The impact of OUSD on Circle, Tether, and Paxos: not a single negative factor, but a more complex reshaping of competition

Author: @HadickM, Dragonfly Partner

Compiled by: Wu Says Blockchain

TL;DR:

• The impact of OUSD on Circle is not purely negative. The market's reaction to CRCL's stock price dropping by 15% to 20% is somewhat reasonable, but this does not mean Circle is facing a "death sentence." Circle still possesses deep liquidity, existing integrations, and first-mover advantages, especially if the partnership with Coinbase is restructured or terminated, which could potentially double short-term net income and provide greater competitive space.
• OUSD may become the default stablecoin choice within the Stripe ecosystem. Stripe has clear advantages in engineering, product, and payment tool development, and if OUSD can establish sufficient liquidity, it may replace USDC as the preferred choice for many Stripe partners and customers. However, for products built on the Circle API, migration will still require sufficient incentives and will not be determined solely by revenue sharing.
• The core barrier to enterprise adoption of stablecoins remains unresolved. If OUSD is issued by entities related to Bridge, it essentially remains a credit exposure to the issuer, and neither Circle nor Bridge is currently an investment-grade credit entity. Unless Stripe or other alliance members provide a parent company guarantee, large banks and asset management firms may still compete for the largest and most profitable enterprise-level scenarios.
• Circle needs to accelerate the development of payment and fintech products and consider more proactive defensive mergers and acquisitions. OUSD will not be the last new competitor, and Circle needs to respond more actively in terms of products, distribution, and ecosystem collaboration.
• For Tether, OUSD does not directly impact its core market. Tether will continue to focus on distribution channels that Stripe and Circle do not prioritize, and while its market share may decline over time, the overall stablecoin market size is still expected to grow.
• Compared to Circle and Tether, Paxos may face greater pressure. OUSD will weaken the main selling point of USDG, and as the regulatory framework improves, Paxos's regulatory advantages may also be diminished, making the challenges posed by this project more survival-oriented for Paxos.

I believe that the correct interpretation of OUSD is quite nuanced. It not only involves what OUSD means for stablecoin issuers like Circle, Tether, and Paxos, but also relates to the broader adoption prospects of stablecoins and the likelihood of success for this new project.

First, let's talk about CRCL. I'm not sure if it's just a coincidence: when the OUSD announcement was released, Circle CEO Jeremy Allaire was speaking at Goldman Sachs' largest and most high-profile digital asset conference in history. Jeremy, Goldman, and many attendees clearly knew that this news would be released before the U.S. stock market opened and that it would negatively impact the stock price. This in itself may not indicate much, but it is indeed interesting because during his interview, people were already discussing this matter, and CRCL dropped about 6% during his speech.

From a business impact perspective, the market has long been aware that the revenue share ratio given by stablecoin issuers to distribution partners will continue to rise, and in payment scenarios, redemption fees must also be gradually eliminated. Circle has already responded to these trends: on one hand, it has reached partnerships related to minting and redeeming with payment companies, and on the other hand, it is also arranging revenue sharing with distribution partners.

The potential restructuring or termination of the Coinbase partnership has also been hinted at for some time. If this happens, Circle's net income would immediately nearly double, which would be very positive for the company. Of course, within a reasonable timeframe, this portion of revenue will likely gradually flow to new distribution partners in the competition. However, Circle would also be freed from the constraints of the Coinbase agreement, allowing it to compete more aggressively in ways it previously could not. Therefore, even if the proportion of net income that Circle can retain continues to be under pressure, the restructuring or cancellation of the Coinbase agreement itself may not be a bad thing and could instead be a net positive.

Moreover, Circle's existing deep liquidity is difficult to replicate and integrate quickly into other systems. This should not be easily overlooked and cannot be simply regarded as unimportant.

However, it is clear that for many Stripe partners, customers, and ecosystem participants, as long as OUSD can establish sufficient liquidity, it is likely to replace the previously favored USDC and become the default stablecoin used. Undoubtedly, Stripe is a stronger engineering and product organization and is more likely to launch the supporting products and tools needed for stablecoin usability and distribution.

On the other hand, Circle still has a clear first-mover advantage and existing integrations, which should not be ignored either. The switching costs may not be high, but if a product is already built on the Circle API, strong incentives will be needed for migration. This is more challenging than many people imagine and will not simply depend on revenue sharing.

Of course, the real larger opportunity still comes from the greenfield markets that have not been fully served. For these new scenarios, OUSD's appeal may be stronger. However, for non-payment scenarios, or those payment companies that compete with Stripe and have different incentive mechanisms, it is currently unclear whether OUSD will necessarily outperform existing stablecoins or other new options that may emerge in the future.

Finally, if OUSD is ultimately issued by entities related to Bridge, it does not resolve a core issue that USDC faces when deeply entering the enterprise market: these tokens essentially remain a credit exposure to the issuer, and neither Circle nor Bridge is currently an investment-grade credit entity. Bridge is also not yet prepared to meet the compliance requirements of the GENIUS Act, although it is working on it.

If Stripe's parent company or other alliance members provide a parent company guarantee, the situation would be different. However, both Circle and Bridge still face the risk of large banks and asset management companies entering the market and taking away the largest and most profitable use cases. Meanwhile, there is still a lot of work to be done in terms of global licensing. Therefore, I do not believe that the announcement of OUSD has changed this existing competitive risk.

Overall, the day before the OUSD announcement, I told others that I expected CRCL to drop by 15% to 20% that day, and the final drop indeed fell within that range. I believe the market's reaction is reasonable, but I do not think it is, as many commentators have said, a "death sentence" for Circle.

Circle does need to accelerate the development of payment and fintech products, and it also needs to consider mergers and acquisitions more proactively. With the stock price decline, this window may have partially passed, but there are still some interesting options in the market for it to explore, and some of these deals may still bring a thickening effect. New competitors will not stop at OUSD, so Circle needs to make some defensive arrangements.

For Tether, OUSD is not targeting its core market. Tether will continue to focus on distribution channels that Stripe and Circle do not prioritize, so it should not be significantly affected. However, as Paolo Ardoino said a few years ago on the Token 2049 stage, Tether's market share may continue to decline over time, but this will happen in a market that is significantly growing in overall size.

In contrast, Paxos faces greater pressure. OUSD will weaken the advantages of USDG's current main selling points, and as the regulatory framework gradually improves, Paxos may also lose its relative regulatory advantages in the future. Compared to Circle and Tether, I believe OUSD's impact on Paxos is more akin to a survival challenge. However, this also explains why Paxos has refocused on brokerage-as-a-service business over the past year.