Original Author: Cao Le
Original Source: Financial Dog's Adventure
In just five days, the market capitalization of stablecoin issuer Circle surged from over $6.9 billion to over $20 billion. The increase in Circle's value may have surprised its founder Jeremiah and the team. The impression from discussions with the Asian dollar fund is that Circle's uniqueness in the compliant stablecoin space lies in its oversubscription core.
Undoubtedly, 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 is just the first step towards compliance and legality, a statement I found quite convincing. After TRUMP took office at the end of 2024, the market clearly began to accelerate. With the gradual implementation of the U.S. GENIUS ACT and Hong Kong's stablecoin regulations in 2025, Circle has played the role of both evangelist and promoter. At the same time, Circle is the stablecoin company with the most banking partners for deposits and withdrawals globally, including several systemically important banks (GSIB).
While the market rushed to buy Circle, its most important distribution channel, Coinbase, showed a lackluster performance in its stock price during the same period. This raises a core question: in the stablecoin space, is the real value held by the issuer or by the traffic channels? This article will delve into Circle's business model.
The "Exchange Center" of the Crypto World
If we imagine the crypto world as a group of offshore islands, Bitcoin is like the gold circulating on the islands, its value rising and falling with the tides; while stablecoins are like a prepaid card that can be exchanged for dollars at any time, allowing you to buy coconuts on the island and also swipe your card at supermarkets on the mainland.
The company issuing this "prepaid card," Circle, plays the role of the exchange center: you deposit $1, and it locks an equivalent amount of cash or short-term U.S. Treasury bonds in its vault, while simultaneously minting 1 USDC on the blockchain, ensuring that the channel between the digital island and the real banking system remains open.
The "Surrender" Path of Stablecoins
Before discussing Circle, it is necessary to clarify a perception: the birth of crypto assets (like Bitcoin) is often seen as a resistance to the over-issuance of traditional currency. However, stablecoins—especially those pegged 1:1 to the dollar—have taken a completely different path.
If Bitcoin is like the "heroes of Liangshan" trying to start anew outside the system, compliant stablecoins resemble "Song Jiang accepting the amnesty." By investing most of their reserve assets in short-term U.S. Treasury bonds and other real-world assets, they create a reservoir for the U.S. Treasury in exchange for compliance and legality.
This "surrender" makes them a key bridge connecting real-world fiat currency and the crypto world, but its essence has shifted from a disruptive monetary innovation to a supplement and "subsidy" for the existing financial system.
Can Stablecoins "Save" U.S. Treasuries? An Impossible Triangle
During the promotion of the U.S. stablecoin bill (GENIUS Act 2025), the narrative of "stablecoins saving U.S. Treasuries" has been repeatedly mentioned as a form of "patriotism." However, this may not hold up in commercial logic.
I propose an "impossible triangle" for stablecoins, meaning that a stablecoin scheme is unlikely to simultaneously satisfy the following three points:
Good for issuers: Sustainable business model with substantial profits.
Good for reserve assets: Able to support a certain type of asset (like U.S. Treasuries) on a large scale and without risk.
Good for users: Zero risk, high returns, low fees.
The premise of "stablecoins benefiting U.S. Treasuries" is that the market has unlimited demand and confidence in U.S. Treasuries. However, if U.S. Treasuries themselves face a payment or trust crisis, the 1:1 pegged stablecoins will inevitably be impacted, and the trust chain will break instantly. This is akin to a trust company investing client funds rated as low risk into high-risk real estate projects. Once the underlying assets collapse, the financial products above cannot escape unscathed. In the context of the stablecoin bill requiring monthly audit disclosures, the inherent risks of U.S. Treasuries are difficult to hide.
The Mystery of Circle's Business Model and Valuation
Circle's core profit model mainly consists of two points:
Net Interest Margin: USDC holders do not earn interest; Circle invests reserve assets in short-term U.S. Treasuries and earns interest, with the entire margin going to itself.
Payment and Settlement Fees: Circle wholesales USDC through its enterprise platform Circle Mint. If corporate clients need to exchange USDC back to dollars on the same day (T+0), Circle charges a channel fee of 0.1% – 0.4%. This can be understood as a combination service of "cross-border payment wallet + 24/7 settlement."
However, this business also faces "regulatory constraints." Both the U.S. GENIUS Act 2025 and Hong Kong's Stablecoin Regulation (Draft) prohibit issuers from "short-term borrowing for long-term investment" (using short-term liabilities to purchase long-term assets) or leveraging. This means Circle cannot create profits like traditional banks using the money multiplier effect. Conversely, both the U.S. and Hong Kong proposals allow traditional banks to issue stablecoins.
A "quasi-bank" with limited business operations has a price-to-earnings (PE) ratio that once reached 147 times (as of June 9, 2025), while traditional financial giant JPMorgan's PE ratio is only 13 times. Are investors chasing safe interest margins or the imaginative space under the Web3 narrative? The valuation logic behind this is worth pondering.
Core Driving Force: The World Has Long Suffered from "SWIFT/VISA"
A friend of mine once pointed out succinctly: "Stablecoins have one theme—The world has long suffered from SWIFT/VISA."
Traditional cross-border wire transfer networks are like century-old railways, not only expensive (often $20-40) but also opaque, taking 3-5 days. In contrast, blockchain-based dollar tokens are like newly built maglev trains: although they also require security checks (compliance), ticket prices are transparent, and speed is measured in seconds. Not everyone cares about consensus algorithms, but almost everyone feels the pain of high fees. This simple demand for "cost reduction and speed increase" is the fundamental driving force behind the rapid penetration of stablecoins like USDC.
Of course, transferring between crypto wallets incurs very low fees, but once you need to convert digital assets into fiat currency in a bank account, you still cannot avoid compliance friction in the traditional system. For example, remitting $200 from Singapore to the U.S. incurs a fee of 40 Singapore dollars from the sending bank and another $10 from the receiving bank, leaving only $150 upon arrival. This fee is nominally a SWIFT fee, but the bulk is actually the compliance costs banks incur for anti-money laundering (AML) and anti-fraud measures.
Therefore, from crypto wallets to bank accounts, compliance costs are inevitable; the key is who bears them.
Circle's Strategy and the Reality of Channels
At the end of 2023, Circle closed its fiat exchange service for retail customers, which precisely illustrates the high costs of compliance and anti-money laundering at the retail end, a common pain point for all fintech companies.
Its response strategy is to launch the recently introduced Circle Payment Network, no longer directly serving retail customers but connecting institutional and corporate clients into a distribution network, with the cooperating banks of these institutions and enterprises responsible for the final deposits and withdrawals. This is an innovation over the traditional SWIFT model, eliminating the intermediary bank model and shifting compliance and anti-money laundering costs to network participants.
However, the more realistic issue is the channel. Although Circle is labeled as a "crypto concept stock," its profit statement shows that as much as 58% of its revenue needs to be allocated as "distribution and transaction costs" to channel partners, with Coinbase being the largest beneficiary. Like the story of the mobile internet era: whoever controls the traffic and scenarios takes the largest piece of the value chain.
Since its listing, the divergence in stock price trends between Coinbase and Circle (commonly referred to as the "scissors gap") has continued to widen, further confirming this point: channel partners earn real money, while issuers are responsible for telling grand narratives.
Issuing stablecoins is a business that "seems simple but has high barriers": regulatory costs are increasingly similar to those of commercial banks, yet it lacks the money multiplier that banks rely on for survival. Interest income is entirely subject to the Federal Reserve's interest rate policy, making it difficult to stabilize expectations. If channel traffic is choked by platforms like Coinbase, issuers can only rely on high revenue sharing to gain market share.
Therefore, for most enterprises and institutions, relying solely on "issuing tokens" for revenue is not a wise move. The real opportunity lies in using stablecoins as an efficient financial tool to empower their business scenarios. As for how to operate specifically, I will explore this in detail in the next article, "The Boss Asks Me, How Can the Company Participate in Stablecoins?"
Conflict of Interest: The author is a professional in the stablecoin industry.
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