Circle bypassed the "toll booths" of Visa and Mastercard.
The overseas payment methods have changed.
In the past year, in coffee shops in Buenos Aires, Argentina, the number of customers choosing to pay with stablecoins has increased tenfold. Fruit exporters in Vietnam have also popularized using stablecoins for settlement. Two out of every five Turks hold stablecoins.
In 2024, the trading volume of stablecoins reached 15.6 trillion US dollars, exceeding that of payment giant Visa. Although the majority of stablecoin transactions still come from buying Bitcoin, the penetration into the payment market is an irresistible trend.
Even Amazon recently announced that it will cooperate with Circle to fully accept payments in the USDC stablecoin, and offer a 1.5% shopping discount to users who use stablecoins.
The cooperation announcement between Amazon and Circle had the same impact as a bombshell: within a day, Visa's stock price plummeted 8.2%, Mastercard's dropped 8.5%, and American Express also fell more than 7%.
How can stablecoins shake Visa? The viewpoints are as follows:
1. Bypassing the toll booths. The business models of Visa and Mastercard are to set up toll booths in the bank payment network. By handling settlements between different banks, they collect a toll. However, stablecoins directly bypass banks and payment service providers. The money goes directly from the user's wallet to the merchant's wallet, which can save merchants 2% - 3% in intermediate handling fees.
2. Circle has a model advantage. Visa does not accumulate assets and only plays the role of a payment channel. It can only charge fees for each "movement" of funds. This is equivalent to making money from the markup rate of goods in traditional retail. Circle is "asset - driven" and can waive transaction fees. It makes money by cashing in US Treasury bonds with the assets reserved by users. This is like the "the wool comes from the pig" model in Internet business.
01 From Cryptocurrency to Payment Tool
Financial companies also have the so - called "market dream ratio".
After a ten - fold increase in ten days, although Circle's stock price has corrected, its P/E ratio is still close to 280 times, and its market value is equivalent to the value of the stablecoins it holds. If Industrial and Commercial Bank of China were valued like this, its market value would reach 35 trillion.
Circle's high valuation comes from its good business model and large potential space.
Circle's business is even better than that of banks: you give me 1 US dollar in cash, and I give you 1 stablecoin called USDC; then I invest your cash in Treasury bonds to earn interest. When you want your cash back, I exchange it back for you at a 1:1 ratio without paying interest.
To put it bluntly, Circle's source of income is to use the interest - free funds deposited by users to get free returns from US Treasury bonds.
With this approach, Circle's performance has grown very rapidly. From 2020 to 2024, Circle's revenue soared from 15.4 million US dollars to 1.7 billion US dollars, achieving an astonishing 110 - fold increase.
Seeing this, users may have questions. Who would give them interest - free funds? Where is there such a good thing in the world?
The original function of stablecoins was simply to serve as casino chips.
Before the emergence of stablecoins, if users wanted to buy Bitcoin, they could only use fiat currency. The conversion between fiat currency and Bitcoin had to go through banks, which was very slow and expensive, often taking two or three days. During this period, there would be problems such as currency value fluctuations and trading risks.
Stablecoins solved this problem. Stablecoins do not go through banks and, like Bitcoin, rely on blockchain technology. They can be quickly matched with Bitcoin. At the same time, stablecoins also act as a firewall, blocking the association of traders' sensitive information.
If stablecoins only remained in the field of speculative trading in the so - called "evil capitalism", their influence would be limited. What really made stablecoins go mainstream is that they are transforming from cryptocurrencies to payment platforms.
The difference between stablecoins and cryptocurrencies such as Bitcoin is that the value of stablecoins is linked to a certain asset. For every stablecoin issued, a corresponding asset must be mortgaged. For example, for every 1 USDC issued by Circle, 1 US dollar or US Treasury bond must be reserved.
The reserve assets can be fiat currency, gold, other cryptocurrencies, etc. Currently, the most recognized and mainstream reserve assets are US Treasury bonds or US dollars.
Being linked to assets gives stablecoins the stability similar to fiat currency. Coupled with the convenience of transactions brought by blockchain technology, stablecoins have penetrated into many payment scenarios.
This is especially true for cross - border payments. Bank cross - border payments can take hours to days and require an average comprehensive handling fee of 6%. However, based on blockchain technology, stablecoins enable direct interaction between the two parties in a transaction without the need for intermediate levels such as correspondent banks and clearing institutions in the traditional financial system. Settlements can be completed in as fast as 30 seconds, and the fee rate can be controlled between 0.1% - 1%.
After the transformation into a payment platform, stablecoins are also competing with Visa and Mastercard for business.
02 Bypassing Visa and Mastercard's Toll Booths
Last month, the three global payment giants were in a cold sweat.
Within a day, Visa's stock price plummeted 8.2%, Mastercard's dropped 8.5%, and American Express also fell more than 7%.
The fuse was an announcement from Amazon: it will cooperate with Circle to fully accept payments in the USDC stablecoin and offer a 1.5% shopping discount to users who use this payment method.
The impact of this announcement lies in the fact that stablecoins may bypass the toll booths of international payment giants.
Payment is a lucrative business. As global payment giants, Visa and Mastercard have annual revenues of around 30 billion US dollars, and their net profit margins are all above 45%.
The high income and high profit come from a good business model. The business models of Visa and Mastercard are essentially built on a complex network composed of numerous banks and institutions with multi - level authorizations. They charge fees by acting as the "core transportation hub" of this network.
Overseas, the complete transaction process between merchants and consumers is as follows: the merchant sends a collection instruction to the partner bank - the merchant's partner bank contacts VISA - VISA contacts the consumer's card - issuing bank - the card - issuing bank pays the merchant's partner bank through VISA.
Among them, each link in the transaction takes a "toll" (handling fee). In the United States, this fee is usually 2% - 3% of the transaction amount. About 0.2% of it goes to VISA/Mastercard, and the rest goes to each participating bank.
This toll is mainly borne by the merchants in the end, but as the saying goes, "the wool comes from the sheep", and it will ultimately be reflected in the commodity prices.
In contrast, stablecoins directly bypass the above - mentioned toll booths. In the stablecoin payment process, there are no such roles as "merchant's bank", "Visa/Mastercard", or "consumer's bank". It is a peer - to - peer transaction where the money goes directly from your wallet to the merchant's wallet.
This means that stablecoins can save merchants 2% - 3% in intermediate handling fees, which is why Amazon offers a 1.5% discount to users who use stablecoins.
Judging from the business model alone, Visa and Mastercard will find it difficult to resist the attack of stablecoins.
Visa's business model is transaction - driven. Since it does not accumulate assets itself and only plays the role of a payment channel, it can only charge fees for each "movement" of funds. This is equivalent to making money from the markup rate of goods in traditional retail.
On the other hand, Circle's core business model is "asset - driven". It can waive transaction fees and make money by cashing in US Treasury bonds with the assets accumulated by users. This is like the "the wool comes from the pig" model in Internet business.
Of course, this model also has a flaw. For most consumers, they will not give up the interest income from fiat currency just to save a little handling fee.
This is indeed the case in countries with a stable financial system. However, in high - inflation countries such as Argentina (with an annual inflation rate of about 45%) and Turkey (about 35%), residents tend to convert their local currencies into US - dollar - denominated stablecoins to hedge against inflation and preserve assets.
In these regions, stablecoins have been used for daily payments. For example, in a coffee shop called CrypStation in Buenos Aires, Argentina, the number of customers choosing to pay with cryptocurrencies has increased tenfold in the past year, and nearly 60% of them use USDT.
Although it is not yet the time for a complete overthrow, stablecoins have pried open a crack in the payment giants.
03 A New Round of Competition for Financial High - Grounds
The payment war between stablecoins and Visa and Mastercard is just a local battle.
Looking at the overall situation of stablecoins, a new round of offensive and defensive battles for financial high - grounds has begun, from business giants to economies.
In the business world, stablecoins are no longer just a special type of "cryptocurrency", but rather a "global infrastructure". Along with this comes the reshaping of the business competition logic.
For financial institutions, stablecoins have launched a movement to eliminate middlemen. After traditional financial institutions such as banks and Visa are bypassed by assets such as USDS and USDT, Visa loses its source of income from tolls, and banks face the risk of asset diversion.
As for large - scale retailers, stablecoins give them an opportunity to increase profits. For retailers with trillions of dollars in transaction volume, a one - percentage - point reduction in handling fees will bring a huge increase in profits. To avoid being controlled by stablecoin issuers in the future, large - scale retailers such as Walmart, Amazon, and JD.com are all exploring the issuance of their own stablecoins.
Power is shifting from traditional financial payment intermediaries (banks, card associations) to a new generation of digital financial infrastructure providers (stablecoin issuers) and business giants (large - scale platforms) that can apply this technology on a large scale.
Not limited to corporate competition, stablecoins have also escalated to a currency war among economies.
The financial order dominated by the US dollar is being challenged. The share of the US dollar in global foreign exchange reserves has dropped from over 85% at its peak to less than 60% now.
Stablecoins are playing a role in curbing "de - dollarization" by providing a new traffic entry for the US dollar.
Although stablecoins have not been well - known in China for a long time, in many countries with weak sovereign currencies, the use of stablecoins has become a common practice.
For example, the Turkish lira has depreciated by more than 60% in two years. To preserve their wealth, Turks have flocked to US - dollar - denominated stablecoins. Two out of every five Turks hold stablecoins.
There are also similar countries, such as Argentina, Ecuador, Venezuela, Zimbabwe, Lebanon, Cambodia, Myanmar... and almost the entire sub - Saharan Africa...
At this time, the country whose fiat - currency - based stablecoin is used in large quantities will have the right to speak in the currency system. Currently, in terms of currency types, US - dollar - denominated stablecoins almost occupy the entire market share. Contrary to what some people claim, stablecoins do not weaken the US dollar; instead, US - dollar - denominated stablecoins will greatly enhance the status of the US dollar.
A new round of currency war has begun.
This article is from the WeChat public account "Read Financial News". Author: Yang Yang, Editor: Xia Yijun. Republished by 36Kr with permission.