 20 exist worldwide. Yet surprisingly, transaction volume under New York’s jurisdiction is extremely low. The business you can conduct with this license is pitiful. The New York financial regulator publishes quarterly data.
Yet why do so many relentlessly pursue this license? Because it’s a symbol of strength—a powerful endorsement. When dealing with other states, federal agencies, or international regulators—like MAS in Singapore, Hong Kong SFC, Dubai, or Japan—I can say, “I hold one of only 20 BitLicenses in New York.” To them, other licenses seem trivial because New York’s regulatory bar is perceived as the highest and strictest globally. Holding this license opens doors elsewhere. That’s why everyone wants it.
Take NYSE owner Intercontinental Exchange (ICE)—now valued at around $200 million after plummeting post-MicroBull termination. But why has it been rising recently? I suspect the market is speculating about acquisition. What value does it have? Its business is minimal—quarterly fee income was only $12 million before MicroBull ended cooperation, so Q2 will likely be worse. But its sole valuable asset is one of the 20 New York BitLicenses. So people speculate someone might acquire it purely for the license.
Thus, when we examine payment firms boasting U.S. payment or MSB licenses, the stock market spins various narratives. This reminds me of the 2017 ICO era—tell a story, and people believe it. They think it’s impressive. But they never dig deeper.
Today’s Web3 users, however, are trained to be skeptical. You can say anything—we won’t believe it. Unless you deliver buybacks or dividends—even cash flow isn’t enough—we only trust actual returns. That’s the current state. It reflects illiquidity. In contrast, the stock market has abundant liquidity and tends to believe narratives first—believe and profit, late believers get rekt. That’s the prevailing logic now.
Still, I believe introducing stablecoin payments can help certain payment firms turn profitable. For example, I wrote an analysis of LianLian, not yet YeeCard. LianLian partnered with BVNK, a UK-based stablecoin payment firm. Under optimistic scenarios, this could boost net profit by ~$180 million. Currently, it reports a pre-tax loss of ~$500 million, so this would partially reverse losses—meaningful impact. Specifically, adding 0.2%-0.3% of total payment volume as profit—stablecoin payments can generate incremental revenue. So the market’s enthusiasm for Web2 payment firms isn’t entirely baseless.
Hazel: You mentioned New York’s financial license—I recall Circle was the first to obtain BitLicense back in 2018, right? I’d just entered the industry as a reporter and remember this vaguely.
Zheng Di: Yes, this is particularly interesting—and revealing of America’s blend of power and money. That’s why I always say, don’t underestimate Tether just because it’s non-compliant. It’s already aligned with the U.S. Secretary of Commerce—whose son was a Tether intern and is now fully onboard. Meanwhile, USDC hasn’t secured similarly prominent political backing. Quasi-legal quid pro quo has existed in the U.S. for a long time.
When did New York first propose creating the BitLicense? Actually, since 2013. Remember the hearings? Critics said New York’s regulations were too strict, hindering U.S. leadership in Web3 innovation. The BitLicense idea originated from those 2013 hearings.
The hearing chair was a New York regulator—the same official who later created the BitLicense. Here’s the irony: after designing the framework, he never issued the first license—he quit and started a consulting firm. He then advised all applicants on how to obtain the license. I suspect Circle hired him too—I don’t know for sure, but given he invented it, who better to consult? He probably earned handsomely from this. Classic American capitalism: power turns into private gain. This is why I argue the stock market narrative—that Tether will fail due to non-compliance while compliant USDC will dominate—is flawed.
3. Circle and Coinbase: Entangled Beyond Separation
Hazel: You mentioned that Coinbase is currently USDC’s most visible partner. This leads us to our next topic. Circle’s prospectus clearly outlines this relationship, which significantly impacts Circle’s net profit. Although revenue is ~$1.6 billion, after expenses, net profit is only ~$100 million.
Zheng Di: This agreement is highly unfavorable for Circle. The basic structure: all Circle revenue comes from interest on reserves. These reserves can only be invested in U.S. Treasuries maturing within 93 days, repos maturing within seven days, demand deposits, or money market funds investing exclusively in these three.
Many misunderstand the GENIUS Act, thinking stablecoins can invest in money market funds like pre-2008 Lehman Brothers era. But ordinary money funds typically hold longer-dated bonds—like 10-year Treasuries—or even CDOs. During a run, asset-liability duration mismatches cause liquidity crises. The GENIUS Act explicitly mandates that reserve-invested money market funds contain only these three short-term assets. Holding even a sliver of 10-year Treasuries makes it non-compliant.
Many traditional analysts haven’t read the law carefully, relying on assumptions that lead to misjudgments. 85% of Circle’s reserves are managed by BlackRock through the Circle Reserve Fund, investing solely in these short-term assets with an average duration of just twelve days; the remaining 15% sits in bank demand accounts. Conservative, yes—but still earns over 4% annually.
Circle’s entire revenue comes from this interest—not user fees. The problem? Instead of returning interest to holders, it pays it to promoters like Coinbase. This is an indirect profit-sharing mechanism.
The revenue split with Coinbase follows a “three-step” structure. Many assume Coinbase takes 50%, but that’s inaccurate. Circle allocates 60% of revenue as marketing fees—about $900 million to Coinbase, another $60.2 million to Binance and others. So from $1.6 billion in revenue, after marketing, Circle keeps ~$600 million. Of that, $500 million covers operations, leaving ~$161 million net profit after taxes and other costs.
Coinbase receives over 56% of Circle’s revenue, yet holds only ~22% of USDC reserves on its platform. This disproportionate return stems from a highly favorable revenue-sharing design.
The process works as follows: Step one defines the “payment basis,” essentially Circle’s interest income. Circle first deducts 0.1%–1% for operational costs. The remainder proceeds to “product revenue sharing.”
In this phase, Circle and Coinbase split based on daily average USDC holdings on each platform. If Coinbase holds 22%, it gets 22%; if Circle’s platform holds 6%, it gets 6%.
Step two is “ecosystem revenue sharing.” The remaining amount is split 50/50—Coinbase takes half, Circle the other half—which Circle may further distribute to partners. Overall, Coinbase captures ~56% of Circle’s total revenue.
Why would Circle accept such terms? It traces back to 2018, when USDC was jointly launched by Circle and Coinbase via Center Consortium, each owning 50%.
By 2023, to prepare for Circle’s independent IPO, equity ties with Coinbase needed dissolution. So Circle repurchased Coinbase’s 50% stake in Center using 8.4 million shares worth over $200 million. At $25 per share, that stake is now worth multiples more.
In exchange, Circle signed two cooperation agreements:
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Main Cooperation Agreement: Signed August 2023, valid for three years. If Coinbase meets KPIs for “product revenue sharing” and “ecosystem revenue sharing,” it gains automatic three-year renewal rights—potentially infinite renewals.
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Ecosystem Cooperation Agreement: Requires mutual written consent from both parties to onboard new ecosystem partners. Effectively binding Circle tightly within Coinbase’s ecosystem, limiting independent expansion.
There’s also a “legal barrier exit clause”: if future laws prohibit Circle from paying marketing fees to Coinbase, both must renegotiate terms. If talks fail, Coinbase has the right to demand Circle transfer all trademarks and IP—including USDC, EURC—to Coinbase.
This clause clearly anticipates future regulation banning indirect interest payments. For instance, if Coinbase users earn 4% APY on USDC holdings—funded by Circle’s payments to Coinbase, then passed to users—and regulators ban such mechanisms, Circle must stop paying marketing fees.
In essence, Coinbase and Circle designed an exceptionally “clever” agreement, anticipating nearly all legal risks and locking Circle firmly into its ecosystem. Circle is no longer just a partner—it’s effectively a “subsidiary unit” of Coinbase.
Hazel: This is basically a sell-out agreement, right?
Zheng Di: Yes, I’ve studied the contract structure. What if Circle refuses to pay despite no legal barriers? The agreement lacks arbitration clauses. But governed by New York law, Coinbase could sue in New York courts. If Circle breaches, it would likely lose. Courts would probably enforce continuation. If Coinbase pushes hard, it might even force Circle to surrender trademarks and IP. In practice, Circle cannot escape this deal.
4. Unpacking Coinbase’s Risks and Opportunities
Hazel: You mentioned the 4% rate—Coinbase now offers users up to 12% APY on USDC deposits. This seems “too good to be true.” Chinese users seeing guaranteed double-digit returns instinctively ask, “Is this a scam?” But is this subsidy—driven by Circle partnership renewal incentives—to attract more USDC deposits?
Zheng Di: Great question. Though many assume these agreements are secret, they’re attached to Circle’s prospectus—only specific figures are redacted. U.S. securities rules require disclosure of major contracts and executive employment terms.
Back to the agreements: for Coinbase to secure “infinite auto-renewal,” two conditions must be met:
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Product Revenue Sharing KPI achieved;
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Ecosystem Revenue Sharing KPI achieved.
The ecosystem KPI is straightforward: Coinbase must continue supporting USDC trading pairs, mainnet deployments, wallet compatibility, etc. Whether exclusivity exists isn’t disclosed.
The product revenue sharing KPI likely sets a minimum threshold—e.g., maintaining a certain USDC holding ratio—but the exact figure isn’t public.
Public data shows Coinbase received ~$300 million in revenue sharing from Circle this year, while spending ~$100 million on “deposit incentives”—encouraging users to deposit USDC on its platform. Why spend $100 million? Two possibilities:
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First, the agreement mandates escalating KPIs. To meet targets, Coinbase must spend to attract more USDC deposits;
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Second, even without mandatory thresholds, Coinbase knows more USDC means higher payouts. Since subsidies come from Circle, not Coinbase, there’s no cost pressure—so why not promote?
As for offering 12% APY, I believe Coinbase has shifted strategy. Previously, it focused on attracting spot traders to U.S. exchanges. But post-ETF launch, retail investors can buy BTC/ETH via ETFs—cheaper and simpler—eroding Coinbase’s spot fee income.
Coinbase’s maker-taker fees range from 0.02% to 0.06%, similar to ETF expense ratios. So spot fee revenue faces downward pressure.
Over 64% of Coinbase’s revenue comes from “altcoins,” with XRP (~18%) and Solana (~10%) being largest contributors—totaling ~28%. If XRP or Solana launch ETFs, these trading fees will suffer.
Market may overlook a critical reality: the more ETFs, the harder Coinbase’s spot business becomes. If the U.S. approves 40+ crypto ETFs, Coinbase’s domestic spot operations will lack competitiveness.
Where’s Coinbase’s path forward? Two directions:
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Offshore Markets (Coinbase Global): Currently only 20% of revenue, but huge growth potential;
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Derivatives Business: Not covered by ETFs, less competitive. Coinbase’s recent acquisition of Deribit is pivotal here.
Strategically, acquiring Circle makes no sense. Circle is already locked into unfavorable terms—Coinbase extracts maximum benefit without needing to buy the whole company. It can keep draining Circle’s profits.
Thus, Coinbase is shifting focus—from “shearing retail wool” domestically to offshore and derivatives. The 12% APY incentive isn’t universal—it’s targeted at Deribit or Global users. Initially no deposit caps, but after a flood of Chinese users, limits dropped to $1M per account, now down to $100K.
Some “bonus hunters” use multiple KYC accounts—ten accounts yield $1M capacity at 12% APY. But Coinbase’s core metric is conversion rate: once money is in, not everyone trades immediately, but some will. As long as conversion happens, it pays off.
5. The GENIUS Act and the Future of Stablecoins
Hazel: Recently I read Artemis’ report analyzing $240 billion in stablecoins. It opens with a trend: the industry is shifting from “issuance-driven” to “distribution-driven.” Issuers struggle to maintain profits, while distribution channels become core competencies. This ties into our earlier discussion on Tether vs. USDC. Post-regulation, how will different stablecoins be affected? For example, amid growing institutional participation, can Tether retain its lead?
Zheng Di: The answer hinges on the final version of the GENIUS Act. Many mistakenly think Democrats oppose stablecoins while Republicans support them. But FIT21 passed the House with 71 Democratic votes. Developing stablecoins is now bipartisan consensus. Even Elizabeth Warren—who’s seen as most anti-crypto—publicly stated stablecoins could reach $2 trillion in three years and strengthen dollar hegemony. Her opposition focuses on two points:
First, unresolved corruption issues. She criticizes amendments banning senior officials from stablecoin involvement but excluding presidents or vice presidents—raising concerns about Trump family launching USD-1. Second, inadequate oversight of offshore stablecoins—especially Tether.
As I noted, Tether’s primary profits come from its 18% “non-compliant assets”: ~100,000 BTC, 50 tons of gold, and investments in Bitdeer—many don’t know Tether is Bitdeer’s second-largest shareholder with 25.5%.
It also controls Adecoagro, an Argentine sugar producer, with 70% ownership. Few realize Tether is now one of Web3’s largest lenders, with ~$8.8 billion in receivables. Plus other investments and revenue streams.
If the final GENIUS Act fails to impose strict extraterritorial regulation on offshore stablecoins, Tether’s offshore model survives—enjoying arbitrage opportunities. It could launch a compliant U.S. version as a “face-saving” move while continuing to profit from its offshore operations.
Thus, we might see: offshore remains Tether’s “comfort zone”, while onshore, it lacks advantages in compliance and licensing. In Europe, Tether lacks MiCA (Markets in Crypto-Assets) licenses and has been delisted. By contrast, USDC remains usable, along with MiCA-compliant stablecoins in traditional payment scenarios.
But European transaction scenes offer little profit. Look at Bistamp: founded in 2011, this veteran European exchange sold to Robinhood for just $200 million—shocking. Shows European trading has “no grease,” limited value even with compliance.
Payment scenarios in Europe have potential, but onshore competition is fierce. USDC faces USD1, Stripe’s USDB, and various bank-issued stablecoins—all compliant, backed by traffic or payment networks. Competition intensifies.
Consider limitations of other stablecoins:
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PayPal’s PYUSD: initially feared as a “wolf coming.” Now only $800–900 million in circulation—likely because unwilling to pay promotion fees;
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USDC circulates $61 billion, but at the cost of dedicating ~60% of revenue to promotion fees—an extremely capital-intensive growth model;
Meanwhile, Tether does the opposite: not only does it avoid marketing fees, it charges partners 10 basis points. Tether’s logic: I provide API access, mint/redeem functionality, and market-making support—I’m already “giving money,” so you should pay me.
But another possibility exists: if Warren’s stance and voices from some Democrats lead to stricter provisions targeting offshore stablecoins—fully closing “regulatory arbitrage”—Tether’s model becomes unsustainable. Ultimately, the key lies in regulatory intent. Will regulators truly impose cross-border restrictions on offshore stablecoins? That determines the future landscape.
6. The Two-Stage Rocket of Stablecoin Growth
Zheng Di: I’ve long believed future stablecoin development resembles a “two-stage rocket.” Stage one will be driven by traditional financial institutions: major banks, card networks (Visa, Mastercard), and payment firms (Stripe, PayPal). Applications will center on payments, especially cross-border inflows/outflows, trade payments, import/export settlements, commodity clearing.
Tether (USDT) has already entered trade finance in commodities, using stablecoins as financing/payment tools. This expansion is rapid—a major breakthrough. Many ask: “How can stablecoins reach $2 trillion by 2028?” I believe the path isn’t through “transaction scenarios” but primarily via payment use cases.
Current “marketing fee” models mostly serve exchange environments—issuers pay platforms/wallets to promote adoption. This is a transaction-oriented distribution strategy.
But in future payment scenarios, similar promotion logic may emerge—e.g., issuers subsidizing payment processors, banks, or corporate clients. Such mechanisms aren’t mature yet, but I believe they’ll develop quickly due to fierce competition.
This is the first stage: payment-driven growth led by traditional institutions, rapidly expanding stablecoin scale.
Stage two depends on when the U.S. SEC formally lowers barriers for Security Token Offerings (STOs) and greatly simplifies compliance. SEC’s incoming chair Gary Gensler reportedly signaled support about a month ago. I believe this could materialize within the next two years.
Once STO compliance is widely relaxed, the era of “tokenizing everything” arrives. Not just crypto assets, but traditional securities, bonds, funds—all could circulate and trade on-chain as tokens.
Demand for on-chain transactions will surge again, and stablecoins—as vital tools for on-chain settlement—will experience a second wave of explosive growth. Further, as Michael Saylor noted in February, stablecoin market cap could eventually approach $10 trillion—not unthinkable.
Hazel: But will user habits and network effects really break so easily? For example, Binance spent heavily promoting BUSD but didn’t achieve great success. Circle has spent years building partnerships, navigating regulations, opening channels—can newcomers really surpass such accumulated advantages?
Zheng Di: Your points are valid, but depend on perspective regarding stablecoin usage. If you see stablecoins as primarily consumer-facing (2C), then yes—capturing user mindshare is hard, entry barriers high for latecomers.
But we’re entering a new phase: stablecoins are becoming legitimized, mainstream, and entering payment ecosystems. Today’s stablecoin circulation still mostly serves transaction-related transfers; pure “payment” usage remains small. We hear anecdotes—Russia selling oil via certain methods—but gray-market scale pales against global compliant systems.
Rapid growth is happening in mainstream cross-border payments. Real demand exists, participants grow. Crucially, payment scenarios are primarily B2B (institutional/platform/corporate), not consumer-facing. Think of stablecoin payments as “underlying payment technology.” It changes the backend, not the frontend users see.
Example: when you swipe, you still see VISA, MasterCard, Apple Pay—but underlying clearing/settlement may now use stablecoins. Bridge, building on-chain payment infrastructure, sold for $1.1 billion at 100x PS—because of its “invisible replacement” potential.
LianLian’s collaboration with BVNK follows similar logic. Consumers don’t need to know Bridge or BVNK—users remain unaware. You replace the backend without re-educating users. User invisibility is the biggest advantage. Precisely because it’s B2B, replacement and competition in these domains are less difficult. Corporate decisions often hinge on incentives—how much promotion fee you offer.
Suppose I’m Meta—with massive ecosystem reach. To integrate your stablecoin system into my platform—ultimately “Zuckerberg decides.” Meta’s users overwhelmingly lack explicit “stablecoin” awareness. They know they receive tips, make payments, or settle on Facebook/Instagram—but not what asset underlies it. Therefore, I believe payment scenarios will be the most significant incremental breakthrough for stablecoins in the next 1–2 years. In contrast, transaction scenario expansion awaits simplified STO processes and real-world tokenization—only then will on-chain financial demand revive.
7. Big Tech and Stablecoins
Hazel: Earlier we discussed Meta. I’ve always wondered: according to the GENIUS Act vision, stablecoin issuers should be treated as “financial institutions,” right? But Meta is a tech company. Can’t it avoid issuing directly, instead having licensed entities issue while Meta handles usage and distribution? Or could Meta establish a financial subsidiary to issue, thus “bypassing” entity-type restrictions?
I discussed this with friends this morning. They asked: Meta is so big—why not acquire a bank, then let the bank issue stablecoins?
Sounds reasonable superficially, but I’d say: if it were that simple, Meta would’ve done it already. Why partner externally and pilot on Instagram instead? This suggests complexity. The core reason likely involves “piercing the corporate veil” regulation in the GENIUS Act targeting “large tech platforms.” That is, whether you control a bank via holding, create a subsidiary, or use coordinated actors, if regulators deem Meta the de facto controller or participant, restrictions apply.
In other words, even if you use a shell company with a financial license, if Meta pulls the strings behind it, you’re still restricted. The GENIUS Act may draw a clear red line: tech platforms cannot directly control stablecoin issuance.
Alternatively, the regulatory framework isn’t finalized—Meta itself may be waiting. It doesn’t know whether the final rules will truly pierce subsidiaries or indirect shareholders. But currently, “not getting personally involved, lying back collecting promotion fees” appears safer for Meta.
So I believe Meta isn’t unable to act—but sees no need. If you issue stablecoins yourself, you accept full financial institution regulation. For a tech platform, that means complex procedures, heavy responsibilities, extreme compliance pressure. Conversely, if Meta sticks to being a “scenario gateway,” it can embed stablecoins as payment or interaction tools within its ecosystem, letting others bear compliance, regulatory, and settlement risks.
I’ve long said Web3 increasingly resembles the internet. Ultimately, it’s about “scenarios rule, traffic rules,” not who controls infrastructure. Countless public chains, stablecoins, clearing systems—anyone can build technically. But real value lies with those possessing scenarios and users. If Ethereum is too expensive, I’ll switch to Aptos—cheap and unused. If Tron is too slow, I’ll pick another chain. Platforms like Meta possess immense distribution power and user bases—no need to personally dive into heavily regulated waters.
8. Yield-Bearing Stablecoins or Tokenized Money Market Funds?
Hazel: Regarding non-mainstream stablecoins—like Ethena-USDe, a yield-bearing stablecoin gaining attention from last year to now—what’s their post-compliance trajectory?
Zheng Di: My judgment: such stablecoins may remain a niche market. Current U.S. and Hong Kong legislation makes it extremely difficult for interest-paying stablecoins to go “mainstream.” Though Arthur Hayes (BitMEX founder) supports this model, regulators remain highly cautious. Thus, these stablecoins’ space may be confined to certain “non-compliant gray zones” or small-scale trials—unlikely to enter mainstream finance.
The real opportunity for “going mainstream” lies in TMMF (Tokenized Money Market Funds). That’s why Circle announced in January its acquisition of Hashnote. Hashnote specializes in compliant on-chain TMMF products. Circle explicitly stated in its prospectus observing a trend: major on-chain registrars increasingly prefer TMMFs over traditional stablecoins as collateral.
Why? Simple. In on-chain finance—market making, leveraged trading, liquidations—stablecoins themselves are non-interest-bearing assets. Using stablecoins as collateral generates no yield during the period. TMMFs differ—they’re essentially money market funds; as long as collateralized, they earn annual returns.
For large-volume, high-leverage on-chain market makers, this interest constitutes a vital income source. Hence, many on-chain market-making platforms and liquidity pools are gradually accepting TMMFs as
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