In a surprising turn of events, two prominent figures in the cryptocurrency sector have decided to set aside their historical competition. They are joining forces to capture a larger share of the rapidly expanding stablecoin market. On Wednesday morning in Abu Dhabi, Binance and Circle revealed a strategic partnership aimed at promoting USDC. This digital token is backed 1:1 by the U.S. dollar and co-owned by Circle and Coinbase. This development occurs as stablecoins increasingly integrate into mainstream finance, with a growing number of competitors aiming to challenge the dominance of market leader Tether.
Binance, recognized as the largest cryptocurrency exchange globally, once held a significant position in the stablecoin sector, with its proprietary BUSD coin achieving a market capitalization of approximately $23 billion. In late 2023, the company encountered significant pressure from regulators regarding claims of non-compliance, leading to the decision to discontinue BUSD. Circle consistently criticized Binance and Tether throughout this time, labeling them as wildcat operations.
The partnership between Circle and Binance has been announced following Binance’s recent settlement with the U.S. Justice Department, which now places the company under the scrutiny of multiple U.S. regulatory agencies.
“Binance has experienced a significant transformation in its business model, and as time progressed, we reached a mutual agreement that aligning with one of the world’s most trusted and regulated stablecoins was a logical step,” stated Kash Razzaghi, Chief Business Officer of Circle, in an interview with Fortune.
Circle has reconciled with its former competitor, aiming to leverage Binance’s extensive network to attract new customers for USDC. Binance is poised to leverage its new partner’s strong connections with the U.S. government and various regulators, positioning itself to re-enter the stablecoin market effectively.
Binance faces a unique challenge as it will now have to share the spotlight with not just one but two other entities, given that Coinbase holds a significant minority stake in the revenues generated by USDC. All parties involved have refrained from disclosing the specifics of revenue sharing in the newly established three-party arrangements. However, sources close to the deal have informed Fortune that Binance will not take an equity stake in Circle.
In a recent press release, the companies confirmed that Binance will incorporate USDC into its corporate treasury operations. This move could boost the token’s overall supply, considering the exchange’s significant scale. Coinbase has highlighted the partnership as a strategic move to enhance the adoption of USDC.
“The involvement of partners such as Binance is a promising development for expanding the USDC ecosystem.” “As the roster of USDC ecosystem partners continues to expand, the circulation of USDC is set to increase, fostering greater economic freedom globally and propelling the industry forward on a foundation of transparency and trust,” stated Shan Aggarwal, Vice President and head of business development at Coinbase.
In the competitive landscape of stablecoins, USDC is the second-largest issuer, boasting a market capitalization of approximately $40 billion. Meanwhile, Tether, operating under less stringent regulations, maintains its lead in the market with a substantial valuation of $138 billion. In the competitive landscape of digital currencies, other issuers hold a significantly smaller portion of the market. Notably, PayPal’s PYUSD stablecoin boasts approximately $500 million in market capitalization.
Stablecoins have become a favored tool among crypto traders, offering a refuge from the volatility of Bitcoin and other cryptocurrencies. They enable traders to hold digital assets without facing the transaction costs typically incurred when converting crypto to fiat currency. Stablecoin issuers such as Circle and Tether have benefited significantly by retaining the interest from the reserves supporting their coins. Stablecoins are anticipated to become increasingly prominent in various sectors, including remittances, trade finance, and corporate treasury management, thanks to their ability to facilitate transactions around the clock at minimal costs.
The recent alliance between Circle and Binance marks a significant moment for adopting stablecoins. This development coincides with the anticipated policies of the incoming Trump Administration, which is expected to support cryptocurrency initiatives. The administration will likely collaborate with Republican lawmakers to facilitate legislation to simplify the use of these digital tokens in commercial transactions.
This situation prompts an inquiry into whether these factors will significantly threaten Tether. This stablecoin has dominated a substantial segment of the crypto market for over ten years. Tether has faced longstanding accusations of overlooking the use of its stablecoin by criminals and engaging in questionable accounting practices. Despite these controversies, the company has maintained its dominant position in the market and amassed significant wealth along the way. Tether has reported quarterly profits exceeding $1 billion in its periodic attestation statements, asserting that it possesses a substantial reserve of billions of dollars in free capital. Over the past two years, the company has experienced significant financial success, allowing it to invest heavily in AI startups.
Tether faces potential vulnerabilities stemming from the mistrust it has cultivated with the U.S. and other governments. Tether has recently initiated hiring lobbyists to advocate for its interests in Washington, D.C. In contrast, Circle and its USDC partners are in a more advantageous position to gain the trust of cautious financial firms venturing into the cryptocurrency sector. However, Tether benefits from a significant partnership with financial powerhouse Cantor Fitzgerald, which oversees the company’s cash reserves. Notably, Cantor Fitzgerald’s CEO, Howard Lutnick, has been nominated by Trump.
The recently formed alliance between Binance and Circle is set to face competition from yet another consortium alongside Tether. In November, Paxos, a stablecoin issuer based in New York that previously assisted Binance with its now-defunct BUSD coin, unveiled the “Global Dollar Network” in collaboration with six other companies, including the well-established crypto platform Kraken and the prominent fintech firm Robinhood.
Despite the lack of momentum for challengers to Tether and USDC, the emerging Global Dollar Network is introducing an innovative model. This initiative aims to distribute nearly all profits generated from reserves back to its members, who will then offer these returns as yield to their customers. Paxos asserts that its offering is fully compliant, and its partners anticipate that the upcoming stablecoin will be disruptive, potentially prompting institutions to abandon Tether and USDC, which provide minimal or no returns. At this stage, the Global Dollar Network stands as an unproven initiative.
The upcoming year is poised to reveal whether USDC or another stablecoin can effectively challenge Tether’s market dominance. Additionally, the evolving legal frameworks supporting cryptocurrency globally may facilitate rapid growth, potentially allowing all competitors to thrive in an expanding market. The most significant insight now is how the rapidly changing cryptocurrency environment creates partnerships among former adversaries.
Collaboration with Circle will be a key focus as we aim to enhance global innovation and utility for stablecoins. “By collaborating as a team, we are confident that we can significantly advance the potential of the Internet financial system,” stated Binance CEO Richard Teng.