On June 30, Circle Internet Group (CRCL 0.35%) got some news that hammered its stock, which fell 17% in just 24 hours. A coalition of more than 140 companies, banks, and financial institutions, including Circle's biggest stablecoin distributor, will launch a new dollar stablecoin token called Open USD (OUSD), with Solana (SOL +1.49%) being the first chain where it trades. The stablecoin will directly rival Circle's USDC, which has a market cap of $73.4 billion, making it the second-largest in the crypto stablecoin sector behind Tether USD.
By design, Open USD will hand nearly all of the interest paid to the owners of the underlying cash and cash equivalent assets back to the businesses that mint, hold, and route the token, instead of the normal situation, where the stablecoin issuer pockets the yield rather than stablecoin holders.
That mechanism is likely making the incumbents like Circle nervous, and it's also leaving a couple of tokens caught in the crossfire -- not to mention Solana getting a lottery ticket. Let's unpack all these implications and determine how they change the picture for investors.
Image source: Getty Images.
Why this is a major change in the stablecoin landscape
First, here's a quick primer on how stablecoins work.
When a stablecoin is created, its issuer takes $1 in a customer's cash, or, more realistically, a cash equivalent like a Treasury bill, and puts it into a segregated bucket where it won't be accidentally spent. It then mints (creates) one stablecoin token that is redeemable for $1, handing it back to the customer. The customer can then spend the token for their own purposes, or redeem it with the issuer for $1 in cash, which is almost never done in practice.
If the token is not redeemed, but is spent, transferred, or held, the money the holder would have otherwise made in interest on their cash goes to the issuer. This is a much bigger deal for financial institutions working with stablecoins than it is for individuals.
That's why there's a long list of notable participants in the OUSD syndicate, including Visa, Mastercard, Stripe, BlackRock, Coinbase Global, and Ripple, the issuer of XRP, among many others you've almost certainly heard of.
NYSE: CRCL
Key Data Points
OUSD's design leans heavily on the size and deep wallets of the players in that roster. The banks and payment companies that will mint and thus increase the token's supply will keep most of the reserve interest they generate. So they will no longer have much of an incentive to hold USDC, USDT, or other stablecoins where that doesn't happen.
This has immediate financial implications for several coins
A few networks (and their native tokens) could be especially affected by OUSD when it starts changing hands later this year.
Hyperliquid (HYPE +3.39%), the blockchain that's a decentralized exchange for financial derivatives like perpetual futures (leveraged bets on an asset's price with no expiration date), is one.
CRYPTO: HYPE
Key Data Points
In May, it cut a deal surrounding Circle's USDC, with Coinbase taking the role as the USDC treasury deployer, returning as much as 90% of the asset's reserve yield -- worth about $135 million to $160 million a year -- to the network. That framework assumed that USDC would keep growing as the institutional stablecoin of choice, and that its growth would also support Hyperliquid's growth, but that assumption is now in question.
Ethereum (ETH +1.34%) is also slightly vulnerable here. By picking Solana as the place where OUSD will launch, the issuing syndicate effectively snubbed Ethereum. It was passed over despite hosting the largest stablecoin float in crypto, with $154 billion in stablecoin value out of the $311 billion that exists. This could be a sign that financial institutions do not view the network as an appropriate place to launch a major crypto initiative.
CRYPTO: SOL
Key Data Points
Solana, of course, will be the winner, and the main question is how much that is. It only has $15 billion in stablecoin value right now, and it's hard to imagine anything other than that sum rising by at least a few billion once OUSD launches. Any new capital will help to power its ecosystem, and it will also generate fees for the chain as it changes hands.
OUSD isn't something that should cause you to sell Hyperliquid or Ethereum. However, if more information is released about how much capital will be involved -- and it could be quite a lot -- it could become a reason to buy a bit more Solana, so stay tuned.
