U.S. Bancorp's Stablecoin Pilot Escalates Competitive Threats to Circle

What happened

U.S. Bancorp has initiated testing of a stablecoin on the Stellar blockchain, marking a significant entry by a major U.S. bank into the stablecoin arena. This move directly challenges Circle, whose DeepValue report highlights competitive risks from bank-issued coins under the GENIUS Act, which could erode its regulatory and trust-based moat. Circle's revenue, over 95% dependent on interest from reserves, faces heightened pressure as incumbents like U.S. Bancorp leverage their scale and customer relationships. The development exposes the vulnerability of Circle's first-mover advantage, as banks can quickly replicate compliant models and divert market share. Investors must now weigh whether Circle can defend its position and accelerate revenue diversification amid this intensified rivalry.

Implication

The stablecoin market is becoming more crowded with bank entrants like U.S. Bancorp, which could fragment demand and reduce Circle's pricing power and network effects. Circle's heavy reliance on reserve income makes it susceptible to circulation declines if users adopt bank alternatives, increasing earnings volatility. Regulatory advantages may fade as more banks issue compliant coins, raising compliance costs and leveling the playing field. Investors should reassess Circle's valuation, as current multiples may not fully reflect the accelerated competitive pressures and slower growth in fee-based revenues. This underscores the urgency for Circle to prove its infrastructure and tokenization services can offset these headwinds to maintain its investment appeal.

Thesis delta

The DeepValue report already identified bank competition as a key risk, but U.S. Bancorp's active testing makes this threat more immediate and concrete, increasing the likelihood of market share erosion. This does not invalidate the thesis but elevates the importance of monitoring Circle's response and diversification efforts, as failure could shift the rating from 'POSSIBLE BUY' to a more cautious stance.