Source: Silicon Valley 101
Compiled by: Daisy, ChainCatcher
Editor’s Note:
This article is compiled from the audio interviews of podcast hosts Hong Jun and Liu Feng with Can Sun and Zheng Di. Hong Jun is the host of "Silicon Valley 101 ", and Liu Feng is the host of " Web3 101 ", partner of BODL Ventures , and former editor-in-chief of Chain News. Guest Can Sun is the co-founder and head of legal compliance of Backpack Exchange , and has been deeply involved in the legal architecture design of USDC ; Zheng Di is a cutting-edge investor focusing on finance and crypto technology.
The interview took Circle's listing as the starting point, and deeply explored the differences between USDC and Tether ( USDT ) in compliance paths, profit models, and alliance structures, and extended to the future regulatory trends of stablecoins, changes in the platform landscape, and the strategic possibilities of combining with AI and global settlement networks.
The following is a compilation and editing of the interview.
TL;DR :
- Circle became the first listed stablecoin issuer. USDC was regarded as the representative of the "digital dollar", and its skyrocketing market value attracted market attention.
- The stablecoin market has entered a white-hot stage, with the compliant USDC and the non-compliant USDT competing against each other, and traditional financial and technology giants accelerating their entry.
- Coinbase is deeply bound to USDC , which has driven its rapid expansion, but its profits have long been limited by the revenue sharing agreement.
- Tether dominates the market with its high-yield and high-risk model, while Circle adheres to a compliant and transparent approach, and the profitability gap is significant.
- Regulatory proposals such as the "Genius Act" are expected to reshape the industry order and promote the legalization and institutionalization of stablecoins.
- Circle is building an on-chain global settlement network, combining it with AI payment scenarios, in an attempt to become a new infrastructure for digital finance.
Comparison of USDC and Tether ’s systems and profit models
Hongjun: First question, why is Circle's IPO so popular this time? Can , what do you think?
Can Sun : The core value of USDC lies in its role as a settlement and payment tool for digital dollars. The traditional financial payment system has hardly undergone any substantial changes in decades. Bank transfers are limited by working hours, and the overall efficiency remains at the level of the last century. By digitizing the dollar, Circle enables it to settle in real time 24 hours a day around the world, which is a fundamental upgrade for the entire financial system.
Another highlight of Circle 's listing is that the underwriters include traditional financial giants such as JP Morgan and Goldman Sachs, which are also exploring the issuance of stablecoins. If they incorporate USDC into the existing clearing system in the future, USDC may become the "official" digital dollar. Therefore, Circle 's listing not only represents the success of a technology company, but also reflects the positive attitude of traditional finance towards the prospect of digital dollars.
Zheng Di: Circle is too closely tied to Coinbase , which limits its profitability. From a fundamental perspective, the $ 7 billion IPO valuation is reasonable, but the rapid rise in market value to $ 25 billion reflects the market's expectation of scarcity of compliant stablecoin targets.
The stablecoin market itself has great growth potential. There are two data worth noting: First, the US government and institutions such as Standard Chartered predict that the global stablecoin market will grow from the current $ 250 billion to $ 2 trillion by 2028 ; second, more radical views such as Michael Saylor believe that the market size may reach $ 10 trillion in the long run. With such growth expectations, investors are willing to give higher valuations.
Hongjun: Does 2 trillion refer to the total volume of the entire stablecoin market?
Zheng Di: Currently, Circle ’s share of the stablecoin market is about 24% to 25% . If its market share remains unchanged and the overall market expands eightfold , Circle ’s corresponding asset size may grow to $ 480 billion or more.
Hongjun: Let me add some background information. Tether , the issuer of USDT , is an offshore institution and is not regulated by the United States; while USDC is issued by Circle , registered in the United States and regulated by various states, and is a compliant stablecoin. As of now, the global stablecoin market value is about US$ 250 billion, of which USDT is about US$ 150 billion, accounting for 62.5% ; USDC is about US$ 61 billion, accounting for about 24% .
So, what are the specific aspects of USDC 's "compliance"? It is understood that Circle disclosed a lot of operating costs and compliance information in its IPO prospectus. Tether is regarded as one of the most profitable crypto companies at present.
Can Sun : The United States currently has no unified federal stablecoin regulatory law and lacks a complete framework similar to the EU MiCA . USDC 's "compliance" is mainly reflected in its operation under the supervision of various states, especially the New York State Department of Financial Services ( NYDFS ), and is required to comply with regulations on reserve management and audit disclosure.
USDC publishes its reserve structure every month, and all funds are allocated to government money market funds and short-term U.S. Treasury bonds, which are held by large banks or independent trust institutions and subject to audit. In contrast, although Tether has also begun to disclose its reserve situation in recent years, its asset types are more complex and its transparency is relatively low.
Liu Feng: Regarding the “Genius Act”, can you introduce the clauses that have the greatest impact on the industry? What impact may this legislation have on Tether and the entire stablecoin industry?
Can Sun : This bill has not yet been formally passed and is still under negotiation between the U.S. Senate and House of Representatives. Once implemented, it will become the first federal-level stablecoin regulatory framework, which will bring significant benefits to the industry, because after clear supervision, traditional financial institutions such as banks and funds will be able to participate legally.
The most critical clause stipulates that any stablecoin that wishes to circulate in the United States or serve American users must obtain a U.S. regulatory license or accept equivalent supervision recognized by the United States. Otherwise, the government can prohibit it from being listed on U.S. exchanges and has the right to freeze its U.S. dollar reserves.
This clause has a particularly significant impact on Tether . Most of the world's dollar settlements rely on the US-dominated clearing system. Even if Tether holds a dollar account overseas, as long as its clearing bank is located in the United States, the US government has the ability to cut off its dollar flow.
Liu Feng: In other words, the United States can directly "strangle" China through the dollar system?
Can Sun : Yes. If Tether cannot meet the regulatory requirements of the United States, the government can ask banks to stop hosting its US dollar reserves. Once the reserves are frozen, USDT will lose the ability to be pegged to the US dollar at a 1:1 ratio, which is a fatal blow to stablecoins. The United States has used the financial system as a tool for sanctions many times in history, and countries such as Iran and North Korea have been restricted as a result.
Liu Feng: Do you think Tether is capable of meeting relevant regulatory requirements? Is it possible to operate legally and compliantly in the United States?
Can Sun : The Tether team is capable and is indeed promoting compliance and transparency. However, it is still uncertain whether it can meet US regulatory requirements in the short term. Especially under high regulatory standards, its reserve structure and corporate governance may take longer to adjust.
Liu Feng: This means that future competition will be fairer. In the past, Tether benefited from regulatory arbitrage, while USDC borne higher compliance costs. As the rules become more unified, Tether will have to catch up.
Can Sun : Yes, the crypto industry generally has the practice of "no regulation first, compliance later". Many projects operate offshore in the early stage and seek compliance after they grow and become stronger. But once the United States implements strict regulations, institutions such as Tether will be required to meet regulatory standards from the beginning and can no longer rely on regulatory gaps to survive.
Hongjun: We have just analyzed the reasons why USDC has attracted attention. Next, let’s review Circle ’s development path. The company was founded in 2013 and USDC was launched in 2018. Can , did you participate in the formulation of the legal documents for Circle and Coinbase to jointly launch USDC ? In addition, why did Circle choose to enter the stablecoin track? How did it cooperate with Coinbase ?
Can Sun : In 2018 , the stablecoin market was almost monopolized by USDT . Asset transfers and loss compensation between exchanges were highly dependent on USDT , but due to its offshore operation and opaque information, there were great risks. Circle was exploring diversification at the time and had businesses such as Poloniex Exchange, OTC trading and payment tools, but these did not form a core breakthrough.
They realized that the market lacked compliant stablecoins, so they cooperated with Coinbase to establish a joint venture company Center and jointly launched USDC . The two companies each hold 50% of the shares and are jointly responsible for the issuance and governance of USDC , with the goal of building a transparent, compliant, and auditable stablecoin system.
Liu Feng: Circle's early businesses were quite diverse, involving Bitcoin wallets, payment products, OTC transactions, and operating the Poloniex exchange. Since then, the company has gradually divested these businesses and finally focused on USDC . Can this be seen as a "strategic all in "? How did you view this shift at the time?
Can Sun : Yes, Circle gradually divested its Bitcoin wallet, OTC trading, Poloniex and other businesses after 2019, and turned to focus on USDC . At that time, the outside world questioned this "giving up everything" strategy. After all, Poloniex still has scale, and the OTC business also has stable institutional customers.
However , Circle predicts that compliant stablecoins have the potential to become an important part of future financial infrastructure. Whoever can enter the market first and establish ecological barriers may become the core carrier of the "digital dollar". USDC 's transparency and compliance have won it recognition from large institutions, payment companies and even governments.
The company believes that this is a "winner takes all" track, and the strategic value of the stablecoin ecosystem is far higher than the short-term benefits of other marginal businesses.
Hongjun: According to Circle 's prospectus, although Coinbase has withdrawn from Center 's shareholders, it still retains 50% of USDC interest income . What is the background behind this profit sharing agreement? What do you think about it?
Can Sun : This profit-sharing agreement was reached when USDC was first established. Coinbase provided key resources for USDC , including user channels, wallet systems, and exchange listing support. In return, Circle signed an interest income sharing agreement with it.
The agreement stipulates that as long as Coinbase achieves certain growth KPIs each year , it can renew and receive 50% of USDC interest income for a long time . At present, Coinbase has indeed achieved these goals.
This also means that although Circle assumes issuance, operation and legal responsibilities, it can only retain half of the profits, and the other half must be distributed to Coinbase , limiting its profitability.
Zheng Di: Coinbase essentially played the role of "making money without doing anything". It does not bear the legal and regulatory responsibilities for the issuance of USDC , but it has obtained a long-term profit-sharing mechanism by virtue of early binding, and has almost become a "perpetual dividend platform". Although Circle's overall profit seems considerable, it has shrunk significantly after the profit sharing.
Can Sun : Yes, but from a strategic perspective, this binding relationship did help USDC quickly open up the market in the early days. As a compliant exchange, Coinbase promoted the launch of USDC , integrated wallet support, and established a solid initial ecosystem for it. Although this "divide first and win later" strategy was a reasonable choice at the time, it now puts Circle in a relatively passive position in terms of revenue structure.
Liu Feng: This reminds me of another question. In recent years, Binance has gradually reduced its support for USDC and instead promoted a stablecoin called USD1 . It is rumored that the Trump family and the Abu Dhabi Fund are behind USD1 . Can , what do you think of this trend?
Can Sun : USD1 is issued by First Digital , which is headquartered in Hong Kong and registered in Abu Dhabi. Binance has a close relationship with it, mainly because the project provides the platform with greater bargaining space and profit sharing. In contrast, USDC is deeply bound to Coinbase . Binance not only has to bear the cost of use, but also cannot obtain profit sharing, so it gradually reduces its support. This phenomenon reflects a trend in the stablecoin market: major platforms begin to support their own or cooperative stablecoins, and gradually form different alliance camps.
Zheng Di: At present, the stablecoin market can be roughly divided into five camps:
The first is the USDT camp dominated by Tether , which has the largest market share and the widest application, but relatively weak compliance.
The second is the USDC camp, which is led by Circle , emphasizes compliance and transparency, and is deeply tied to Coinbase .
The third is Binance’s USD1 , which has obvious platform attributes and a complex capital structure.
The fourth is the technology company camp, including PYUSD issued by PayPal and USDB supported by Stripe , which rely on their own payment networks to promote the implementation of stablecoins.
The fifth is the traditional banking camp, such as JPMorgan Chase's JPM Coin and Citi's internal stablecoin, which are mainly used for B2B clearing between institutions.
Liu Feng: How do you think these stablecoin camps will evolve in the future? Will they eventually form a duopoly, or will they each occupy different markets?
Zheng Di: I think the stablecoin market may eventually form a pattern similar to that of operating systems, dominated by two or three companies. Just like Android and iOS , one is open but has higher risks, and the other is closed but emphasizes compliance. The two can coexist for a long time.
Tether will continue to serve non-compliant markets, DeFi , and high-risk transactions, while compliant stablecoins such as USDC will gradually enter mainstream financial systems such as payment, clearing, and banking.
Hongjun: We just mentioned the difference between USDC and USDT in profit model. Can you explain in detail how stablecoin issuers make profits? For example, how does Circle get income after a user redeems 1 USDC ?
Can Sun : The profit model of stablecoins is relatively simple. When a user redeems 1 USDC, Circle will receive 1 USD in reserves. This money will be invested in highly liquid, low-risk assets such as U.S. Treasury bonds and money market funds, with an annualized return of about 4% .
Since USDC holders do not enjoy interest, all profits belong to the issuer, forming a clear "interest rate spread" - stable asset returns can be obtained without paying interest.
Liu Feng: So if Circle currently manages approximately US$ 61 billion of USDC , based on an annualized return of 4% , that would be equivalent to approximately US$ 2.4 billion in interest income each year?
Can Sun : In theory, this is true, but the actual profit needs to deduct a number of costs, such as the share paid to Coinbase , operating expenses and audit fees. Even so, Circle remains profitable, especially in the rising interest rate cycle, with significant growth in interest income.
Zheng Di: Tether 's profit model is relatively more aggressive. Although its reserves also include safe assets such as US bonds and cash, disclosed information shows that it also includes high-risk assets such as Bitcoin, gold and unlisted company shares, so the overall rate of return is significantly higher than Circle .
The market estimates that Tether's annual profit may exceed $ 6 billion, while Circle's is less than half of that. This also enables Tether to continue to make large dividends, investments and acquisitions.
Circle 's development strategy and the trend of stablecoin alliance
Hongjun: It sounds like Tether operates more like a hedge fund than a financial infrastructure provider?
Can Sun : Indeed. Tether 's operation is closer to that of an asset management institution, relying on user reserves to allocate high-yield investment portfolios. Although the returns are considerable, the credit risk is also relatively high.
In contrast, Circle is closer to the banking model, emphasizing asset transparency, compliance and low-risk management, and not participating in high-risk investments. Although the returns are lower, it is more credible among regulators and the financial system.
Liu Feng: Will regulators allow Tether 's "high-yield, high-risk" model to exist for a long time? Especially in the event of a bank run, is it possible to cause a systemic impact on the entire crypto-financial system?
Can Sun This is a very realistic problem. Tether 's market value is more than twice that of USDC , accounting for more than 60% of the stablecoin market. Once a liquidity crisis or major default occurs, it may trigger a "Lehman moment" in the crypto financial system.
To this end, many DeFi protocols and trading platforms have begun to hedge risks, such as diversifying the use of multiple stablecoins, setting upper limits on holding ratios, or adopting a stablecoin basket mechanism to reduce dependence on a single stablecoin.
Zheng Di: Although Tether has not defaulted yet, in the context of stricter regulation, it will either be forced to become transparent and accept regulation in the future, or continue to operate in the "gray area", and the space for the latter will become increasingly limited.
Relatively speaking, if Circle can gradually enter the traditional financial system, such as establishing clearing cooperation with Visa , Stripe , banks and other institutions, it will be expected to expand its market share in the long run. However, this path is slower, has higher operating costs, and relatively limited profit margins.
Hongjun: It can be said that this is a game between high returns and compliance and stability. Tether is profitable and high-yield, but it comes with greater risks; while Circle is stable, legal and compliant, and sustainable, but its income is relatively limited.
Can Sun : Yes. Tether ’s success relies on its first-mover advantage and rapid expansion during the early market gap period; while Circle is betting on regulatory trends and the long-term evolution of the traditional financial system.
Feng Liu: How do you see the development of these two models in the next few years? Is it possible for Circle to gradually catch up with Tether , or will Tether continue to maintain its leading position?
Zheng Di: It is difficult to make a clear judgment, which depends on several key factors. The first is the regulatory process, whether the United States can introduce a clear legal framework for stablecoins in the next two to three years; the second is whether financial institutions are more inclined to cooperate with the compliance model; and finally, whether Tether can continue to maintain high returns and properly control risks.
I tend to believe that the stablecoin market will present a "dual track" structure in the future: one track serves high-risk DeFi and offshore platforms, mainly USDT ; the other track is for institutional settlement and compliance scenarios, dominated by USDC or other new compliant stablecoins.
Can Sun : I agree with this judgment. Just like the current financial system is divided into the banking system and the shadow banking system, stablecoins may also move towards dual-track development in the future. However, in key countries and core financial scenarios, the market share of compliant stablecoins is expected to gradually increase.
The technical evolution of stablecoins and the implementation of emerging scenarios
Hongjun: We have discussed the past and present of stablecoins. Finally, I would like to ask you to look forward to the future development direction. What application scenarios might USDC enter next? In addition to expanding market share, does Circle have any new strategic layout?
Can Sun : Circle 's current core strategy is to build a global settlement network. The company launched a protocol called CCTP ( Cross-Chain Transfer Protocol ), which supports the seamless transfer of USDC between multiple blockchains and connects with the banking system. In essence, it is building an on-chain US dollar clearing system.
Compared with the traditional US dollar clearing process, USDC has the advantages of real-time arrival, low cost, and transparent traceability. If Circle can successfully connect the payment systems of various countries with the USDC network, it will be possible to establish its position as the global clearing standard.
Zheng Di: Another important direction is the integration of AI and stablecoins. More and more AI companies are building automated payment systems for salary distribution, contract execution, cost accounting, cross-border settlement, etc. These scenarios are very suitable for stablecoins.
USDC has advantages such as on-chain transparency, programmability and fast settlement, and is suitable as a basic settlement asset for AI companies. In the future, AI systems may directly access on-chain payment APIs to achieve full automation of capital flows, which will become an important new application scenario for stablecoins.
Liu Feng: It can be said that AI is becoming an "amplifier" for stablecoins. An AI system that runs 24/7, combined with a payment network that settles 24/7, will greatly improve the efficiency and automation of capital flows.
Can Sun : Yes. Circle has worked with some AI automation companies to develop prototype products with functions including automatic invoicing, bookkeeping, contract execution and USDC settlement. Once these tools mature, the application of stablecoins will no longer be limited to the field of crypto trading, but will gradually be integrated into mainstream business scenarios such as corporate financial systems, SaaS platforms and financial software.
The future pattern and winning rules of stablecoins
Hongjun: What do you think of the trend of traditional banks issuing stablecoins? JP Morgan's JPM Coin has been launched, and Wells Fargo, Citigroup and others are also exploring similar projects. Will these banks become competitors of Circle ?
Can Sun : Most stablecoins issued by traditional banks run on private chains and are limited to clearing within the bank or between specific large customers. They are closed systems and cannot be connected to mainstream wallets or DeFi protocols.
In contrast, USDC is an open network that can be used by any individual or organization, and developers can access it freely. This is like the difference between the Internet and a local area network - a bank's stablecoin is more like a local area network, which is only for internal use; while USDC is an open Internet with stronger compatibility and scalability.
Zheng Di: However, the power of banks should not be underestimated. They have a huge customer base, a wide network of branches and compliance advantages. If regulations are relaxed in the future, banks have the ability to quickly promote their own stablecoins.
The key to Circle is to take the lead in establishing the status of "financial infrastructure" within the compliance framework. Once its stablecoin becomes the clearing layer of the mainstream financial system, it will be able to form a strong network effect and first-mover advantage.
Feng Liu: How do you view the structural changes that may occur in the stablecoin industry in the next few years? Among the multiple participants such as Circle , Tether , traditional banks, and technology companies, who is more likely to stand out in the end?
Zheng Di: In the next five to ten years, stablecoins will gradually evolve into financial infrastructure. Projects with real long-term development potential need to have three capabilities at the same time: first, obtain regulatory approval, second, implement applications in actual payment scenarios, and third, have the ability to build a global clearing network.
From the current perspective, Circle is the only project that can meet all three requirements at the same time. Tether has strong profitability, but has obvious shortcomings in compliance; stablecoins issued by banks have compliance advantages, but their technical architecture is closed; stablecoins launched by technology companies have application scenarios to support them, but users' trust in their financial attributes is still limited.
Can Sun : The key to the final competition is not the market value, but who can become the "clearing foundation of the digital financial system." Just like SWIFT and VISA today , the competition of stablecoins is about settlement efficiency, credit level, regulatory ability, and ecosystem construction.
