Author: Lorenzo Valente, Director of Research at ARK Invest

Compiler: Jia Huan, ChainCatcher

The launch of OUSD has caused a huge stir on Twitter. Many now believe that @circle is doomed, as an alliance made up of 150 companies spanning payment, fintech, banking, crypto infrastructure, and consumer technology is set to crush its competitors and release a stablecoin that can rival USDC and even USDT.

I previously tweeted explaining why people are seriously overestimating this project, and why an alliance structure is difficult to stand out in any market (let alone one that has already formed a duopoly). In this short article, I want to focus on one thing: the true network effects of stablecoins. Rather than repeating my previous arguments, it's better to demonstrate the issue through a specific case that has been overlooked by many, as I believe the liquidity moat of USDT and USDC is severely underestimated and misunderstood.

The network effects of stablecoins are not built up by a long list of partner logos. They consist of liquidity, user habits, collateral acceptance, degree of integration, brand recognition, market depth, settlement flow, and the mindset of "not wanting to disrupt the existing operating system."

This is also why I believe that @tether and @circle are both seriously misunderstood.

First, an obvious fact: OUSD will comply with the GENIUS Act's regulatory requirements, which means it cannot directly share profits with users. This is not news, yet many criticize Circle for not distributing profits to stablecoin holders as if OUSD could actually do that. The opposite is true: in the entire market, Circle is very likely the issuer that shares the highest proportion of profits with platforms (thereby benefiting users).

This is important because many people speak as if OUSD would create a brand new profit product for end users. But this is not the case. Its model is not "paying stablecoin holders directly," but rather "sharing reserve profit with the platforms and businesses that distribute and use this stablecoin."

This is an important distinction.

The strongest argument I currently see in support of OUSD is: because they can obtain profit sharing from the structure, alliance members will have a strong incentive to deeply embed OUSD into their own businesses. Without knowing the specific details, let's assume the economic model is similar to alliances we've seen before: the operating company Open Standard charges a management fee of 25 basis points, and each participant retains all net interest margin (NIM) generated by the OUSD they hold on their platform, network, or protocol.

On paper, any party would sign this deal immediately. But this completely overlooks a fact: these companies already accumulate value through other means, and many times, their core business relies precisely on the liquidity and network effects already established around USDT, USDC, other stablecoins, or fiat currency itself.

Only when chasing net interest margins does not endanger a much larger source of income does the net interest margin of stablecoin reserves become attractive.

This is the crux of the matter.

Taking Binance as the Best Example

@binance is the largest exchange in the industry by a wide margin. It originally had its own branded stablecoin BUSD, with a supply that once approached $23 billion, until the New York State Department of Financial Services (NYDFS) ordered the issuer Paxos to shut down the product in February 2023.

Look at the three major exchanges in Asia, and you can see three clear examples. Currently, @binance holds about $45 billion in USDT, @Bybit_Official about $4 billion, and @okx about $9 billion. Binance has always been, and still is, a stronghold and ace asset for Tether. USDT remains the best liquid currency in the world’s largest exchanges. Today, whether buying large amounts of BTC, ETH, SOL, or opening and closing contract positions, USDT continues to dominate as the valuation currency in the offshore exchange ecosystem. Binance has played an indispensable role in this. USDT is deeply embedded into the deepest order books, the most active trading pairs, the most active derivatives markets, and indeed the daily operational flows of the most important market makers and traders.

This is the true network effect.

Many people may wonder: Why is CZ so naive? Why doesn’t he call Paolo and Giancarlo to ask for a portion or even most of the USDT profits? Binance clearly knows it holds immense bargaining power.

The reason is quite simple: from a revenue and corporate value perspective, Binance's real ace asset is its trading business, which is exactly supported by the liquidity of USDT.

Doing the Math

Let’s roughly do the math and see why CZ’s choice not to chase net interest margins or replace USDT with a "more aligned with its interests" stablecoin is actually a completely rational decision. The following rough calculations are based on on-chain data and some assumptions, not definitive information.

Let’s break it down from the bottom up:

Derivatives (the core engine). Binance accounts for about 40% of global crypto derivatives trading volume, averaging $40 to $50 billion daily, and over a cycle, annualizes to about $10 to $15 trillion. After deducting VIP discounts and BNB rebates, the average maker/taker fee rate is around 5 basis points. Just this item generates around $5 billion in revenue.

Spot. The average daily trading volume is around $8 to $10 billion, annualized to about $3 trillion, with an integrated fee rate of about 15 basis points (much lower than Coinbase’s retail fee rates, as Binance’s customer base primarily consists of VIPs and often runs zero-fee promotions). This contributes another approximately $5 billion.

Other businesses. The interest margins from wealth management and loans, margin interests, Launchpool and listing revenues, Binance Pay, staking commissions, along with "deposited funds": Binance clients have about $46 billion in stablecoins sitting in their accounts; although Binance will not directly invest this money like a brokerage, the management of corporate funds around this part and interest-bearing products are not insignificant in the current interest rate environment. Adding in related income from the BNB ecosystem, it is conservatively estimated that this part could contribute another $5 to $7 billion.

Remember, these numbers are from the bear market. Conservatively estimating, Binance’s revenue in the bear market approaches $17 to $20 billion, while in a bull market, it could be close to $25 billion. With such scale and quality of business, the valuation is likely to exceed $200 billion.

So, why is CZ not eager to replace USDT, nor in a hurry to negotiate better revenue-sharing terms with the Tether team?

Because the reason Binance is what it is today, why over 300 million users keep coming back, is primarily because it is the best trading venue in the world in terms of liquidity. Let’s try to clarify the price of the transaction Binance truly wants to make.

There are $45 billion in USDT on Binance's platform. Suppose they reach an agreement with OUSD to receive 90% of the profit share. At an average treasury bond yield of 3.8%, that’s about $1.55 billion a year. It sounds tempting, but after doing the math, you'll find that risking upsetting a $25 billion revenue engine for just $1.5 billion in potential profit is something only a madman would do.

The adhesive that holds Binance’s trading empire together is USDT. There is no incentive in the world that could make CZ reconsider which stablecoin to deeply embed into his business.

This is not just theory; someone has really tried this. More than a year ago, it was reported that Circle paid Binance a one-time fee of $60 million, plus ongoing monthly incentives tied to USDC holdings. Even so, the supply of USDC on the Binance platform has remained basically unchanged, hovering around $5 billion.

People severely underestimate the network effects these stablecoins bring to the enterprises that custody them. In most cases, the potential benefits are simply not enough for enterprises to risk shaking up their core income engines built around other currencies or stablecoins.

For an exchange, stablecoins are not just cash. They are valuation assets, collateral assets, risk management assets, working capital assets, and the bookkeeping unit for millions of traders. Changing this underlying asset comes with significant costs.

Not All Alliance Members Have Consistent Interests

One last point: the OUSD alliance consists of companies with entirely different natures. They benefit from stablecoins in various ways.

They can be roughly divided into two categories of models.

The first is the "monetizing asset scale" model. These enterprises and protocols depend on idle funds, deposits, or retained capital, and reserve income is directly related to them. Lending protocols, wallets, new-age banks, or exchanges holding substantial amounts of customer funds may care significantly about the net interest margin corresponding to the supply of stablecoins.

The second is the "monetizing turnover" model. These enterprises are payment networks, processors, remittance companies, and commercial platforms that monetize through transaction flows rather than idle funds. For them, stablecoins serve more as a "track" rather than an asset on the balance sheet. Compared to reserve income, they are more concerned about reliability, cost, compliance, speed, coverage, and user experience.

@aave and @WesternUnion bring entirely different benefits to OUSD.

A DeFi protocol can help create supply by making OUSD collateral or by being a yield-bearing liquidity venue, while a payment company is more likely to let OUSD circulate rapidly within its system and soon burn it at the end. This circulation is valuable for transaction volume but is completely different from creating sustainable supply.

This is why the structure of the alliance is actually much weaker than it appears. While the members may all like the idea of sharing profits, their interests are not uniform. Some members will create supply, while others will only generate turnover. Some will integrate deeply, while others may just dip their toes in. Once the news dies down, some members may not do anything at all.

From an equilibrium perspective, it’s hard to believe all members will push for OUSD with the same intensity. Some will do the hard work to implement it, while others will just benefit from it.

This is the classic dilemma of the alliance model.

Conclusion

OUSD is not insignificant. It is one of the most interesting stablecoin experiments we have seen so far, and its economic model is clearly aimed at taking advantage of the reserve income benefits of existing giants.

However, the market has overestimated the speed at which the profit-sharing model can break down existing liquidity barriers.

The success or failure of stablecoins is not crafted through press releases. It relies on long-term, repeated, high-trust usage accumulated in places where there are real flows of funds.

This is also why USDT remains so powerful, why USDC can maintain resilience and grow rapidly, and why despite OUSD standing behind an impressive alliance, the road ahead remains much more challenging than the market currently perceives.

The real question is not whether OUSD can provide better economic conditions for its partners.

The real question is whether these economic interests are worth it for partners to risk shaking up their existing businesses that have already been established around other currencies or stablecoins.

In many cases, the answer would be: not worth it.

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