Another problem with Circle

Author: Alex Xu

As the variety of stablecoin supply increases, the bargaining power of channels (exchanges, merchant networks, wallets, issuers, and even AI terminals…) relative to stablecoins will further rise, contrary to what many have previously said about a decline due to USDC's market share dominance. Channels may further consume the profits of stablecoin projects.

According to Coinbase CEO Brian Armstrong: the company will renew its revenue-sharing cooperation agreement with Circle next month under the original terms, meaning Circle will still need to share half of its profits (excluding the portion from Circle's own channels) with Coinbase, while the profits generated from USDC on the Coinbase platform will still belong to Coinbase.

Prior to this, some optimists believed that due to USDC's dominant position in the compliant stablecoin market, Circle had a chance to negotiate a more favorable revenue-sharing agreement with Coinbase, such as a lower revenue-sharing ratio.

In addition to Coinbase's agreement, several recent landmark events also confirm the trend of rising channel bargaining power:

1. According to the new agreement between Hypeliquid and Coinbase, Hypeliquid will take 90% of the reserve profits from the platform's existing USDC;

2. The recently emerging L2 Robinhood chain promotes USDG (issued by Paxo) as its stablecoin, instead of USDC, yet this has almost no impact on user growth and activity (USDG needs to return 97% of channel revenue to Robinhood chain).

From the cases of Hypeliquid and Robinhood, as well as the emergence of more compliant stablecoins like OUSD (competitive solutions), it is easy to envision the situation Circle will face when negotiating with traditional crypto channels like Binance; it is likely to be even more challenging rather than more lenient.

"When Hyperliquid negotiates with you, Coinbase/Circle has bargaining power, but Binance doesn’t? Kraken doesn’t? You give Hyperliquid such favorable revenue-sharing terms, but offer me poor conditions. Do you think Binance and Kraken are easy to bully?"

Worse yet, the above-mentioned squeeze on bargaining power is happening in the crypto field, which has long been Circle's stronghold.

Other potential incremental markets, such as traditional offline and online commercial payments, as well as future long-term options: Agent payments, Circle also faces channel pressure and competition.

In the traditional payment field, Stripe, Visa, and MasterCard control the merchant and banking networks (still channels) and are familiar with dispute resolution and compliance infrastructure. In this area, they are not just squeezing USDC profits; they are directly entering the competition: having created the OUSD stablecoin, even Circle's main partner (vampire) Coinbase is one of the supporters of this project.

In the Agent settlement field, it is currently even uncertain whether stablecoins can secure enough payment share; the traditional payment infrastructure and point systems based on commercial contracts seem fully capable of handling Agent calls, while some marginal scenarios (small high-frequency payments) are too small in scale.

In the traditional and agent payment fields, Circle faces another problem: merchants, agents, and consumers almost do not care which stablecoin is used for settlement; after all, USDC, USD1, OUSD, OUSG, you are all compliant, right?

In these scenarios, Circle's bargaining power against channels/consumers/merchants is likely even lower than in the crypto field.

If you are an investor in Circle or considering investing in Circle, these situations are all factors you should take into account.

These issues did not arise only after Circle's decline; I discussed Circle's problems in my March 21 article "From Tencent and Circle: Simple and Difficult Questions in Investment," when optimistic investors were still cheering for Circle's return to 130.

The subsequent events (OUSD, negotiating a 90% revenue share with hype, failed negotiations with Coinbase) merely confirm my previous deductions.

This is just one perspective, for reference only.