Jefferies warns against buying Circle as Open USD threatens USDC dominance
In brief
- Circle shares fell 17% before bouncing 5% Wednesday; Jefferies advised against buying the dip
- USDC holds roughly 25% of the $300 billion stablecoin market but faces new competition from Open USD
- Circle derives 95% of revenue from USDC reserve interest and depends heavily on Coinbase for distribution
The Competitive Threat
Circle shares bounced 5% Wednesday after the sharp decline, but Jefferies remains skeptical. The investment bank argued that USDC headwinds are unlikely to ease as competitive pressure intensifies.
The stakes are substantial. Circle holds roughly 25% of the $300 billion stablecoin market, a position built since USDC launched in 2018. But the company's financial model leaves little room for disruption. Circle derives about 95% of its revenue from interest earned on USDC reserves, making it acutely vulnerable to any erosion of USDC's market share.
Distribution Risk and Renewal Uncertainty
Circle's reliance on a single partner compounds the risk. Coinbase is Circle's largest distribution partner, and the companies' commercial agreement is reportedly up for renewal in August. That timing creates a potential pressure point for negotiations, especially as Coinbase is itself a backer of Open USD.
Open USD plans to share reserve income with participating companies, a revenue-sharing model that could incentivize distribution partners to diversify away from USDC. Circle already counters this by sharing the majority of its income with distribution partners, but the appeal of backing a consortium-led alternative may prove difficult to resist.
Circle's Defense
Circle CEO Jeremy Allaire has argued that stablecoins are network businesses built over years rather than products that can be replicated overnight. USDC's ecosystem includes thousands of integrations, deep liquidity across exchanges and decentralized finance protocols, advantages that don't disappear quickly.
Yet skeptics abound. Crypto has seen several consortium-backed stablecoin initiatives over the years, including Meta's Diem project and Paxos-led Global Dollar Network, most of which failed to achieve scale. ARK Invest's Lorenzo Valente expressed doubt that Open USD can overcome coordination challenges among 140+ participants. The precedent, however, isn't reassuring for Circle.
