Arthur Hayes: Reliance on Coinbase Is Limiting USDC’s Global Reach Is Circle Overvalued?
In a new analysis, Arthur Hayes, co-founder and former CEO of crypto derivatives exchange BitMEX, has been outspoken in his criticism of the business model of Circle, the company that issues the stablecoin USDC. According to him, the heavy reliance on Coinbase is reducing Circle’s competitive advantage in a market increasingly dominated by powerful distribution networks like Tether (USDT).
Circle and Distribution: The Fatal Flaw?
Hayes emphasized that while Tether had an early entry into global crypto capital markets and was deeply integrated into the trading systems of most major exchanges, Circle lacked the same independent distribution capabilities. USDC relies heavily on Coinbase for user access, and according to internal agreements, Circle must share up to 50% of its interest profits with Coinbase in exchange for this access.
This makes Circle’s profit margins significantly thinner than Tether, which does not need to share profits from its distribution system with any partners. “The most important question when evaluating a stablecoin issuer is: how will they distribute their product?” Hayes asked.
Circle IPO: A Turning Point or the Beginning of a Bubble?
Circle’s official listing on the New York Stock Exchange (NYSE) via an IPO has attracted a lot of attention from investors, causing CRCL’s stock price to surge in its first trading sessions. However, Hayes warned that the market excitement could cause Circle to be overvalued relative to its underlying fundamentals.
“The Circle IPO could signal the start of a new stablecoin bubble,” he said. “The stock price will continue to rise on the hype until the market recognizes the fundamental limitations of their business model.”
Hayes also noted that if investors want to bet on stablecoins, they should compare the returns between Circle and Coinbase stocks rather than blindly following the wave.
Rising barriers for new entrants
Another important point Hayes made is that the current stablecoin market structure is largely closed to new players. Most major exchanges have already partnered with or owned their own stablecoin issuers, such as Tether and Circle.
“To issue a stablecoin today, you have to tap into the distribution system of a major exchange, a Web2 media conglomerate, or a traditional bank,” Hayes said. New issuers will have a hard time gaining traction without a strong distribution channel or connection to the existing ecosystem.
This fact is reinforced by recent moves by major financial institutions. Banks like Bank of America are also reportedly planning to issue their own stablecoins, competing directly with existing issuers.
Tether vs. the rest
One example Hayes highlighted was Tether’s superior operational efficiency, a company with fewer than 100 employees that is capable of performing functions equivalent to a global payment system. Meanwhile, a large bank like JPMorgan Chase would need more than 300,000 employees to operate a similar system.
This reflects the scalability and efficiency of the stablecoin model when fully leveraging blockchain technology, a factor that he believes Circle is still limited by due to its dependent structure.
Circle should not be shorted, at least for now
Despite his criticism of Circle’s business model, Arthur Hayes also warned against being too hasty in shorting CRCL stock. According to him, positive market sentiment and a wave of investment in blockchain companies after the IPO could keep the stock price high in the short term.
“If you think Circle is mispriced, instead of shorting, buy Coinbase,” Hayes recommends.
Conclusion
Arthur Hayes’ analysis not only raises questions about the sustainability of Circle’s model, but also highlights the increasingly important role of the distribution network in the stablecoin war. With the distribution gateways controlled by the big players, new competitors have little room to step in. Tether’s dominance may not be temporary, but is becoming the new default structure in the global stablecoin ecosystem.