Why Open USD Could Slowly Erode USDC's Dominance — and Why Investors Should Care

Circle's stock may have bounced 5% on Wednesday after a brutal 17% plunge the day before, but the rebound tells only part of the story. The real question for investors is whether that selloff has already priced in the structural risks now facing the USDC issuer — or whether the market is underestimating a competitive shift that could reshape the stablecoin landscape for years to come.

Global brokerage Jefferies came out unambiguously on the cautious side. In a note to clients, the firm's analysts wrote bluntly: «Buy the dip? We wouldn't.» Their reasoning goes beyond a single product launch. Jefferies argues that Circle is entering a fundamentally more competitive phase, one where banks, payment firms and fintechs are no longer spectators in the stablecoin race but active participants building their own issuance infrastructure. The headwinds, in their view, are unlikely to ease.

At the centre of the concern is Open USD — a new stablecoin consortium backed by more than 140 companies, including Stripe, Coinbase, Visa, Mastercard and BlackRock. What makes this initiative structurally different from earlier challengers is the built-in distribution muscle its backers bring from day one. When USDC launched in 2018, it had to build merchant integrations, exchange listings and DeFi liquidity from scratch. Open USD's participants already control enormous payment rails, consumer touchpoints and institutional capital flows. That asymmetry matters.

Perhaps the sharpest concern flagged by Jefferies relates to Coinbase. Circle derives approximately 95% of its revenue from interest earned on USDC reserves, and Coinbase is its single largest distribution partner. The commercial agreement between the two companies is reportedly up for renewal in August — a timeline that now carries far greater significance given Coinbase's participation in Open USD. Jefferies stops short of predicting Coinbase will abandon USDC outright, but acknowledges the exchange could begin promoting competing stablecoins, gradually diverting traffic and liquidity away from Circle's flagship product.

Open USD's core economic proposition adds another layer of pressure. The consortium plans to share reserve income with participating companies, making it potentially attractive to payment providers looking for yield-sharing arrangements. Circle CEO Jeremy Allaire has challenged this framing directly, arguing that USDC already distributes the majority of its income to distribution partners. «Giving away all the income is a recipe for starving an infrastructure,» Allaire wrote in a detailed post on X, suggesting that Open USD's model may be fiscally unsustainable at scale.

Allaire also questioned whether a consortium of more than 140 companies with competing interests can execute with any real speed or coherence. «Large groups of large companies coordinate poorly, have misaligned incentives, slow things down and rarely create the space for real durable innovation,» he wrote. His argument rests on USDC's accumulated advantages: thousands of ecosystem integrations, deep liquidity across centralised exchanges and decentralised finance protocols, and regulatory approvals in major markets including Europe and Japan.

That skepticism about the consortium model is echoed by Lorenzo Valente, director of digital asset research at ARK Invest. Valente pointed out that crypto has seen multiple consortium-backed stablecoin initiatives come and go — from Meta's ill-fated Diem project to the Paxos-led Global Dollar Network. «Every year we get our consortium-style initiative around a stablecoin,» Valente wrote on X. «While the set of players here is obviously potent, I remain highly skeptical any of these initiatives can hit scale.»

His most pointed critique concerns governance dynamics. Coordinating hundreds of rival firms, each with different commercial priorities and risk appetites, is an exercise that has no strong precedent in finance or technology. Valente compared the model to decentralised autonomous organisations, or DAOs — governance structures that have repeatedly struggled to make timely decisions. «The pace of decision-making across competitors is going to be glacial,» he said.

For investors, the picture that emerges is one of genuine but uncertain risk. Circle commands roughly 25% of a $300 billion stablecoin market, and its regulatory footprint and network effects are real, durable assets. But the competitive moat that once looked formidable is now being tested by adversaries with distribution advantages Circle never faced in its formative years. Whether Open USD ultimately scales or stalls, the era of USDC operating in relatively uncrowded waters appears to be ending — and that alone warrants caution before treating any dip as an automatic buying opportunity.