The Impact of SoFi USD Part 5: The Structural Limitations of USDC, the 'Short-Term Interim King'
Last time, we confirmed that 'major US LPs' provide much of the liquidity in the crypto asset market.Because USDT carries significant weaknesses in both regulation and reserves, US-based LPs are forced to reduce their handling of it.The decline in USDT's market share is already a 'fact in motion'.
So, what about USDC, issued by Circle?
The conclusion is clear.
USDC will become a 'short-term interim king'.
However, it cannot become a long-term king.
In this installment, we will dissect the 'institutionally unavoidable reasons' for this.
<Reasons why USDC will become a short-term 'interim king'>
Once the GENIUS Act is enacted and USDT becomes untenable from a regulatory standpoint, the market will naturally seek a 'cleaner alternative asset.' The reasons USDC will be chosen in that scenario are simple:
・Issued by a US company
・Higher transparency of reserves
・Widely integrated into global exchanges and apps, providing high liquidity
・Overwhelmingly lower sanction and enforcement risk compared to USDT
※Sanction risk: The risk of receiving sanctions from US government authorities if involved with sanctioned individuals or countries.
※Enforcement risk: The risk of receiving coercive measures such as fines or business suspensions from US government authorities.
In fact, US-based LPs are moving from USDT to USDC. In other words,it is certain that USDC will be the first to fill the 'huge hole' left by USDT. Unfortunately, SoFi USD does not yet have the liquidity or track record.
That is precisely why many investorsmistakenly believe that USDC will seize hegemony.
However, that will not happen.
<The essence of USDC: A 'non-bank stablecoin' issued by Circle>
While USDC is ostensibly '1 USDC = 1 USD,' it is fundamentally different from a bank's 'deposit liability'.
A stablecoin issued with bank deposits as backing, like SoFi USD, has its underlying assets placed within the framework of the banking system (deposits subject to FDIC protection schemes), thus ensuring safety through national systems.
On the other hand, while USDC has underlying assets, legally it is nothing more than a 'digital asset that a single company called Circle has promised to redeem for one dollar later,' and it lacks any public protection like bank deposits.
Can US-based LPs hold massive amounts of such digital assets that depend on the credit of a single company?
The answer is naturally'No'—holding large quantities is'too risky'.
It is prohibited or strongly restricted by company risk management rules.
<USDC will forever be a 'non-bank stablecoin'>
Circle has applied for a National Trust Bank charter and appears to be moving toward 'becoming a bank.' However, this does not mean it will become a commercial bank.
Although a National Trust Bank has the word 'bank' in its name, in reality, it is'a non-bank financial company that cannot handle deposits and does not hold an FRB account'.
In other words, a National Trust Bank:
・Is not a commercial bank (i.e., cannot hold deposit accounts)
・Does not hold an FRB account
・Relies on external banks and external custodians (specialized asset storage institutions) for reserves
・If external banks fall into a credit crisis, it carries the same structural risks as the SVB shock
Even if it obtains a National Trust Bank charter,as long as it lacks the core functions of a bank (deposits and FRB accounts), USDC will remain a 'non-bank stablecoin' forever—this is its institutional destiny.
<Non-bank stablecoins are also at an overwhelming disadvantage in AML (Anti-Money Laundering)>
USDC also carries institutional handicaps in AML.
Although non-bank issued stablecoins can track addresses on the blockchain, the scope of KYC (identity verification) obligations islimited to 'the company's direct customers'. Therefore, when USDC is traded in secondary markets,there is no legal, institutional, or technical framework to identify the end user.
As a result, even if sanctioned individuals, anonymous parties, or money laundering funds cash out USDC through third parties, Circle cannot identify the entities involved. In fact, disclosures by US government authorities have reported cases where North Korean hacker groups and ransomware organizations have abused USDC.
On the other hand, SoFi USD is issued by a bank, and all users fall under the bank's AML/KYC management. Even in the case of secondary distribution, at the stage of converting to fiat currency, it must pass through the banking system, where identity verification is always required, so anonymous users cannot pass through the exit. As a result, SoFi USD becomes the only clean stablecoin where it is possible to know 'who is using it'.
US financial institutions, such as US-domiciled LPs, operate under extremely strict regulations, and violations can lead to heavy fines or suspension of business. The lower the risk of the assets held, the better.
It is self-evident which stablecoin will be chosen in the long term.
<USDC cannot become the 'long-term king'>
Based on the above, the future of USDC can be summarized as follows.
・Short-term (until 2027):The 'interim king' filling the void left by the collapse of USDT
・Medium-term (2028 onwards):Stagnation due to strengthened AML and full-scale regulation
・Long-term (2030 onwards):Convergence toward bank-issued stablecoins (SoFi USD)
This is not something that can be improved by Circle's efforts or PR.
This is because it is an 'insurmountable wall' caused by the institutional structure itself.
This is not just a problem for USDC. It is a structural constraint common to all 'non-bank issued models' such as PYUSD (Paxos), and it is institutionally impossible to establish long-term reliability.
<Who is the long-term winner? The answer is SoFi USD>
There is only one stablecoin that LPs can hold in large quantities for the long term:
'the bank-issued model that can hold backing assets in a Federal Reserve account'
The market will inevitably converge here.
※Editor's Note: Last time I looked into USDT, and this time I re-examined the limitations of USDC. Previously, I calculated the revenue impact on the assumption that Circle (USDC) and Tether (USDT) would maintain a 70-90% share in 2030, but I am increasingly convinced that the two companies' shares will be lower, and SoFi's share will be 'higher'.
Please 'Like'💙, 'Follow' 🍀', and 'Share on SNS'🌈!Your support is my greatest motivation to keep writing✨
【Disclaimer】 This blog is for informational purposes only and does not recommend any specific financial products or investment methods. The content is based on information at the time of writing and may change in the future. Please make investment decisions at your own risk and after conducting sufficient research. We assume no responsibility for any investment losses based on the content of this blog. In addition, we do not guarantee the accuracy of external links or third-party information, so please use them at your own discretion.