OpenUSD has its work cut out if it hopes to challenge incumbent stablecoins

• Key insight: The recently announced consortium of crypto companies behind OpenUSD, a new dollar-denominated stablecoin, will have to demonstrate that it can build partnerships with banks and intermediaries before it can challenge USDC and Tether. 
• What’s at stake: Consortiums are easy to establish, but a lot of work is needed to make it a credible challenger to the incumbents, especially when regulators and licensed institutions are involved.

• Foward look: None of this means OpenUSD fails. The economics may well be better, and the partner list is real. What the consortium hasn’t shown is a ground game — and Circle has a yearslong head start. 

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Circle’s stock reacted violently last month to news that a consortium of the largest names in crypto is launching a rival dollar stablecoin called OpenUSD. Dozens of dollar stablecoins already exist, including from incumbents like PayPal, yet none have caused a double-digit stock dip like OpenUSD. 

The mechanics of any stablecoin are simple: a digital token designed to hold a one-dollar value, backed by real dollars held in reserve, mostly in short-term Treasuries. Stablecoins’ instant settlement makes them useful for supply chain financing in Asia, and around the region, hundreds of millions of dollars in invoices are settled every day in Circle’s USDC or Tether’s USDT.

Behind the scenes of every stablecoin are Treasuries or other investments that earn interest, and at scale that interest is most of the business. 

USDC, one of the two largest dollar stablecoins, is the single-company version of the model. Circle mints it, holds the reserves and keeps the interest, minus what it chooses to share with distribution partners like Coinbase. OpenUSD is the co-op version. Members split the reserve income among themselves, mint and redeem without fees, and share a say in how the network runs.

Circle’s CEO has since published a long letter in response, and most of it is what you’d expect from the incumbent: network effects, liquidity, ten years of compounding. It was written for investors, and it reads as a defense of the moat, which it is. 

Asia isn’t a homogeneous place, and stablecoins in this region don’t operate on a single framework. Japan’s JPYSC, StraitsX’s XSGD, and South Korea’s upcoming stablecoins all work on different rulesets when it comes to minting, redemption, and underlying assets. 

Stablecoins are only useful as a tool for businesses when there are licensed intermediaries to allow the conversion to regular, fiat currency — the type that’s in your bank account. 

The part that gets the most attention from regulators is this last mile. Minting and redeeming a token are, by now, solved problems. The unsolved problem is a network of “ramps” to allow businesses to convert stablecoins into Hong Kong dollars, pesos, or whatever real-world currency they need and clear them through a local bank. For this to work, regulators, bank compliance teams and everyone along the value chain in Asia need to be confident that USDC is safe and well established. If the only way to convert stablecoins to fiat currency is through a sketchy back-alley exchange shop, this simply isn’t going to take off.

Circle spent years building out local teams, opening offices, meeting with regulators, and working with local infrastructure partners across Asia to make sure banks and payment processors are comfortable interacting with USDC.

Consortiums are easy to establish, but a lot of work is needed to make it a credible challenger to the incumbents, especially when regulators and licensed institutions are involved.

None of this means OpenUSD fails. The economics may well be better, and the partner list is real. What the consortium hasn’t shown is a ground game, and Circle has a yearslong head start.