Original Author: Cao Leqian
Original Source: Financial Dog Adventures
In just 5 days, the market value of USDC issuer Circle rose from over $6.9 billion to more than $20 billion. Circle's surge might have even surprised its founder Jeremiah and team. The impression from exchanges with Asian dollar funds is that Circle's uniqueness in the compliant stablecoin track is the core of its oversubscription.
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 was just the first step towards compliance and legality, which the author found convincing. After TRUMP took office at the end of 2024, the market clearly began to accelerate. The US GENIUS ACT and Hong Kong stablecoin regulations gradually implemented in 2025, Circle played the role of an evangelist and promoter. Meanwhile, Circle is the stablecoin company with the most deposit and withdrawal cooperation banks worldwide, including systemically important banks (GSIB).
When the market was rushing to buy Circle, Coinbase, its most important distribution channel, showed a flat trend contrary to Circle's performance. This raised a core question: In the stablecoin track, does the true value lie with the issuer or the traffic channel? This article will delve into Circle's business model.
The "Exchange Center" of the Crypto World
If the crypto world is imagined as an offshore archipelago, Bitcoin is like gold circulating on the island, with value fluctuating with the tide; while stablecoins are like a stored-value card that can be exchanged for US dollars at any time, allowing you to buy coconuts on the island and pay at a mainland supermarket.
Circle, the company issuing this "stored-value card", plays the role of an exchange center: You deposit 1 dollar, and it locks an equivalent amount of cash or short-term US Treasury bonds in its vault, while minting 1 USDC on the blockchain, thus ensuring the channel between the digital island and the real banking system remains unobstructed.
The "Song Jiang Surrender" Path of Stablecoins
Before discussing Circle, we must first clarify a perception: The birth of crypto assets (like Bitcoin) is often seen as a resistance to excessive traditional currency issuance. However, stablecoins - especially those pegged 1:1 to the US dollar - have taken a completely different path.
If Bitcoin is like an outlaw trying to start a new system outside the establishment, compliant stablecoins are more like "accepting the imperial pardon". By investing most of their reserve assets in short-term US Treasury bonds and other real-world assets, they create a reservoir for the US Treasury in exchange for compliance and legality.
This "surrender" makes it a key bridge connecting the real-world fiat currency with the crypto world, but its essence has transformed from a disruptive monetary innovation to a supplement and "subsidy" to the existing financial system.
Can Stablecoins "Save" US Bonds? An Impossible Trilemma
In the promotion of the US Stablecoin Act (GENIUS Act 2025), "stablecoins saving US bonds" is a repeatedly mentioned "patriotic" narrative. However, this may not stand up to commercial logic.
I propose a stablecoin "Blockchain Trilemma", where a stablecoin scheme finds it difficult to simultaneously satisfy the following three points:
Good for the issuer: Sustainable business model with rich profits.
Good for reserve assets: Able to support a certain asset (like US bonds) on a large scale and without risk.
Good for users: Zero risk, high returns, and low fees.
The premise of "stablecoins benefiting US bonds" is an unlimited market demand and confidence in US bonds. However, if the US bonds themselves face redemption or trust crisis, the 1:1 pegged stablecoin will inevitably be impacted, and the trust chain will instantly break. This is like a trust company investing low-risk customer funds in high-risk real estate projects. Once the underlying assets collapse, the upper-layer financial products cannot escape. Under the background of monthly audit disclosure required by the stablecoin act, the inherent risks of US bonds are hard to hide.
Circle's Business Model and Valuation Mystery
Circle's core profit model mainly has two points:
1. Net Interest Margin: USDC holders do not receive interest, and Circle invests reserve assets in short-term US bonds and earns interest, with the entire interest margin belonging to itself.
2. Payment and Settlement Fees: Wholesale USDC through its enterprise platform Circle Mint. If enterprise customers need to exchange USDC back to US dollars on the same day (T+0), Circle charges a 0.1% - 0.4% channel fee. This can be understood as a combination of "cross-border payment wallet + 7x24 hour settlement" service.
However, this business also faces a "regulatory constraint". Both the US 'GENIUS Act 2025' and Hong Kong's 'Stablecoin Regulations (Draft)' prohibit issuers from "short-term 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 US and Hong Kong plans permit traditional banks to issue stablecoins.
A "bank-like" business with limited operations has a price-to-earnings ratio (PE) that once reached 147 times (as of June 9, 2025), while traditional financial giant JPMorgan's PE is only 13 times. Are investors chasing safe interest margins or the imagination 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 pointedly said: "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 with high fees (typically 20-40 dollars) but also with non-transparent processes that take 3-5 days. In comparison, blockchain-based dollar tokens are like newly built maglev trains: Although there's still security check (compliance), the ticket price is transparent, and the speed is calculated in seconds. Not everyone cares about consensus algorithms, but almost everyone feels the pain of high transaction fees. This simple "cost reduction and speed increase" demand is the fundamental driving force for USDC and other stablecoins to rapidly penetrate.
Of course, transfers between crypto wallets have extremely low fees, but when converting digital assets to fiat in bank accounts, one cannot escape traditional system compliance friction. For example, remitting 200 USD from Singapore to the US might result in the sending bank charging 40 Singapore dollars, and the receiving bank deducting 10 USD, with only around 150 USD ultimately arriving. Nominally, this is a SWIFT fee, but the bulk is actually the compliance cost for anti-money laundering (AML) and anti-fraud measures.
Therefore, compliance costs from crypto wallets to bank accounts are inevitable, with the key being who bears them.
Circle's Strategy and Channel Realities
Circle closed its fiat exchange service for retail users in late 2023, precisely indicating the high compliance and anti-money laundering costs on the retail end, a pain point shared by all financial technology companies.
Its response strategy is to launch the Circle Payment Network, no longer directly serving retail users, but connecting institutions and enterprise customers into a distribution network, with these institutions and enterprises' partner banks responsible for final deposits and withdrawals. This is an innovation to the traditional SWIFT model, removing the intermediary bank model and transferring compliance and anti-money laundering costs to network participants.
However, a more realistic issue is the channel. Although Circle is labeled as a "crypto concept stock," its profit statement shows that up to 58% of revenue needs to be distributed to channel partners as "distribution and transaction costs," with Coinbase being the biggest beneficiary. Just like the story of the mobile internet era: whoever controls traffic and scenarios takes the largest piece of the value chain.
Since its listing, the stock price trends of Coinbase and Circle have increasingly diverged (colloquially known as a "scissor difference"), further confirming this point: channel parties earn real money, while issuers are responsible for telling grand narratives.
Stablecoin issuance is a business that "seems simple but has deep barriers": regulatory costs are gradually becoming similar to commercial banks, yet lacking the monetary multiplier that banks rely on for survival. Interest income is completely constrained by the Federal Reserve's interest rate policy, making it difficult to stabilize expectations. If channel traffic is strangled by platforms like Coinbase, issuers can only gain market share through high distribution shares.
Therefore, for most enterprises and institutions, simply relying on "issuing coins" for revenue is not a wise move. The real opportunity lies in using stablecoins as an efficient financial tool to empower their own business scenarios. As for specific operations, I will explore this in detail in the next article "The Boss Asked Me, How Can the Company Participate in Stablecoins?"
Conflict of Interest: The author is a practitioner in the stablecoin industry.
