Circle's IPO Triples Share Price Amid 20-25 Times Oversubscription

Stablecoins have surged into the spotlight this spring, capturing global financial markets and mainstream attention. Investors flocked to Circle’s initial public offering on the New York Stock Exchange in May, which was oversubscribed by 20-25 times, tripling the share price of the second-largest stablecoin issuer. With a market capitalization nearing $250 billion, stablecoins are on the brink of transitioning from niche cryptocurrency markets to mainstream financial instruments.

Stablecoins are particularly attractive in the right interest rate environment, functioning as yield-generating machines. They offer a near-perfect financial product where depositors exchange cash for a tokenized version of the currency, which the issuer places in yield-bearing, high-quality assets like U.S. Treasury bills. While holders typically do not receive a share of the interest, stablecoins facilitate inexpensive, global, and around-the-clock payments and remittances. For those in developing regions, dollar stablecoins often serve as a better store of value than hyper-inflationary local currencies. According to the Chainalysis 2024 Geography of Crypto Report, nations with rapidly increasing crypto usage, including stablecoins, include India, Nigeria, Indonesia, Philippines, Pakistan, and Brazil. High-inflation countries like Venezuela, Argentina, and Turkey also rank in the top 20. In the crypto industry, skilled practitioners—and now AI agents—deploy stablecoins to optimize yield across various decentralized finance strategies.

The stablecoin landscape resembles a modern-day gold rush. Tether, the first stablecoin to achieve significant success, reaped $13 billion in profit in 2024 with only a handful of employees. This profitability has attracted major players, including big banks like J.P. Morgan, Citi, and Wells Fargo, which are considering launching joint stablecoins. Retail giants like Walmart and Amazon are also exploring their own stablecoins. Even Meta, which previously abandoned its Libra stablecoin due to regulatory backlash, has considered re-entering the space. U.S. Treasury Secretary Scott Bessent expects stablecoins to drive $2 trillion in U.S. Treasury bill demand in the near future.

Regulatory clarity is crucial for institutional adoption. This week, the Senate is expected to vote on the GENIUS Act, which paves the way for stablecoin legislation. The bill requires reserves to be held in high-quality, liquid assets like Treasuries, imposes transparency requirements, and clarifies which institutions can issue dollar-backed digital tokens. However, it forbids any payment of interest to stablecoin holders. Traditional institutions, including banks, have been awaiting this regulatory clarity. At a recent conference, Brian Moynihan, CEO of Bank of America, stated, “We're working with the industry, working individually.”

For many issuers, regulatory clarity comes with a downside. One of the key lessons from the global financial crisis is that regulation forces consolidation. Derivative markets serve as a good example. When the Dodd-Frank Act required the clearing of the $700 trillion derivatives market, many believed there would be a proliferation of clearing members. Instead, the number of clearing members declined from 177 in 2004 to 64 in 2024. With regulation, costs increased, and intense competition compressed fees. Similar dynamics are likely to play out in the stablecoin industry. Stablecoins are highly sensitive to short-term interest rates. Interest income accounts for 99% of Circle’s revenue, and they project that a 1% drop in interest rates could wipe out $441 million. While markets suggest there is little chance of an interest rate cut this month, the future is less certain. Issuers do not pay individual holders interest, but that does not mean they keep it. According to its financial statements, Circle paid over $1 billion in distribution and transaction costs—over 50% of its revenue—for the privilege of reaching Coinbase’s 89 million registered users. As new players enter the space, many arrive with existing distribution. Citi alone boasts 200 million accounts. Companies with large, coveted distribution networks will charge handsomely for that access or become stablecoin issuers themselves.

Just like gold rushes of the past, “picks and shovels” stand to benefit. Infrastructure that unlocks distribution and scales issuance will be in high demand. Stablecoin exchanges and platforms that enable “vampire” yield attacks, where competitor stablecoins are accepted, redeemed, and re-issued by a new issuer, will be in vogue. Issuers will ask, “Why should they have the interest when it could be mine?”

Decentralized finance protocols will also benefit. Without yield, U.S. dollar stablecoins, which account for 99% of issuance, depreciate due to inflation. So, holders will continue to seek yield elsewhere. Tokenized money markets, which pay interest and are regulated as securities, could also see explosive growth. Stablecoin summer has finally arrived. As stablecoin panacea turns into the yield version of the “Hunger Games,” it will be a period of intense competition and quest for scale. So, to the issuers, may the odds forever be in your favor.