Circle vs OUSD: The Battle Between Open Standard (OUSD) and Floating Reserves of Stablecoins

Author: Eric Poh, DFG

The stablecoin market has just undergone the most ambitious structural shock in nearly a decade. On June 30, 2026, an alliance of over 140 financial and tech giants—including Visa, Mastercard, Stripe, BlackRock, BNY, Google, Coinbase, and Solana—jointly announced the Open Standard, an independent entity issuing a new dollar-pegged token called Open USD (OUSD). On the day of the announcement, Circle (CRCL) saw its stock price plummet by 17%, reflecting market expectations of a structural shift in control over the floating reserves of global payment infrastructure.

What is Open Standard?

Open Standard is not a traditional stablecoin issuer. Its organizational structure resembles that of Visa or Mastercard rather than Circle or Tether—it is governed by a board composed of partner institutions, operating as a consortium rather than being beholden to a single corporate shareholder. The founding CEO is Zach Abrams, who co-founded Bridge, a stablecoin infrastructure company acquired by Stripe for $1.1 billion.

The design of OUSD is based on three key principles that fundamentally disrupt the existing issuer model:

• Zero-cost minting and redemption—no artificial transaction volume limits, eliminating friction in high-frequency corporate settlement processes.
• Redistribution of reserve earnings—interest income generated from underlying U.S. Treasury bonds and cash reserves is almost entirely pooled and returned to the partner network after deducting a small management fee.
• Consortium governance—reserve policies, on-chain expansion, and blacklist decisions are made by a board led by partners, removing control over the economic model from a single issuer.

OUSD redistributes these economic benefits upstream. Partners in the network can earn a proportional share of dollars based on the volume of OUSD transactions they promote and hold. Thus, partners like Visa, Mastercard, and Stripe are no longer merely unpaid distribution channels but can share in the reserve earnings generated by their own efforts. This new incentive structure transforms institutional partners into self-reinforcing growth engines.

The stablecoin was initially launched on the Solana blockchain and plans to expand to Base, Stellar, and Polygon. Stripe and Visa have announced that OUSD will become the default stablecoin for enterprise users on their platforms.

Why This is Different from Typical Stablecoin Issuers

Under the existing model, Circle and Tether together hold approximately $260 billion in floating reserves for stablecoins, earning interest income from the government securities and cash equivalents that back these stablecoins. Tether reportedly profits billions annually from this model, while the vast majority of Circle's revenue relies on reserve interest, sharing only a portion of that revenue through bilateral agreements with distribution partners like Coinbase, while retaining the rest for infrastructure investment.

The timing of OUSD's launch is significant, closely tied to its structural context. White-label stablecoin issuance has rapidly commoditized at the technical level of the underlying tokens. Companies like Paxos, Anchorage, BitGo, and M0 Protocol can now deploy minting/burning contracts, manage reserve custody, and handle basic compliance controls for any qualified institutional brand within weeks. This has sparked a wave of branded stablecoins—Western Union, Klarna, Sony Bank, and Fiserv have all issued their own dollar tokens instead of integrating USDC.

However, the commoditization of issuance has not led to the commoditization of adoption. Branded white-label tokens face a structural ceiling: each new issuance creates an isolated liquidity pool that cannot inherit existing network effects, forcing each brand to rebuild DeFi integration, exchange listings, and market maker relationships from scratch. PYUSD has relatively thin DeFi liquidity compared to its supply scale—despite being backed by Paxos and PayPal's distribution capabilities—reflecting the direct consequences of this ceiling. Decentralized branded tokens must compete with the compound integrated network that USDC has built over years, and the cost of breaking through that network effect rises with each additional chain, protocol, or counterparty a brand integrates.

OUSD's market bet is that a single shared token, with unified liquidity depth distributed among 140 institutional partners, can outperform the fragmented brand island model where each entity independently solves liquidity and composability issues. Unlike the stablecoins of Western Union or Klarna, which cannot inherit liquidity from other brands, OUSD held by Stripe merchants is fully interchangeable with OUSD held by Coinbase users or BNY institutional clients.

The commoditization of issuance underscores the core argument of Open Standard: the token itself is no longer a differentiating factor; the only way to overcome USDC's first-mover advantage is to integrate distribution channels rather than further fragment them.

Impact on Circle and Tether: A Structural Attack on Their Business Models

For Circle, the threat manifests along two parallel axes: erosion of distribution channels and compression of profit margins.

On the distribution front: OUSD launched in partnership with Coinbase, Visa, Mastercard, BlackRock, Google, and Stripe—precisely the same institutional distribution network that Circle has spent nearly a decade building. Coinbase itself has a revenue-sharing agreement with Circle for USDC traffic, yet now supports OUSD as well. If corporate transaction volumes begin to shift towards OUSD, Circle will lose both the scale of floating reserves and the compound network effects driven by transaction volumes.

On the profit margin front: In 2024, reserve earnings account for 99% of Circle's revenue, exposing it to significant vulnerability as reserve yields compress from 5.0% in FY 2024 to 4.1% in FY 2025. As Circle must heavily compensate its distribution partners to defend market share, only $1.08 billion of the $2.75 billion total revenue in FY 2025 will be retained as "revenue less distribution costs" (RLDC). After deducting fixed compliance and operational costs, Circle's adjusted EBITDA is $582 million, with a cash profit margin of only a modest 21%. If free, profit-sharing competitors like OUSD flood the market, forcing Circle to further cede revenue sharing, a sustained 200 basis point rate compression will completely erode its operational cash flow.

For Tether, the nature of the threat is different. USDT dominates emerging market trading and remittance business due to its strong liquidity depth and first-mover advantage. However, it lacks the regulatory banking and payment network partnerships that OUSD has established from the outset. Under the GENIUS Act, federal stablecoin regulatory standards now require reserve transparency and independent audits, while OUSD has incorporated regulated payment processing entities and major U.S. banks into its governance structure from the beginning. Tether has never prioritized this regulatory posture, and OUSD's structure directly capitalizes on this gap.

Flaws in the OUSD Narrative

OUSD clearly still faces multiple layers of resistance to overcome.

The Cost Structure Challenge of Open Standard

On the surface, the mechanism seems straightforward: total reserve earnings minus "a small management fee" equals the partner share.

However, operating a stablecoin issuer at scale under compliance requirements entails a substantial and largely fixed cost base. According to the GENIUS Act, issuers must maintain monthly public reserve disclosures, annual audited financial statements, pre-approved independent custody arrangements by regulators, 24/7 on-chain transaction monitoring infrastructure, anti-money laundering/anti-terrorism financing compliance systems, sanction screening at the wallet level, smart contract audit capabilities, and full FFIEC-level information security standards. These are permanent compliance infrastructure obligations that must be sustained regardless of OUSD's circulation scale.

The costs of technical infrastructure further exacerbate this challenge. OUSD launched on Solana and plans to expand to Base, Stellar, and Polygon—each new chain requires the deployment of new smart contracts, independent security audits, remediation cycles, and ongoing 24/7 monitoring and incident response. Each on-chain integration is a permanent operational commitment: any protocol upgrade, fee structure adjustment, or reserve policy modification must be deployed, tested, and re-audited across all supported chains. Due to the lack of a native certification layer on par with CCTP, Open Standard's cross-chain expansion also relies on third-party messaging protocols (Wormhole, LayerZero, or Hyperlane), introducing additional integration costs and security assumptions that the issuer cannot fully control.

As a newly established entity, Open Standard is building this system from scratch, lacking the amortized infrastructure advantages that Circle has accumulated over a decade and hundreds of millions in investment. As of the time of publication, Open Standard has not disclosed detailed information on reserve asset structure, issuance cost projections, compliance arrangements, or operational budgets.

Regulatory Licenses as Hidden Execution Risks

Open Standard must independently obtain a stablecoin issuance license. While Stripe's currency transfer licenses (MTL) covering 101 countries/regions may accelerate OUSD's distribution, these licenses only cover Stripe's own payment processes and cannot be transferred to an independent issuing entity. Under the GENIUS Act, reserve transparency, audit obligations, and PCAOB-registered monthly attestations are directly bound to the issuer itself.

The Office of the Comptroller of the Currency (OCC) approval process for national trust licenses—federal qualifications required for any issuer with a supply exceeding $10 billion and compliant with the GENIUS Act—took Circle a total of 13 months from application to final approval: submitting the application on June 30, 2025, receiving conditional approval on December 12, 2025, and obtaining final approval on July 9, 2026. Paxos's process was faster simply because it converted an existing New York State Department of Financial Services (DFS) trust license rather than applying from scratch; even so, its conditional approval obtained in 2021 had expired before completion, necessitating a resubmission in August 2025. BitGo and Ripple received conditional approval on the same date (December 12, 2025) but have not yet completed the conversion. The reality is that for newly established entities like Open Standard, which do not have an existing state-level trust license to convert, the process of applying for a federal license from scratch takes at least 18 to 24 months and must queue behind several existing applicants for regulatory approval.

During this time, Open Standard can only rely on state-level MTL licenses for operation, which locks its compliance supply cap under the GENIUS Act at $10 billion.

Governance and Collaboration Challenges of a 140-Member Alliance

Circle CEO Jeremy Allaire directly raised structural arguments against alliance-based stablecoins, arguing that "a group of large companies coordinating is inefficient, has misaligned interests, and makes slow decisions," leaving little room for lasting innovation. His sharper point concerns funding: for their own interests, alliance members are often unwilling to invest actual resources into the alliance's operations, only seeking exposure from participation.

The precedents he cited yielded mixed results but shared a common direction. Diem, supported by Meta, Visa, and Uber, failed under the combined pressures of regulatory scrutiny and internal disagreements; the blockchain payment network initially built by JPMorgan as a bank alliance never attracted substantial participation beyond its founding institutions. Allaire also pointed out that the market has ultimately formed a landscape dominated by single issuers, with USDT and USDC accounting for over 90% of stablecoin trading volume.

The least discussed yet potentially most easily overlooked argument is at the operational level. Decisions such as freezing addresses or accessing new layer-two networks require a decision-maker, and even a multi-party alliance issuer needs to reach consensus among members for a routine contract upgrade.

The "Streamlined Structure" Hypothesis

Leading stablecoin issuer Paxos, with annual revenues of about $100 million, has a cost base far lower than Circle—its approach is to hold only regulatory licenses, manage reserves, and process minting/burning requests solely for whitelist counterparties. Compliance responsibilities for end users are borne by distribution partners, protocol rules remain fixed, and governance mechanisms exist only as emergency measures.

Open Standard's compliance architecture aligns closely with this: whitelisting 140 partners, fixing management fee rates, and delegating downstream KYC and anti-money laundering responsibilities to institutions like Stripe, BNY, and Coinbase. Open Standard never directly touches the end-user level, thereby compressing its compliance coverage to custody, auditing, and a streamlined regulatory team.

"Applying a Paxos-style compliance structure to a Visa-style shared liquidity model" would enhance its operational efficiency over Circle, and the benefits of this complexity are worth it: a single shared OUSD token can create a unified liquidity depth that compounds across all partner integrations, allowing OUSD to truly possess composability in DeFi and achieve large-scale interoperability that fragmented white-label tokens structurally cannot.

The key is that Open Standard does not need to solve broad accessibility and interoperability issues on day one. It can start with a closed institutional model, establish a reserve pool, generate sufficient returns to validate partner economic models, and build regulatory credibility within a limited compliance scope. Broader DeFi integration and open cross-chain accessibility can be phased in as partner demands emerge and as Open Standard gradually builds the corresponding scale of monitoring infrastructure. The partner distribution lineup of Open Standard provides a sufficient foundation to support early-stage credible institutional demand without needing to achieve open accessibility immediately. The real question is whether the revenue economic model under a closed ecosystem can sustain long enough to support the infrastructure needed for broader coverage; and whether Circle can adjust its partner economic model before Open Standard reaches that point.

How Circle Responds to This Threat

Circle is not without structural advantages; the market may have priced this news too hastily, treating it as a foregone conclusion.

CCTP: Protocol-Level Settlement Infrastructure

Circle's Cross-Chain Transfer Protocol (CCTP) destroys USDC on the source chain, obtains cryptographic certification through Circle's own certification service, and mints native Circle-issued USDC on the target chain—without the need for asset wrapping, liquidity pools, or third-party custodians. This protocol is permissionless, free at the protocol level, and has been operational on over 25 chains. OUSD attempts to replace this stablecoin at the protocol level but lacks an equivalent cross-chain native mechanism. To break through single-chain limitations, it must either build native infrastructure from scratch or rely on third-party locking—minting cross-chain bridges, which would reintroduce the custodial risks and asset fragmentation issues that CCTP was specifically designed to eliminate. Since 2022, while the security gap between CCTP and third-party messaging protocols has narrowed, it has not been fully bridged; for institutional-grade stablecoin infrastructure carrying hundreds of billions in flow, this remains a materially significant distinction.

USYC: Institutional Yield Countermeasure

Circle acquired Hashnote and launched USYC—a tokenized money market fund investing in U.S. Treasuries and reverse repos—creating a yield-generating institutional asset just one API call away from USDC. Through a single integration, it enables seamless conversion between yield-generating capital (USYC) and liquid dollar cash (USDC) within on-chain workflows. This allows Circle to offer the yield economic benefits touted by OUSD without relinquishing control over floating reserves or dismantling the infrastructure investments that support USDC's global liquidity depth.

The GENIUS Act as a License Moat

Circle has the most comprehensive global stablecoin license layout among all issuers, covering the EU (MiCA), Japan, Singapore, and has received final approval from the OCC to establish a national trust bank in the U.S. Open Standard, as a new issuing entity, must build all of this from scratch. According to the GENIUS Act's requirements for reserve transparency and auditing, the compliance infrastructure for USDC is a prerequisite for institutional-level deployment that competitors cannot bypass.

The Most Direct Countermeasure: Formally Establishing a Yield Sharing Alliance Around USDC

Circle has established a revenue-sharing agreement with Coinbase and has completed deployments on infrastructures such as Arc, CCTP, CPN, StableFX, and Agent Stack. There is nothing preventing Circle from formally establishing a structured partner revenue-sharing framework around USDC—a scheme that can match OUSD's economic claims without bearing the governance burden of 140 stakeholders. The fact that Coinbase is involved in both OUSD and USDC underscores that such partnerships are essentially commercial and fluid. Circle possesses the infrastructure, regulatory qualifications, and bilateral partnerships to execute this framework before OUSD reaches a meaningful scale.

Conclusion

The fundamentals of USDC remain solid. In Q1 2026, out of a total quarterly volume of $28 trillion, USDC accounted for about 80% of the on-chain stablecoin natural trading volume, marking the first time since 2019 that it has surpassed USDT in natural settlement flow. USDC is built on years of on-chain integration and developer tool accumulation, making it difficult to be replaced by an alliance still perfecting its compliance and governance structures. USDT and USDC together account for over 80% of stablecoin market value and the vast majority of on-chain trading volume, a concentration that is unlikely to be shaken in the short term.

Given the compliance architecture that Open Standard is likely to adopt—whitelist partners, delegated end-user KYC, and a closed counterparty issuance model—OUSD is more likely to operate within the respective closed ecosystems of its partners (Stripe merchants, BNY institutional clients, Coinbase exchange users) rather than competing for the open, composable DeFi trading volume that supports USDC's dominance. It aims to capture the market that Circle has yet to penetrate: corporate cash management, B2B cross-border payments, and interbank settlements—which represent the primary direction for USDC's next phase of growth, namely transaction volumes in enterprise-level and traditional finance (TradFi) adjacent areas.

In fact, Circle has already laid out plans in this TradFi space targeted by OUSD, and this progress has coincided with the launch of OUSD. BNY has allowed institutional clients to directly mint, redeem, and hold USDC through its digital asset custody platform. Standard Chartered has become the first globally systemically important bank authorized to provide integrated USDC minting and redemption services, with clients not needing to open accounts directly with Circle. FIS has also partnered with Circle to bring USDC settlement into its Money Movement Hub for U.S. financial institutions. All of these demonstrate that Circle's positioning in the corporate settlement space predates the launch of OUSD and has already translated into tangible signed institutional partnerships.

Alliance-type organizations act slowly, while the OUSD's execution timeline has given Circle the space to respond before the threat truly manifests. The window period between the announcement of the news and actual execution is precisely the opportunity for Circle to launch strategic responses—whether through USYC integration, a formalized partner benefit framework, or directly forming its own alliance. The advantages in infrastructure are real. Whether the management can swiftly defend the corporate settlement front before the OUSD's partner network truly matures will determine how much this release ultimately costs Circle.