As a leader in crypto policy, Coinbase can shape stablecoin regulatory rules from the top by controlling USDC. Mastering the core technology and operational rights of stablecoins will give Coinbase more say in regulatory negotiations.
Unknown Domains and Unresolved Issues
Growth Potential
The current market cap of USDC is around $60 billion, but it is expected to reach $50 billion in the future, with corresponding annual reserve revenue of about $20 billion. This will be a core driver for Coinbase to reach the "Mag7" level (global top tech company revenue level).
Regulatory Factors
The United States is advancing stablecoin legislation (GENIUS legislation), which from a macro perspective is good news for the top-line growth of stablecoins, as it will deeply embed stablecoins into the existing US financial system. At the same time, stablecoins will become a proxy tool for global US dollar dominance.
However, this may also trigger traditional financial institutions (TradFi) and financial technology companies (FinTech) to enter the market as stablecoin issuers.
Additionally, related regulations may limit the marketing of platforms in revenue or savings products. Acquiring Circle will give Coinbase the flexibility to adjust direction and marketing strategies to cope with the constantly changing regulatory environment.
Operational Challenges
USDC was initially designed with a consortium model, which may have been based on legal and regulatory considerations at the time. Although these obstacles can be overcome under a single company framework, it is currently unclear where the specific red lines of these complex mechanisms are. Deconstructing the existing legal structure may bring edge case risks, but currently, these risks do not seem insurmountable.
Pricing
Market results can never be accurately predicted, but we can refer to some disclosed data:
Circle is seeking an IPO with a valuation of $5 billion.
Ripple's IPO valuation target is $10 billion.
Coinbase's current market value is around $70 billion.
USDC currently accounts for about 15% of Coinbase's revenue, and this proportion is expected to exceed 30% if fully integrated.
Personal Interpretation:
Based on the above data, Circle is a natural acquisition target for Coinbase, and Coinbase is well aware of this.
Circle hopes to let the market value it through an IPO (targeting $5 billion).
Coinbase wants to observe how the market prices Circle.
Coinbase may have realized the following points:
For the aforementioned reasons, Coinbase needs to fully control the full-stack business of USDC.
Fully owning USDC can increase its annual revenue composition from the current 15% to between 15% and 30%.
From a 1:1 revenue valuation, USDC ownership may be priced between $10 billion and $20 billion.
Circle may also be well aware of this - they know that if the market values them high enough and USDC continues to grow, Coinbase will be more motivated to directly acquire Circle to get rid of various cumbersome business, product, and governance issues with third-party partners and incorporate it into the Coinbase system.
Final Conclusion
Coinbase should and is likely to acquire Circle.
Although the current cooperation model works well, the conflicts in platforms, products, and governance are too significant to ignore in the long run. The market will price Circle, but both parties already have a clear understanding of each other's value.
