Rob Hadick ＞|＜@HadickM
I believe that the correct takeaway from OUSD is actually quite nuanced, both specifically to what it means for Circle / Tether / Paxos and more broadly about what it means for adoption and the likelihood of being successful (warning, very long post).
First, on CRCL, I wonder if it was more than a coincidence that Jeremy was on stage at the largest (and most hyped) Goldman Digital Assets conference in history at the exact time that the announcement occurred. He, Goldman, and many in the audience knew it was coming pre market open and that it would have a negative impact on the stock - that’s neither here nor there but did find it interesting as people in the audience were talking about it as he was being interviewed and the stock opened down 6% in the midst of the talk.
In terms of impact on business, it’s been clear for awhile that revenue share %s were going to continue to go up and that for payments use cases redemption fees would need to go away. Circle was already responding to those points by striking deals with payment companies on mint/redeem and with distribution partners on yield sharing. The potential impending breakup with COIN, which has been signaled for awhile, actually near doubles their net revenue immediately, which is incredibly positive for them. That said, within a reasonable period of time that yield will likely end up in the hands of new distribution partners as they compete - but CRCL will be unshackled to compete here aggressively in a way they have not been able to with the COIN deal, so I think this specifically may end up being a net positive, if the deal is restructured or cancelled, even with further downward pressure on how much net revenue they keep. They also have deep liquidity that is hard to replicate and integrate, and that shouldn’t be forgotten or pushed aside as trivial.
But it’s clear that for many Stripe partners, customers and ecosystem participants specifically, OUSD will likely become default use instead of USDC, which was previously preferred, as long as OUSD can bootstrap deep enough liquidity. And it’s inarguably true that Stripe is simply a better engineering and product organization and will likely ship better ancillary products and tooling needed for easy stablecoin use and distribution. Then again, CRCL has a clear head start and existing integrations that shouldn’t be ignored. Switching costs might not be high, but if you’ve built your product on top of CRCL’s APIs, you will need to be incentivized to switch which is a harder prospect than people realize and won’t simply come down to yield sharing - but of course the greenfield opportunity set is much larger than the market that is already well served. That said, for non payments use cases or for payments companies that compete with or have different incentives than Stripe, it’s not clear that this will be in anyway preferred vs existing (or net new) options.
Lastly, if this ends up being issued by a Bridge entity, it doesn’t solve one of the main problems USDC has had in deeply penetrating enterprises - and that’s the fact that these tokens are still, today, essentially credit to the issuing organization and CRCL (and Bridge) is not investment grade credit. Bridge is also not, today, ready to be genius compliant (though they are working on that). If there is a parental guarantee at Stripe or some of the other members, that changes the calculus, but both are at risk of having the large banks/AMs swoop in and take the most profitable and largest opportunity use cases. And there is still a lot of wood to chop in terms of global licensing. So I don’t see this announcement as changing that competitive risk that already existed.
Overall, I told someone before the announcement yesterday I thought CRCL stock would be down 15-20% on the day and it landed right in the middle of that. I do think the market reaction is justified but I don’t see this as some type of death knell many commentators are framing it as. CRCL does need to accelerate their payment and fintech product development, however, and I believe they need to be acquisitive. That time may have passed, now with the stock trading down, but there are a number of interesting options that they could explore that would still be accretive. This isn’t the end of the new entrants, so some defensive posturing will be key.
For Tether, this is not their core market anyways and they will continue to focus on distribution in channels that neither Stripe nor CRCL will prioritize - they will be fine, but as Paolo said on stage at Token 2049 a couple years ago, Tether’s market share is likely to keep declining over time (but in a market that should grow a lot). Paxos, OTOH, will lose the upper hand on their main selling point of USDG and will, at some point, lose their regulatory upper hand as well. I see this as far more existential for them than the others but that’s also why they’ve refocused on the brokerage as a service business this past year.
