Circle Strives for Stablecoin Harmony as BIS Study Reveals Deposit Rates' Impact

Precedent & Market Context

In recent months, Circle has been working to improve the stability and usability of its USDC stablecoin. The company has been defending its stablecoin model, revealing that it retains just 7 cents of net profit for every dollar in revenue. This margin is necessary to support the underlying infrastructure that keeps USDC trustworthy and redeemable.

A BIS paper found that higher deposit rates weighed more on USDC's growth than on Tether's USDT. The paper examined weekly U.S. data from January 2019 to June 2025 and found that higher deposit rates predicted slower stablecoin growth. The effect was stronger for USDC than for USDT, consistent with the former's closer ties to U.S. depositors.

Main Event

Circle CEO Jeremy Allaire said the company was trying to find 'the happy middle' for USDC between open crypto networks and bank standards. He explained that anyone could build on Arc blockchain and deploy software on it, but the difference was who runs it. 'The actual operators of the validation infrastructure are known. They're not anonymous,' Allaire said.

Allaire also said that USDC is not decentralized, but rather a centralized issuer, meaning it isn't decentralized like Bitcoin. However, the stablecoin does run on the principles of decentralization. For instance, USDC can be transferred across supported blockchains without having to pass through Circle's own payment system every time.

Analysis & Market Impact

The BIS study found that banks passed on more of the Fed's moves to depositors once the Fed funds rate rose above about 3%. Stablecoin growth 'slows but does not necessarily reverse,' the authors wrote.

The paper estimated that a 1-basis-point rise in deposit rates was associated with a 4.8 percentage points less cumulative, USDC growth over 10 weeks, while USDT fell only 1.9%. This suggests that USDC's wider use among U.S. institutional and decentralized finance (DeFi) users may be a contributing factor to its slower growth.

Implications & Outlook

The CLARITY Act, the crypto market structure bill, has stalled in the Senate due to a key sticking point: stablecoin yield. Stablecoin yield has been a topic of discussion in the crypto market, with some arguing that it could be a solution to the stablecoin growth problem.

Circle's efforts to find the 'happy middle' for USDC may have implications for the broader crypto market. As the crypto market continues to evolve, it will be important to monitor the development of stablecoins and their role in the financial system.

• Circle CEO Jeremy Allaire is trying to find the 'happy middle' for USDC between open crypto networks and bank standards.
• A BIS study found that higher deposit rates weighed more on USDC's growth than on Tether's USDT.
• USDC's wider use among U.S. institutional and decentralized finance (DeFi) users may be a contributing factor to its slower growth.

A photo of a financial institution's CEO standing in front of a large screen displaying the USDC logo, with a subtle background of blockchain technology and cryptocurrency charts.