Original Title: "A 20,000-Word Analysis of Circle: Can Investors Still Understand It?"

Original Source: Hazel Hu

Circle's surge to $47 billion is perhaps the most desolate episode for those in the crypto space. I asked a few friends in the industry, and most missed the boat or sold too early. However, a few outside listeners who still hold after listening to our podcast managed to buy in and make a profit, with the worst case being those who bought $COIN and made some money… Compared to losing money trading cryptocurrencies, it's probably more disheartening to miss out and see outsiders making money.

The transcript of the second episode discussing Circle with @PodOur2Cents and Mr. Di has also been released, packed with information. I will try to share some highlights here, and the remaining content can be found in the link at the end of the article. This article is purely a fundamental analysis and does not constitute any investment advice.

【Tether and Circle: Two Different Species】

Zheng Di: Although Tether and Circle are both engaged in the stablecoin business, they are actually two different species. This difference mainly stems from two key factors:

1. Compliance Differences: Circle has essentially achieved 100% compliance with reserve requirements, while Tether meets about 80% of regulatory requirements, with the remaining 18% not compliant with the "Genius Act." However, it is worth noting that Tether's main source of profit comes from this 18% non-compliant portion.

2. Scale of Funds: Tether's current external investment and lending scale has reached $30 billion. Although often questioned about compliance issues, when a non-compliant company has the current Secretary of Commerce backing it, and with SoftBank and Masayoshi Son already on board, plus a $30 billion checkbook to utilize, can it not pave a compliant path? It certainly can. Having money and political connections is a hard truth. Therefore, in my view, Circle will face substantial challenges in achieving a valuation target of $25 billion or higher.

【Is the Crypto-Friendly Banking Narrative Still Relevant?】

Zheng Di: What story is Zhong An telling? Zhong An roughly states that it holds 43% of Zhong An Bank, and it is one of the Hong Kong stablecoin sandbox experiments, being an early shareholder of Circle with a single-digit shareholding, likely not exceeding 10%. So first, the asset of Circle will be valuable in the future. Second, if the stablecoin reaches a scale of HKD 500 billion, most of the funds will be held in my Zhong An Bank, and I only need to pay 2% interest on deposits. That's the story, and as a result, it doubled in a week.

Why do I think this story is not very credible? Because first, the concept of a crypto-friendly bank has actually faded away. Initially, we knew why banks like Metropolitan Bank and Signature Bank (which was not listed at the time), as well as Silvergate, were highly sought after in the U.S. stock market. Silvergate even became one of the rare ten-baggers among U.S. bank stocks, achieving ten times its value in about two to three years. Why? Because at that time, even giants like Coinbase had only three banks willing to do business with them; other banks would not open accounts for them. Therefore, the fiat currency deposited by customers could only be held in Metropolitan Bank, Silvergate, and Signature Bank.

These three banks did not need to compete; they simply accepted fiat deposits from Web3 enterprises and trading platforms without paying interest, which was zero interest. They then used this zero-interest money to trade government bonds and MBS, earning a spread of over 2.5%. However, as more banks became willing to serve Web3 enterprises and trading platforms, the era of zero-interest savings has long gone.

Of course, Zhong An did not tell this story, only mentioning 2%. But there are several issues here. First, we know that the main bank for the Web3 industry in Hong Kong should be Standard Chartered, not Zhong An. Zhong An is actually a virtual bank; while it is relatively friendly, it is still not a primary bank. We also know that Coinbase in Singapore chose Standard Chartered as its receiving bank. Standard Chartered is known for being aggressive and having a good appetite for business, making it friendlier than other banks. Therefore, in Hong Kong, the main bank is also Standard Chartered, making it unlikely that all or most of Circle's reserve deposits would be held in Zhong An Bank.

【The Story Behind New York's BitLicense】

Zheng Di: For those of us deeply involved in the Web3 industry, we should know what is truly difficult to obtain: New York's BitLicense. Of course, Circle has this license; there are only 20 licenses in the world, but you will find that the transaction volume in New York is very, very low. The business that can be conducted with this license is quite limited. Every quarter, New York's financial regulatory authority publishes this information.

But why do people still tirelessly pursue the New York license? Because it is a symbol of strength, a stamp of approval. It means I can deal with all other states, including the federal government, and with other countries, such as when I need to interact with Singapore's Monetary Authority (MAS), Hong Kong's Securities and Futures Commission, or financial regulators in Dubai and Japan. I can say, I have one of the 20 BitLicenses from New York; aren't your licenses trivial compared to mine?

The establishment of the BitLicense actually started in 2013. At that time, New York held a hearing, and they said that New York was too strict, and that if you didn't loosen up, the U.S. would lose its technological lead in Web3, right? The idea of the BitLicense actually originated from that hearing in 2013.

The person who chaired that hearing was from New York's regulatory authority, and he was the one who invented the BitLicense. But it is particularly amusing that after he invented this BitLicense system, he did not issue the first license and then left; he resigned and started his own consulting company. He provided consulting services for all applicants for the license. I suspect Circle might have hired him; I don't know, but I guess it should be him because he designed it himself. Who better than him to be a consultant to guide you on how to obtain this license since he designed it? So he made quite a bit of money with his consulting company.

So you see, in America, the exchange of power and money has existed since ancient times; it has always been a commercial society, right? This is also why I say that the narrative in the stock market, which believes that USDT is non-compliant and will fail, while USDC is compliant and can capture market share, is untenable.

The following is the full transcript of this conversation

· Guest: Zheng Di/Didier, frontier technology investor, managing the knowledge community "Dots Institutional Investor Community"

· Host: Hazel Hu, host of the podcast "Pod Our 2 Cents," with over 6 years of experience as a financial media reporter, core contributor to the Chinese public goods fund GCC, focusing on the practical applications of crypto.

1. The Crazy Coin Stocks

Hazel: Let's start with the stock price, which everyone is most concerned about. What does Mr. Di think about Circle's performance in the first two days of trading?

Zheng Di: Regarding Circle's IPO pricing, I think the initial position was relatively reasonable, and there were indeed investment opportunities. However, I have always felt that Circle's model has many long-term concerns, so I don't quite understand why it could be driven up to $25 billion (Note: As of the release of this transcript, Circle has surged to $35 billion). Some people even told me $80 billion, $100 billion, right? In fact, I haven't had much qualification to comment on this stock price in the past few days because I have been educated by this stock trading circle for several days, saying that one should look at the long term. But in reality, I feel there is a huge information gap and cognitive asymmetry between those inside and outside the circle.

In the cryptocurrency field, we are all accustomed to using USDT and are well aware of Tether's actual strength. There is a view that although Tether and Circle are both engaged in the stablecoin business, they are actually two different species. This difference mainly stems from two key factors:

Hazel: I personally feel that there are still too few quality assets in the Web2 to Web3 transition, so when a decent target appears, everyone rushes in.

Zheng Di: The meme frenzy and the success of Trump Coin over the past year, while a huge personal achievement, may be a tragedy for the entire Web3 industry. It has further reinforced the external perception of this industry as a "casino" and siphoned off a lot of liquidity. The altcoin season usually requires a loose liquidity environment, but the Federal Reserve has not yet cut interest rates. Market expectations have been adjusted from an optimistic five rate cuts at the beginning of the year to two (the earliest possibly in September). Former Dallas Fed President Rob Kaplan (now Vice Chairman of Goldman Sachs) predicted over a month ago that there would only be two rate cuts. Some large U.S. buy-side institutions even believe there will be no rate cuts for the entire year.

In this environment, Bitcoin remains strong, maintaining a market cap share of 60%-65%. The liquidity in the altcoin market continues to be sluggish, with funds mainly concentrated in Bitcoin and a few leading projects. This also explains why Ethereum's core team, such as ConsenSys, is pushing for an Ethereum version of "MicroStrategy" (like SBET). During the Dubai 2049 event, people were actually discussing that Ethereum can no longer short and whether it needs to change operators. I think this refers to ConsenSys getting involved with SBET. They initially raised $400 million and have already bought over $300 million, right? Then there is another $1 billion ATM; will they continue? Of course, it also depends on their fundraising ability and their premium, which is also very important, depending on their operational situation.

I have previously mentioned this on my platform and also relayed others' opinions. Currently, there are five main lines in the U.S. stock market: Web3, autonomous driving, robotics, nuclear power and fusion, and quantum computing. When liquidity is relatively good, focusing on these five lines can generally yield profits. This year, we have seen that the wealth generated from cryptocurrency stocks is significantly higher than that from altcoins, indicating that their elasticity is better than Bitcoin's. What I have observed is that many large players in the crypto space, as well as mining operators, are transferring substantial funds into the cryptocurrency stock market to trade these stocks.

I wrote about a company called Canaan, which is a U.S. listed mining company associated with Bitmain, and its computing power has now reached 32 EH. If the upcoming 18 EH is injected, it will quickly reach 50 EH, entering the ranks of leading listed miners. Much of this is essentially the infusion of miners' computing power. You will also see some miners hoping to monetize through stocks. For example, there is a company called DFDV that implements a Solana coin hoarding strategy; it originally focused on DeFi but later shifted to hoarding Solana coins, and its stock price has increased a hundredfold. There is also a company in Singapore that initially provided medical services but announced it would hoard Bitcoin, and its stock price has also risen significantly. Therefore, I believe the stock market is currently extremely hungry for Web3 assets.

A few days ago, a friend asked me to help analyze a question, essentially commissioning me to do a free "research project." He asked me why MetaPlanet and Hong Kong's Hong Kong Asia stocks, both advised by Jason from Solar Ventures, have such a large disparity in stock performance.

I have been pondering this question. One possible reason is that Hong Kong lacks local funding, and investors have more alternative targets to choose from, so they don't necessarily have to buy Hong Kong Asia. In contrast, the Japanese market is relatively closed, with a large amount of local funding, so when a concept like "Japan's version of MicroStrategy" emerges, the market is willing to buy in. It may also be due to a better and more concentrated chip structure, making it easier for the market to speculate. Of course, I haven't conducted in-depth research yet; these are just preliminary observations.

However, this situation illustrates a phenomenon: the current popularity of "crypto stocks" is not limited to the U.S. stock market. We have seen MetaPlanet in the Japanese market and projects like Boya and Hong Kong Asia in the Hong Kong stock market. Although their price increases may not be as dazzling as MetaPlanet's, they have also achieved several-fold increases.

Hazel: It's not just companies that have bought coins; some payment company stocks in the Hong Kong stock market, which are not closely related to cryptocurrencies, have also skyrocketed.

Zheng Di: That's right. You might say you haven't explored related businesses, but the market believes you have. You can't say you don't have it. If I say you have it, then you have it. For example, companies like Zhong An, Lianlian, and Yika have all exploded significantly, basically doubling in a week.

What story is Zhong An telling? Zhong An roughly states that it holds 43% of Zhong An Bank, and it is one of the Hong Kong stablecoin sandbox experiments, being an early shareholder of Circle with a single-digit shareholding, likely not exceeding 10%. So first, the asset of Circle will be valuable in the future. Second, if the stablecoin reaches a scale of HKD 500 billion, most of the funds will be held in my Zhong An Bank, and I only need to pay 2% interest on deposits. That's the story, and as a result, it doubled in a week.

Why do I think this story is not very credible? Because first, the concept of a crypto-friendly bank has actually faded away. Initially, we knew why banks like Metropolitan Bank and Signature Bank (which was not listed at the time), as well as Silvergate, were highly sought after in the U.S. stock market. Silvergate even became one of the rare ten-baggers among U.S. bank stocks, achieving ten times its value in about two to three years. Why? Because at that time, even giants like Coinbase had only three banks willing to do business with them; other banks would not open accounts for them. Therefore, the fiat currency deposited by customers could only be held in Metropolitan Bank, Silvergate, and Signature Bank.

Additionally, we must recognize that both U.S. legislation and the Hong Kong Securities and Futures Commission's consultation paper on stablecoins from last July prohibit stablecoin issuers from directly paying interest to users. We should consider why this is the case. The reason is likely that there is a fear of excessive competition; later competitors will certainly say, "I pay interest, and you don't, so I will promote this." Such competition could weaken the financial capacity of stablecoin issuers, making them more susceptible to failure, which could lead to serious social incidents and negative impacts. Therefore, they prohibit direct interest payments to users. Of course, there are ways to circumvent this, such as using promotional fees, but on the surface, it is not allowed to directly pay interest.

We also need to consider a question: what is the biggest disadvantage of issuing a Hong Kong stablecoin compared to a U.S. stablecoin? Your interest rates are low. Whether you buy CNH government bonds, panda bonds, or whatever, your interest rates are low. In the U.S., you can easily get 4% just by buying something, so this is a disadvantage.

Many people may not have noticed that the consultation paper from last July allowed the SFC to permit Hong Kong stablecoin issuers to mismatch. This means that although you are issuing a Hong Kong stablecoin, you can actually buy, for example, CNH government bonds or panda bonds, which currently have an issuance scale of 300 billion. For instance, you can buy U.S. government bonds to enjoy high interest, but you must have special approval from the Hong Kong Securities and Futures Commission. Secondly, you need to have excess reserves to hedge against currency mismatch exchange rate risks. If you meet these two conditions, you can buy high-rated sovereign bonds in other currencies, not necessarily keeping them in Hong Kong dollar deposits.

Therefore, I believe there is a significant information gap between the stock market and those who have long studied stablecoins. This is why people are more willing to believe such narratives, leading to a doubling in a week.

2. The Landscape of Payment Company Licenses

Zheng Di: Lianlian and Yika both claim to have obtained the U.S. Money Transmitter Service license. In fact, in 2018, trading platforms in the crypto space were very keen to obtain this Money Transmitter Service and other payment licenses in the U.S. We all know that these licenses are not particularly difficult to obtain. Especially the Money Service Provider (MSP) license is quite easy; you might need to pay around $1 million for it, though I don't know the current price, but that was the price at the time.

At that time, our feeling was that the Web3 industry seemed to be doing some useless work, which didn't really help the business. Now, how has it turned into a story for these stock companies and listed companies? The stock trading circle doesn't understand these things; they think that this license must be hard to obtain. However, those of us deeply involved in the Web3 industry should know what is truly difficult to obtain: New York's BitLicense. Of course, Circle also has this license; there are only 20 of them in the world, but you will find that the transaction volume in New York is very, very low. The business that can be conducted with this license is quite limited. Every quarter, New York's financial regulatory authority publishes this information.

But why do people still tirelessly pursue the New York license? Because it is a symbol of strength, a stamp of approval. It means I can deal with all other states, including the federal government, and with other countries, such as when I need to interact with Singapore's Monetary Authority (MAS), Hong Kong's Securities and Futures Commission, or financial regulators in Dubai and Japan. I can say, I have one of the 20 BitLicenses from New York; aren't your licenses trivial compared to mine? Other countries' regulators will view the New York regulatory threshold as the highest and strictest in the world, with only 20 licenses, making it difficult to obtain. This will open the door for other countries' licenses and other states' licenses. This is why people are willing to obtain this license.

Including now, the Intercontinental Exchange, owned by the New York Stock Exchange (NYSE), currently has a market value of around $200 million. After MicroStrategy stopped cooperating with it, its value plummeted, but why has it been rising recently? I believe the market is speculating whether someone will acquire it. What value does it have? Its business is currently very limited; in the first quarter, its fee income was only $12 million, and this was before MicroStrategy stopped cooperating, so we can expect a significant drop in the second quarter. However, its only valuable asset is that it has one of the 20 New York state licenses, so everyone is speculating whether someone might acquire it for these licenses.

Therefore, I believe that when we look at these payment institutions, whether they have U.S. payment licenses or Money Service Provider licenses, the stock market will use them to tell various narratives. The way the stock market talks now feels very similar to the ICO model of 2017: I tell a story, and everyone believes it, thinking this is impressive, that is impressive. But people never think about what is behind it. However, in the current Web3 industry, I believe users have become very discerning; they don't believe anything you say. Unless you really come through with buybacks and dividends, even if you have cash flow, I still won't believe you. Only if you actually do buybacks and dividends will I believe you. This is the current situation, which also reflects a lack of liquidity. I believe the stock market still has ample liquidity, and for various narratives and stories, it tends to believe first and then verify, believing first to make money, and later trusting those who take over. This is the current logic.

But I still want to say that payment companies introducing stablecoin payments, like Lianlian, which I have analyzed, and Yika, which I haven't researched yet, could benefit from their collaboration with BVNK, a stablecoin payment company in the UK, in an optimistic scenario. In an optimistic case, I believe it could increase profits by about 180 million in net profit. Currently, it has a pre-tax loss of about 500 million, so it can still partially turn losses into profits, which is meaningful. This means it could increase the total payment amount by 0.2% to 0.3% as part of the profit increase, and stablecoin payments can indeed bring some additional revenue. Therefore, I think there is some rationale for the market to speculate on Web2 payment companies.

Hazel: You just mentioned the financial license in New York. I actually have an impression that Circle was the first to obtain the BitLicense back in 2018, right? Because I had just started covering the industry news, and I seem to remember a bit about this.

Zheng Di: Yes, this matter is particularly interesting and quite amusing, so I think it reflects the model of the combination of power and money in the United States. This is why I often say that you shouldn't look at USDT as non-compliant, but they have now latched onto the leg of the Secretary of Commerce, whose son was previously an intern at Tether and is now on board with Tether. I would say that USDC hasn't really latched onto any significant support. The power-money exchange in the U.S. has actually been going on for a long time. You can see when New York State had the idea to establish the BitLicense; it actually started in 2013. At that time, didn't New York hold a hearing? They said that New York was regulating too strictly, and that the U.S. would lose its technological leadership in Web3 if it didn't loosen up, right? The idea of the BitLicense actually originated from that hearing in 2013.

The hearing was hosted by New York's regulatory department, and the official who invented the BitLicense was present. But amusingly, after he invented this BitLicense system, he didn't issue the first license and then left; he resigned and started his own consulting company. He provided consulting services for all applicants for the license, and I suspect Circle might have hired him, though I don't know for sure, but I guess they did because he invented it. Who could be more suitable to be a consultant to guide you on how to obtain this license than the person who designed it? So he made quite a bit of money with his consulting company.

So you see, this kind of power-money exchange has existed in the U.S. since ancient times; it has always been a commercial society, right? This is also why I say that the narrative in the stock market, which believes that USDT is non-compliant and will fail in the future while USDC is compliant and can capture market share, is not tenable.

3. Circle and Coinbase: A Tangled Relationship

Hazel: You just mentioned that the most obvious partner for USDC now is Coinbase. This is also one of the topics we will discuss next. In Circle's prospectus, it has clearly stated its relationship with Coinbase. This partnership significantly affects Circle's net profit. Although its revenue is about $1.6 billion, after deducting various expenses, the net profit is only over $100 million.

Zheng Di: This agreement is actually quite unfavorable for Circle. The basic structure of the revenue-sharing agreement is as follows: Circle's income primarily comes from the interest on its reserves. These reserves can only be invested in U.S. government bonds maturing within 93 days, repurchase agreements maturing within 7 days, demand deposits in banks, and money market funds that invest in the aforementioned three types of assets.

However, many people do not understand the details of the Genius Act and mistakenly believe that stablecoins can invest in money market funds similar to those before the 2008 Lehman crisis. In reality, ordinary money market funds typically allocate to longer-term bonds, such as ten-year government bonds, and even assets like CDOs. When a run occurs, the duration of the assets does not match the liabilities, which can trigger a liquidity crisis. But the Genius Act clearly stipulates that the money market funds invested in reserves must only contain three types of short-term assets. As long as there is even a tiny amount of ten-year government bonds, it cannot be considered compliant reserves.

Many traditional researchers may not have read the act carefully and analyze the risks of stablecoins based on experience and assumptions, which can easily lead to misjudgments. 85% of Circle's reserves are managed by BlackRock, which established a Circle Reserve Fund that primarily invests in the aforementioned three types of short-term assets, with an average duration of only twelve days; the remaining 15% is kept in a bank's demand account. While this approach is conservative, it can yield an annualized return of over 4%.

Circle's entire revenue basically comes from this interest income, not from charging user fees. The problem is that it does not return this interest to the token holders but pays it to promoters, such as Coinbase. This is actually a disguised profit distribution mechanism.

The revenue-sharing agreement between Circle and Coinbase is structured in a "three-step" process. Many people think Coinbase takes 50%, but that is not accurate. Circle actually allocates 60% of its revenue as promotional fees, of which about $900 million goes to Coinbase, and another $60.2 million goes to Binance and other platforms. This means that out of Circle's $1.6 billion in revenue, aside from promotional fees, it is left with only over $600 million. Of that, over $500 million is for its own management and operational expenses, and after deducting taxes and other expenses, the final net profit is only about $161 million.

Coinbase takes over 56% of Circle's revenue, but it only accounts for an average of 22% of USDC reserves on its platform. This revenue is far higher than its actual market share because the revenue-sharing mechanism is set up to be extremely favorable to it. Specifically, the first step of this revenue-sharing agreement is to determine the "payment base," which is essentially equivalent to Circle's interest income. Circle will first take 0.1% to 1% from this to cover operational costs, and the remaining portion enters the "product revenue sharing" phase.

In this phase, Circle and Coinbase will share revenue based on the proportion of USDC held on their platforms daily. If Coinbase's platform holds 22% of USDC, it takes that portion of the revenue; if Circle's platform holds 6%, it takes 6%. The second phase is the "ecosystem revenue sharing." The remaining revenue is split 50/50 between Coinbase and Circle, and Circle may also need to continue paying other partners. Overall, Coinbase effectively takes 56% of Circle's total revenue.

Why would Circle accept such an unfavorable agreement? The reason goes back to 2018. At that time, USDC was jointly launched by Circle and Coinbase, establishing a joint venture called Center Consortium, with both parties holding 50% equity. However, by 2023, to facilitate Circle's independent IPO, it had to sever the equity binding with Coinbase. Thus, Circle repurchased 50% equity of Center from Coinbase using its 8.4 million shares, valued at over $200 million. This transaction was calculated at $25 per share, and its market value has since multiplied several times.

In exchange, Circle signed two cooperation agreements:

· Main Cooperation Agreement: Signed in August 2023, lasting three years. If Coinbase meets the KPIs for "product revenue sharing" and "ecosystem revenue sharing" at the end of the agreement, it has the right to automatically renew for three years, with unlimited renewals.

· Ecosystem Cooperation Agreement: Stipulates that if Circle and Coinbase want to introduce new ecosystem partners, both must agree in writing. This means Circle is effectively deeply bound within Coinbase's ecosystem and cannot independently expand its ecosystem resources.

The agreement also includes a "legal barrier exit clause": If future laws prohibit Circle from paying promotional fees to Coinbase, both parties must negotiate to amend the terms. If negotiations fail, Coinbase has the right to demand that Circle transfer all trademarks and intellectual property, including USDC and EURC, to Coinbase.

This clause is clearly set up to guard against the possibility of future regulations prohibiting "disguised interest payments" to promoters. For example, if users hold USDC on Coinbase and receive a 4% return, this interest is actually paid by Circle to Coinbase, which then passes it on to the users. If future laws prohibit this indirect rebate mechanism, Circle would have to stop paying promotional fees.

It can be said that Coinbase and Circle are very "shrewd" in their agreement design, considering almost all potential legal risks and locking Circle completely within their system through the agreement terms. Circle is no longer just a partner but more like a "sub-ecosystem unit" of Coinbase.

Hazel: This is basically a sellout agreement, right?

Zheng Di: Yes, I have also studied the structure of this agreement. If Circle has no legal barriers but simply refuses to pay the revenue share, what happens? In fact, the agreement does not set up an arbitration mechanism. However, since the agreement is governed by New York law, Coinbase can fully file a lawsuit in New York. If Circle refuses to fulfill the agreement, I believe in most cases it would lose. The court would likely support the continuation of the agreement, and if Coinbase is strong enough, it might directly demand that Circle hand over trademarks and intellectual property. In this case, Circle would basically be unable to escape this agreement.

4. Insights into Coinbase's Risks and Opportunities

Hazel: You just mentioned the 4% interest rate. In fact, the USDC deposit rate that Coinbase now offers users is not just 4%, but has been subsidized to an annualized 12%. This level is already at a point where it feels "too good to be true." When Chinese users see guaranteed returns above 10%, many people's first reaction is, "Is this a scam?" But in reality, is this to meet the renewal conditions in the cooperation agreement with Circle, by increasing the USDC yield to attract users?

Zheng Di: You ask a great question. Although many people think these two cooperation agreements are undisclosed, they are actually attached to Circle's prospectus. It's just that the specific data details are not disclosed. According to U.S. securities regulations, major cooperation agreements and key personnel employment contracts of listed companies must be made public. Returning to the agreement itself, Coinbase must meet two prerequisites to obtain the "unlimited automatic renewal rights" of the agreement:

Achieve the KPIs for product revenue sharing;
Achieving Ecosystem Revenue Sharing KPI

The threshold for ecosystem revenue is relatively simple to understand. For example, Coinbase must continue to support USDC trading pairs, the main chain deployment of USDC, compatibility with official wallets, etc. Whether there are exclusivity requirements for the platform is not explicitly disclosed in the current agreement. The KPI for the product revenue sharing part may have set a minimum threshold, such as a certain proportion of USDC that must be held on the platform, but the specific amount has not been publicly disclosed.

According to public information, Coinbase has received about $300 million in revenue sharing from Circle this year, while simultaneously investing about $100 million in "deposit incentives"—that is, encouraging users to deposit USDC on the Coinbase platform. Why is Coinbase willing to spend this $100 million? I believe there are two possible explanations:

First, the agreement stipulates a gradually increasing KPI threshold. To meet this, Coinbase must spend money to attract more USDC deposits;

Second, even without a mandatory threshold, Coinbase knows that the more USDC it has on its platform, the more revenue it will receive. Since these subsidies are paid by Circle, there is no cost pressure on Coinbase, so it is naturally willing to promote.

As for why Coinbase offers a USDC deposit interest rate as high as 12%, I believe their strategy has shifted. Previously, they focused more on attracting spot users and directing funds to domestic trading platforms in the U.S. But now, with the launch of ETFs, U.S. retail investors can invest in BTC and ETH through ETFs without needing to buy on Coinbase, and the transaction fees are much lower.

Coinbase's market maker trading fees typically range from 0.02% to 0.06%, and the ETF fees are estimated to be similar, so the trading fee income from Coin is under pressure to decline. Currently, over 64% of Coinbase's revenue comes from "altcoins," with XRP and Solana being the largest contributors: XRP accounts for about 18%, and Solana accounts for 10%, totaling about 28%. If XRP or Solana launches an ETF in the future, these trading fees will also be impacted.

Therefore, the market may not realize a practical issue: the more ETFs there are, the harder it becomes for Coinbase's spot business. If the U.S. really launches more than 40 crypto ETFs in the future, Coinbase's domestic spot business will have almost no competitiveness. So where does Coinbase go from here? I believe there are two directions:

1. Offshore Market (Coinbase Global): Currently only accounts for 20% of its total revenue, but has huge growth potential;

2. Derivatives Business: Not covered by ETFs, and competition is not as fierce. Coinbase's recent acquisition of Deribit is a key step in this layout.

From a strategic perspective, acquiring Circle is not cost-effective. Because Circle can no longer escape the constraints of the agreement, Coinbase has already gained significant benefits from the agreement and does not need to buy the entire company at a high price. They just need to continue to extract profits from Circle. Therefore, Coinbase is no longer focused on how to "milk the spot market" from domestic users but is shifting its energy towards offshore markets and derivatives trading. For example, this 12% interest rate subsidy is not given to all users but is concentrated on Deribit accounts or Global users. The initial subsidy threshold was low, such as no limit on deposit amounts, but later, due to a large influx of Chinese users, it was quickly reduced to a limit of 1 million USDC per account, and now it is only 100,000.

However, some "arbitrageurs" will operate through multiple KYC and accounts; for example, with 10 accounts, they can achieve a limit of 1 million and enjoy an annualized interest rate of 12%. But Coinbase's core lies in the "conversion rate": you deposit money, and while you may not trade immediately, a portion of people will eventually trade. As long as this portion converts, it is worth the cost.

5. The Genius Act and the Future of Stablecoins

Hazel: A few days ago, I read a report from Artemis, which analyzed the $240 billion stablecoin market. The report begins by pointing out a trend: the stablecoin industry is shifting from an "issuance-oriented" model to a "distribution-oriented" model. The profits of issuers are becoming increasingly difficult to maintain, while channel capabilities are starting to become the core competitiveness. This also leads us to the issues we discussed earlier regarding USDT and USDC. Especially after the stablecoin bill is introduced, everyone is thinking: after compliance, what impact will various stablecoins face? For example, in the context of a large number of compliant institutions entering the market, can Tether maintain its leading position?**

Zheng Di: I believe the answer depends on the final version of the "Genius Act." Many people mistakenly think that the Democrats oppose stablecoins while the Republicans support them, but that is not the case. This year, when the FIT21 bill passed in the House of Representatives, there were also 71 votes in favor from the Democrats. This indicates that promoting the development of stablecoins has become a bipartisan consensus. Even Elizabeth Warren, who is considered the most anti-crypto, has publicly stated that stablecoins could develop to $2 trillion in the next three years and will strongly support the global dominance of the U.S. dollar. She opposes the Genius Act mainly for two reasons:

First, the corruption issue has not been resolved. She criticizes the bill's amendments for prohibiting senior government officials from participating in stablecoin businesses but not prohibiting individuals at the presidential or vice-presidential level, such as concerns about the Trump family's issuance of the USD-1 stablecoin.

Second, the bill lacks effective regulation of offshore stablecoins (especially targeting Tether).

I have mentioned before that USDT's (Tether) main source of profit currently comes from that 18% of "non-compliant assets." This includes about 100,000 bitcoins, 50 tons of gold, and investments in Bitdeer—many people may not know that Tether is already the second-largest shareholder of Bitdeer, holding 25.5%.

Additionally, it holds a 70% stake in an Argentine sugar company, Adecoagro. Many people do not realize that Tether is currently one of the largest lenders in the entire Web3 industry, with total debts amounting to about $8.8 billion. Besides that, it has other forms of investments and revenue channels.

If the final Genius Act does not impose strict long-arm jurisdiction over offshore stablecoins, Tether's offshore model can continue to exist and enjoy arbitrage opportunities. It could even launch a compliant version of a stablecoin in the U.S. as a "facade project," while its main business continues to profit from the offshore model.

Thus, we may see that the offshore market remains USDT's "comfort zone," while in the onshore market, it has no advantages in compliance and licensing. For example, in Europe, Tether has not obtained the relevant licenses under MiCA (the Markets in Crypto-Assets Regulation) and has therefore been delisted. In contrast, USDC can still be used in the European market, including some stablecoins that have obtained MiCA approval, which can continue to participate in traditional payment scenarios.

However, it should be noted that the trading scenarios in Europe themselves have little profit margin. We can see this from the case of Bistamp: this established European trading platform, founded in 2011, was ultimately sold to Robinhood for only $200 million, which is quite surprising. This also indicates that the trading business in Europe "has no profit," and even if compliant, the significance is limited.

Although payment scenarios still have some potential in Europe, overall, the competition in the onshore market has become very fierce. USDC has to face USD1, Stripe's USDB, and various stablecoins issued by the banking system. These participants all have a compliance foundation and come with traffic or payment network resources, making competition increasingly intense.

You can see the limitations of other stablecoins in the market:

PayPal's PYUSD, when launched, many thought it was "the wolf is coming." But now it only has a circulation of eight or nine hundred million dollars, and I guess a big reason is the unwillingness to pay promotional fees;
USDC has a circulation of $61 billion, but the cost is that it has given up about 60% of its revenue to pay promotional fees, which is essentially an extremely capital-intensive growth model;

Whereas USDT goes completely in the opposite direction, not only not paying promotional fees but instead charging partners a fee of 10 basis points. Tether's logic is: I open the API for you, allow you to mint and redeem, and support you in market making, which is already "giving away money," so you should pay me. But we cannot rule out another scenario: if Warren's insistence and the voices of some Democratic lawmakers ultimately lead to the addition of strict provisions targeting offshore stablecoins in the bill, completely closing off the space for "regulatory arbitrage," then Tether's existing model will be very difficult to sustain. So ultimately, the key still depends on the regulatory attitude. Will regulators truly impose penetrating restrictions on offshore stablecoins? This is fundamental to determining the future landscape.

6. The Two-Stage Rocket of Stablecoin Development

Zheng Di: I have always believed that the future development pattern of the stablecoin market can be described as a "two-stage rocket." The first stage will be driven by traditional financial institutions, mainly including major banks, card organizations (such as Visa and Mastercard), and payment companies (like Stripe and PayPal). The application scenarios in this stage will focus on the payment field, especially in cross-border receipts and payments, cross-border trade, import and export trade, and commodity settlement.

In fact, Tether (USDT) has already entered the trade financing field for commodities, using stablecoins as financing payment tools. This type of application is expanding very quickly and is an important breakthrough for stablecoin development. Many people ask me, "How can the stablecoin market reach $2 trillion by 2028?" I believe that the main path to this goal is not through "trading scenarios," but through payment scenarios. The "promotional fee" model we are currently discussing is actually more used for trading platform scenarios. In other words, stablecoin project parties pay fees to platforms, wallets, and other channels to promote user usage, but this is a distribution strategy oriented towards trading.

However, in the future, similar promotional logic may also appear in payment scenarios—for example, issuers subsidizing payment institutions, banks, or corporate clients. This promotional method for such scenarios has not yet fully matured, but I believe it will be quickly established because competition will be very fierce. This is the first stage of the "two-stage rocket": growth driven by payments led by traditional financial institutions, rapidly expanding the scale of stablecoins.

The second stage will depend on when the U.S. SEC (Securities and Exchange Commission) officially relaxes the issuance threshold for security tokens (STOs) and significantly simplifies the compliance process. In fact, the new SEC chairman, Gary Gensler, publicly stated about a month ago that he would promote this direction. I believe this is very likely to be implemented in the next two years. Once STO compliance is widely relaxed, the era of everything on-chain will arrive. At that time, not only crypto assets but also all financial assets such as traditional securities, bonds, and funds could potentially circulate and trade in tokenized form on the chain.

In this process, the demand for on-chain transactions will significantly increase again, and stablecoins, as important tools for on-chain payments and settlements, will also welcome a second wave of explosion. Even further, as Michael Saylor mentioned in February this year, the total market value of stablecoins is expected to challenge the scale of $10 trillion in the future, which is not a far-fetched idea.

Hazel: But I want to know, is it really that easy to break user habits and network effects? For example, Binance spent a lot of money promoting BUSD, but it ultimately wasn't particularly successful. Circle has spent years connecting with countless partners for business development, advancing regulatory communication, and opening channels. Is it really that easy for newcomers to surpass these accumulations?

Zheng Di: What you said makes a lot of sense, but it also depends on the perspective from which you view the main use cases of stablecoins. If you believe that stablecoins are primarily 2C (consumer-facing), then it is indeed as you said; occupying users' minds is difficult, and the barriers for newcomers will be very high.

But the problem is, we are now entering a new stage: stablecoins are becoming legalized and transparent, gradually entering payment scenarios. Looking at the current circulation of stablecoins, most are still used for transaction-related transfer scenarios, and the proportion of "pure payment" usage is still relatively small. While we hear about some offshore payment cases, such as Russia selling oil and settling in some way, the scale of these gray paths is ultimately hard to compare with the global compliant financial system.

What is rapidly growing now is the transparent cross-border payment scenario. The demand in this area is real, and the number of participants is increasing. More importantly, payment scenarios are primarily 2B (institutional, platform, enterprise-level), rather than 2C. You can think of stablecoin payments as a form of "underlying payment technology." It changes the backend, not the frontend that users see.

For example, when you swipe your card, you might still see VISA, MasterCard, Apple Pay, etc., but the underlying clearing and settlement technology can already be replaced by stablecoins. Companies like Bridge, which provide on-chain payment infrastructure, can sell for $1.1 billion with a 100x price-to-sales ratio because of their potential for "seamless technology replacement."

The collaboration between LianLian and BVNK follows a similar logic. Ordinary consumers do not need to know the names Bridge or BVNK; under this architecture, user unawareness is the biggest advantage. You change the underlying system, and users do not need to be re-educated. Because it is a 2B scenario, the replacement and competition of stablecoins in these fields are not that difficult. Corporate cooperation often depends more on the exchange of interests, such as how much promotional fee you are willing to share.

Assuming I am Meta, I have a huge ecological scene. If you want me to integrate your stablecoin system within the platform, it is still "Zuckerberg's call." Most of Meta's users do not have a clear understanding of "stablecoins." They only know that they receive tips, payments, or settlements on Facebook or Instagram, but they do not know what assets are used underneath. For this reason, I believe that in the next 1-2 years, payment scenarios will be the most important incremental breakthrough for stablecoins. In contrast, the significant expansion of trading scenarios will have to wait until the STO (Security Token Offering) process is truly simplified and the era of everything on-chain begins to take shape, at which point the demand for on-chain financial ecosystems will become active again.

7. Large Tech Companies and Stablecoins

Hazel: We just mentioned Meta, and I have always had a question. According to the concept of the Genius Act, the issuers of stablecoins should be regarded as "financial institutions," right? But Meta is a tech company. So can it not issue stablecoins itself, but rather have other institutions with financial licenses issue them, while it is responsible for usage and distribution? Or can Meta set up a financial subsidiary to issue coins, thereby "bypassing" the identity restrictions?

I happened to discuss this question with a friend this morning. They asked: Meta is so big, why not directly acquire a bank and have the bank issue stablecoins? On the surface, this sounds reasonable, but I want to say: if it were that simple, Meta would have done it long ago. Why does it not issue stablecoins directly but instead runs a pilot on Instagram and collaborates with external stablecoin projects? This indicates that the issue is not that simple. The core reason is likely that the Genius Act imposes "penetrating regulation" on "large platform tech companies." In other words, whether you control a bank, set up a subsidiary, or find a concerted actor, as long as regulators believe that Meta has substantial control or participation, it will still be restricted.

In other words, even if you use a shell company to issue stablecoins, even if it has a financial license, if it is actually operated by Meta behind the scenes, it may still be restricted. The Genius Act may be intended to clearly delineate a red line: tech platforms cannot directly control the issuance of stablecoins. Of course, there is also the possibility that the current regulatory framework has not yet fully landed, and even Meta itself is observing. They do not know whether the final enforcement of the new regulations will truly penetrate into subsidiaries or indirect shareholders. But from the current perspective, "not getting personally involved and passively collecting promotional fees" is actually a more prudent choice for Meta.

So I believe that Meta is not unable to do it, but rather it is unnecessary to do so. If you really go to issue stablecoins, then you have to accept the regulation of financial institutions. For a tech platform, this means complex processes, significant responsibilities, and extremely high compliance pressure. Conversely, if Meta insists on being a "scene entry point," it can completely embed stablecoins as payment or interaction means into its platform, allowing others to bear the compliance, regulatory, and settlement risks.

I have always said that the current Web3 is increasingly resembling the internet. Ultimately, it is "scenes are king, traffic is king," rather than who controls the infrastructure. You see so many public chains, stablecoins, and clearing systems; technically, anyone can do it, but the true value core lies in those with scenes and users. If Ethereum is too expensive, I will look for a chain like Aptos that is cheap but not widely used; if Tron is too slow, I will switch to another chain. Platforms like Meta, with huge distribution capabilities and user bases, do not need to "dive in" personally into the heavily regulated territory.

8. Financial Stablecoins or Tokenized Market Funds

Hazel: Regarding some non-mainstream types of stablecoins, such as the wealth management-type stablecoins like Ethena-USDe that have attracted attention from last year to this year, which have "interest-bearing properties," what is their future direction after compliance?

Zheng Di: My judgment is that these types of stablecoins may always remain a niche market. According to the current legislation in the U.S. and Hong Kong, it will be very difficult for such interest-bearing stablecoins to move towards "transparency." Although BitMEX founder Arthur Hayes and others have publicly supported this model, in reality, regulators are highly cautious about such products. This means that the future space for these stablecoins is likely limited to certain "non-compliant gray areas" or small-scale experimental environments, making it hard to enter the mainstream financial system.

The direction that truly has the opportunity to "become transparent" is actually TMMF (Tokenized Money Market Funds). This is also why Circle announced the acquisition of Hashnote in January this year. This company's positioning is to create compliant TMMF products on-chain. Circle also clearly stated in its prospectus that they have observed a trend: large registered merchants on-chain are increasingly inclined to use TMMF as collateral instead of traditional stablecoins.

Why? It's simple. In the on-chain financial environment, especially in scenarios like market making, leveraged trading, and clearing, stablecoins themselves are non-interest-bearing assets. If you use stablecoins as collateral, there is no interest income during that time. TMMF, on the other hand, is essentially a money market fund, and as long as it is collateralized, it generates annualized returns. For large-scale, actively leveraged on-chain market makers, this interest constitutes a very important source of income. Therefore, many on-chain market-making platforms and liquidity pools are gradually starting to accept TMMF as collateral instead of stablecoins.

This actually means that stablecoins are no longer the only "base currency" choice in on-chain financial scenarios. Moreover, if TMMF products can achieve high-frequency settlement in the future, such as daily settlements, and even further establish exchange channels with stablecoins, they may also possess payment functions in some 2B payment scenarios, especially in large cross-border, corporate settlements, and supply chain finance. These are not scenarios for C-end consumers to buy coffee, but rather enterprise-level bulk settlements. In these applications, interest income and settlement efficiency are more important than "payment experience," so TMMF may occupy a place in these scenarios in the future.

9. Changes and Constants in the Old System

Hazel: We also just mentioned Visa and Mastercard. As global card organizations, they have strong influence in the cross-border payment field. Circle itself also has a network called CPN. I am curious about what the future relationship between this CPN network and Visa and Mastercard will be. In particular, if, as you said, Visa and Mastercard push for change themselves in the future, is it possible that they could directly "eat" a part of the stablecoin market?

In fact, Visa has already begun to test stablecoins. They invested in the UK stablecoin payment service company BVNK through Visa Ventures. This company was led by Horn Ventures, which you should be familiar with; the founder of Horn was the former legal head of the SEC, who later founded a VC, with a16z becoming its largest LP. Horn Ventures is now also one of the more well-known investment institutions in the U.S. This round of financing also included follow-on investments from Coinbase and Tiger Global.

BVNK mainly provides stablecoin solutions for LianLian's European division. In Visa's recent quarterly earnings call, they specifically mentioned that they have processed approximately $300 million in stablecoin payments. Of course, this number is negligible compared to Visa's overall transaction volume, but it indicates that they are testing the waters.

In reality, stablecoins do pose a challenge to Visa and Mastercard. I previously conducted a rough quantitative analysis. The main revenue structure of Visa and Mastercard is roughly: 60-65% comes from card swipe fees, and 35-40% comes from value-added services. Their core competitiveness lies in their KYC (Know Your Customer) and AML (Anti-Money Laundering) systems, as well as the entire payment network.

We need to ask a question: if stablecoins are widely adopted in the future, can they do so without KYC and AML? I believe that is impossible. Therefore, Visa and Mastercard may still rely on KYC/AML interfaces to charge service fees in the future. They can serve as globally recognized KYC/AML API providers, and even if they are not the dominant players in transactions, they can still collect "toll fees."

In other words, whether it is Circle, Tether, or other stablecoin companies, they will ultimately need to connect to a trusted large compliance interface. Visa and Mastercard are likely to play this role. In scenarios with high KYC/AML requirements, their service value still exists. In low KYC requirement scenarios, they may face some impact.

My judgment is that Visa and Mastercard's gross margins may decline by 5 to 7 percentage points, and their total revenue may be impacted by 20% to 30%. However, their core business should not be significantly affected. At the same time, they must embrace this trend; otherwise, they will be squeezed by new players. They also need to actively participate in rule-making, especially around the opening of compliance interfaces.

But so far, we have not seen Visa and Mastercard take substantial actions in building the underlying infrastructure for stablecoins. Currently, banks and local payment networks like Zelle and Singapore's PayNow are more active, as they hope to issue stablecoins themselves.

Circle's CPN network is indeed technologically advanced, with capabilities like cross-chain zero-confirmation payments, and it is user-friendly. However, from an investment perspective, what matters more is whether it can generate actual revenue. Investors are more concerned about scene promotion and monetization capabilities. The two core scenarios for stablecoins are trading and payments. I believe that at least in the payment scenario of "legitimization," the current path is still primarily "integration" rather than a complete revolution.

In other words, the current route is about how to embed into the existing financial system and replace some intermediaries and channel players. This is also why cross-border payments have become a key breakthrough direction. Card organizations, payment institutions, and banks all have opinions about SWIFT. Many participants now hope to bypass SWIFT and establish their own connections, and the U.S. government is willing to participate in regulation as long as KYC/AML can still be controlled. Therefore, SWIFT has become a relatively weak link. The promotion of stablecoin payments is an attempt to carve out a piece within the traditional financial system and embed it, rather than overthrowing and rebuilding it. I believe this path is feasible and can develop quickly.

Once the U.S. "Genius Act" is passed, the biggest promoters may be banks and payment institutions, and it is even possible that card organizations will join in. However, the most active players currently are Stripe and several large banks. In contrast, small and medium-sized banks may face significant impacts, especially those that heavily rely on savings lending and card issuance for profits.

The U.S. Treasury's advisory committee, TBAC, has proposed a viewpoint: if the Genius Act is passed, there could be as much as $6.6 trillion in deposits "moving." However, large banks are not worried about this because they can issue stablecoins themselves and have diversified businesses to hedge against risks. The ones most afraid are the small and medium-sized banks. Once they lose deposits, they lose their ability to create credit. Additionally, many small banks rely on card issuance commissions. If this area is also replaced by stablecoins, they may struggle to survive. This means that the passage of the act could trigger a wave of closures among small and medium-sized banks in the U.S.

Hazel: This reminds me of the discussions about central bank digital currencies (CBDCs) that were hotly debated a few years ago. People were concerned that issuing currency by central banks would lead to "disintermediation" of commercial banks, which is actually a similar logic. However, CBDCs may not work out, while stablecoins could indeed cause similar results, especially for small and medium-sized banks.

Zheng Di: That's right, but I believe that on-chain banks will definitely emerge. In the future, large banks may find that stablecoins can be used not only for payments but also for lending. Once stablecoin payments are widely accepted, people will be willing to stay in stablecoins rather than immediately convert them into fiat currency, which will expand the circulation of stablecoins.

Currently, most on-chain lending protocols are collateralized loans, with Bitcoin being the mainstream collateral, an LTV ratio of 64%, and an interest rate of 8.5%. This business essentially lends to "wealthy individuals." Why is no one willing to provide unsecured loans? Because there is a lack of a scoring system like FICO. However, if traditional importers and exporters are willing to accept stablecoin settlements and have a complete credit rating, on-chain credit lending can be realized. Banks will also find that issuing and attracting deposits in stablecoins for lending can be profitable, which could give rise to "stablecoin banks."

So, small and medium-sized banks will indeed experience "disintermediation," but credit creation will not disappear; it will simply take on a different form and involve a new set of players. Traditional research often states that financial disintermediation will weaken credit creation capabilities, but I do not fully agree. The path of credit creation may change, and the participants will change.

10 Circle Founder Jeremy Allaire and the Story with China

Hazel: We just talked about some investor information disclosed in Circle's prospectus, which includes investment institutions from China, such as IDG Capital and Huaxing Capital. This has actually surprised many people—because many are unaware that Chinese capital invested in Circle early on, and this investment now appears to have yielded extremely high returns, potentially reaching over a billion dollars in less than ten years, making it a classic case in the venture capital field. So the question arises: how did this Chinese capital enter Circle?

Zheng Di: It's actually not complicated. Ten years ago, the crypto industry was a period when Chinese capital was very active. From the origin of USDT (Tether) in Hong Kong to Ethereum and other early public chain projects, there was significant participation from Chinese individuals. Chinese investors were the main players in the early trading market of Web3, and the mining sector also accumulated a lot of funds, with many mining owners participating in early equity financing. At that time, Chinese VCs were also at the peak of the mobile internet boom, with ample funds and a willingness to explore the new direction of Web3.

Circle's CEO Jeremy Allaire placed great importance on the Chinese market during that phase. He not only built a local team but also visited Chinese regulatory agencies multiple times to communicate with the central bank, research institutes, and others. At that time, he clearly hoped to introduce USDC or the concept of stablecoins to China and promote local cooperation.

Hazel: I actually have some personal experiences with Jeremy that I can share:

The first time I met him was in 2018, during a brief interview in the lobby of a hotel in Beijing. At that time, stablecoins were far from being as widely recognized as they are today.

The second time I met him was at a closed-door seminar. This was after the Libra incident, and stablecoins became the focus of policy discussions. At that time, the media outlet I was working for, Caixin, organized a weekend meeting, which included the director of the Central Bank Digital Currency Research Institute and Wu Jihan from Bitmain. I happened to facilitate Jeremy's participation in this small closed-door meeting, and he specifically came from overseas to attend, appearing in the office over the weekend. He still held expectations for China's participation and regulatory acceptance.

The third time was at Davos in 2022. That year, due to the pandemic, the winter meeting was moved to May, making it the only "snowless" Davos. Circle was one of the main sponsors that year, and I could see their large advertisements as soon as I arrived at the station. We met again, but this time he no longer talked about China; instead, he focused on U.S. compliance policies and stablecoin legislation. At that time, the draft of the "Stablecoin Act" was being discussed in the U.S. Congress.

The biggest impression I got from these exchanges is that he is truly adhering to a very steady and methodical approach. In a crypto industry filled with "pirate culture," he insists on being "the navy," sticking to the path of compliance, and has really brought Circle to its current scale, which I initially thought was a pipe dream.

Speaking of Jeremy himself, he is actually a very typical Silicon Valley serial entrepreneur:

He co-founded Allaire Corporation with his brother in 1995, went public in 1999, generated over $100 million in revenue by 2001, and ultimately sold it to Macromedia, which was later acquired by Adobe. He also became the CTO of Macromedia, making significant contributions to core products like Flash Player, and some of the products they developed at Allaire are still in Adobe's suite today.
In 2004, he founded Brightcove, an online video platform, which went public in 2012 and was just privatized earlier this year (2025).
In 2013, he founded Circle, exploring various business avenues such as trading platforms, payments, and stablecoins, ultimately focusing on USDC, with plans for an IPO in 2025.

In my view, he is a steady and far-sighted entrepreneur. Although Circle explored diversification in its early years, such as acquiring trading platforms and developing wallet services, once he determined that USDC was the main channel for the future, he resolutely pursued it. I greatly admire his ability to maintain a sense of direction in a highly volatile and uncertain industry.

11 Circle's Future Possibilities and Limitations

Hazel: Does Circle still have new stories to tell? Besides the current main line of USDC and the content mentioned in the prospectus, can it expand into entirely new businesses? For example, as you mentioned earlier, there are regulatory restrictions, but Tether has already ventured into commodity payments. Can Circle also expand into similar scenarios? Or could it integrate with emerging fields like AI or promote new currency products like euro stablecoins? What is your view on the future of stablecoin companies?

Zheng Di: I believe there is certainly room for expansion, but the biggest issue is whether there is enough funding. Why can Tether enter the commodity space? Because it is genuinely lending. We must understand that while there is demand for stablecoin payment scenarios, it is not as urgent as financing scenarios. Especially in buyer or seller credit—if you can lend me money, that is real strength.

Tether's strategy is to leverage funds to drive scenarios. Its total loan amount has reached $8.8 billion, with approximately $14 billion in self-capital investment, plus some other investments, bringing its overall external investment and loan scale to about $30 billion. In an offshore state, if it continues to be "non-compliant," this $30 billion "checkbook" can easily promote the use of stablecoins, especially in commodity scenarios. It has essentially transformed from just a stablecoin company into a stablecoin + bank model.

In this case, it becomes much easier for Tether to drive stablecoin payments through loans. Circle, however, cannot do this because it lacks lending capabilities. If it can only persuade others to use USDC through business development (BD), it will be very difficult. Unless there are major buyers like the Trump family willing to fully adopt USDC, that is the only possibility. But fundamentally, they are looking for resource relationships, such as establishing connections with the Trump family.

A similar situation exists with Ant Group promoting RWA projects in Hong Kong. Buyers are willing to participate, to some extent, to establish cooperative relationships with Ant Group. This indicates that scenario-driven approaches do not rely solely on payments but rather on credit capabilities. Tether binds loans and payment scenarios: lending uses USDT, and receiving payments also uses USDT; you have to accept it because the funders have the say.

The biggest problem for Circle is that it does not have this "checkbook" and cannot strongly control scenarios, and its resources are limited. Most of its funds need to be invested in promotional expenses, and it must comply with regulations, making it difficult to earn excess profits. Therefore, from a business perspective, its story appears relatively mediocre, relying on industry tailwinds to gradually accumulate.

In contrast, Tether has already begun acquiring publicly listed companies. For example, its acquisition of the Argentine company Abaco Agro not only involves business in commodities and agricultural imports and exports but also participated in an agricultural blockchain project as early as 2017, holding a 10% stake. This shows its high acceptance of blockchain and crypto, allowing Tether to integrate these resources. Behind this is capital strength, lack of regulatory restrictions, and the benefits brought by first-mover advantages.

In-depth research will reveal that Tether and Circle are fundamentally different entities. If Circle lacks the ability to control the situation, it must "cling to a big leg." The scenarios that Coinbase can provide are also limited. We can even pose the question: in three to five years, if Robinhood and Coinbase have similar profits and market values, who will win? Most people might choose Robinhood because it has a broader user base and more scenarios. Robinhood has also acquired Bitstamp, expanding into the European market.

Therefore, Coinbase's biggest problem is the lack of scenarios and users, and it may even be losing users, especially in its spot trading business. So when I say Circle hasn't clung to a big leg, it's not just about political resources but also commercial resources. For example, Stripe is an important partner for Bridge after launching USDB, and it even exchanged equity. There are also banks, card organizations, payment companies, and large commodity traders in China, all of which are important partners.

These could potentially bring scalable usage for stablecoins. What Circle needs to focus on now is how to penetrate these scenarios and whether it can bring in a strategically significant major shareholder.

Additionally, China should now realize that the competition between the digital yuan (CBDC) and private stablecoins has a clear outcome. In fact, a more effective path is to allow private companies to issue stablecoins, with the government enforcing strict regulations, KYC, and anti-money laundering controls, and then promoting these stablecoins overseas. This "soft control" model is actually superior to the officially led CBDC model. This is also why more and more people are calling for the issuance of offshore RMB stablecoins; for example, Dr. Shen Jianguang from JD.com has specifically written articles pointing out that China cannot be absent from this track.

In the future, in the international trade and commodity payment scenarios we envision, the competition for stablecoins will not only involve the U.S. dollar but also euro and RMB stablecoins. You need to consider one question: who are the most important players in global commodity and goods trade? It is not the United States, but China. The U.S. is strong in service trade, but in the realm of physical goods, China is undoubtedly the main player.

If China promotes offshore RMB stablecoins in the future, and Chinese companies no longer use USDT or USDC but instead use RMB stablecoins, this would pose a huge competition to existing U.S. dollar stablecoins. Therefore, I believe this track has broad prospects, but the competition will be very fierce.

The space for technological innovation is actually limited; for example, the entry threshold for AI is not high, and currently, it seems that the direction of AI agents is also not easy to break through. Large model companies have already started to create their own agents, no longer just providing basic models. Those who were excited about starting agent businesses last year have now found that their advantages are no longer obvious after large model companies entered the field. So from a technical perspective, the threshold is not that high; what is truly valuable is the scenarios and users. If Circle abandons its main business in pursuit of flashy directions, it may run into problems. It should focus on its core business and deepen its efforts.

As for the potential of non-U.S. dollar stablecoins in the future, I think the most promising are euro stablecoins and offshore RMB stablecoins. Many countries in the world have already dollarized; for example, in Latin America, Africa, and Turkey, the use of U.S. dollar stablecoins is widespread among the public. If China and Europe do not promote their own stablecoins, they will fall behind in the new generation of financial order. Therefore, I do not believe they will allow a stablecoin company controlled by the U.S. to take on the task of issuing non-U.S. dollar stablecoins.

Hazel: Let me give another example: what if Meta uses USDC?

Zheng Di: If Circle can successfully bind with Meta and make Meta a strategic shareholder, it would be a key breakthrough. You know, there is already a similar agreement between Circle and BlackRock. During the validity period of the agreement, BlackRock is the sole manager of the Circle Reserve Fund, with managed funds potentially reaching hundreds of billions of dollars. In exchange, BlackRock cannot issue stablecoins on its own or support other stablecoins; it can only support USDC. In this way, Circle has effectively "bound" BlackRock.

So can Circle bind with Meta in a similar way? Binding with a large tech company to fully integrate into its ecosystem, rather than just a simple cooperative discussion, such as Meta using USDC today and possibly using USDP or USD1 tomorrow. Or it could go and "grovel" for cooperation with Trump, which is also not impossible. But if it can sign an exclusive agreement, such as making Meta a strategic shareholder and exclusively promoting USDC, then Circle's prospects would be limitless. The question is whether it has the ability to facilitate such a binding.

12. Institutions Entering in Droves: What Investment Opportunities Are Left for Ordinary People

Hazel: We are running out of time today, so let's discuss the last question. With Circle's aggressive push for an IPO, has this wave of market activity reached its peak? From the perspective of ordinary investors, what opportunities are still available with so many institutions entering the market?

Zheng Di: I believe there are definitely still many investment opportunities. At this stage, opportunities are mainly concentrated in "coin stocks," which are stocks related to Web3. Many companies that are doing well in Web3 may ultimately choose to go public or merge with a shell company. A large number of Web2 companies will also gradually "add Web3," just like they did with "adding the internet" or "adding AI" in the past. This is because the wealth effect of Web3 in the stock market is incredibly obvious.

The logic behind this is also quite simple: companies can reduce costs or increase revenues through Web3, and as long as the fundamentals are solid, there is a possibility for stock prices to be driven up. This is an important insight for listed companies, founding teams, and entrepreneurs in the Web3 space. Currently, liquidity and wealth effects are clearly concentrated in the stock market. From an investor's perspective, the focus should now be on coin stocks. Once the macro environment becomes more relaxed in the future, attention can shift to altcoins. At that point, altcoins may truly start to see market activity. The flow of funds determines market hotspots.

Hazel: Today's discussion has been very enjoyable, and I feel we have delved deeply into this topic. We will continue to release more content related to digital currencies, stablecoins, cross-border payments, and other relevant topics. If you agree with the viewpoints we shared in the program and believe this is a broad track, then continuing to follow our podcast should bring you many rewards and possibly uncover some opportunities worth paying attention to. Thank you, everyone!

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Interpreting the Long-term Concerns and Short-term Worries of Circle, the First Stock of Stablecoins