Circle and Coinbase have a lot in common: They are two of the leading brands in the U.S. crypto industry that were founded on the philosophy of cooperating with regulators, and have long had a business partnership managing the USDC stablecoin. But below the surface, tensions have long simmered due to business rivalries and differences between the firm's founders.
On Monday, the companies announced a new arrangement that pulls them closer together by eliminating a third-party consortium meant to oversee USDC, and by giving Coinbase a small equity stake in Circle. The latter's CEO, Jeremy Allaire, described the deal to Fortune as a way to "tune up the [USDC] economics in a way that felt really fair for both of us.”
The deal makes a lot of sense in the short term. While stablecoins were long a crypto backwater, the recent surge in interest rates has turned USDC into a money-printing machine for both companies, which split the proceeds. For Coinbase, the deal appears to give it more control over the USDC money fountain, which will help the company with its ongoing effort to diversity revenue streams. As for Circle, the deal should make it easier to tap the reach and reputation of its larger partner as it seeks to expand USDC to six new blockchains.
It will be interesting, though, to see how the latest arrangement between Coinbase and Circle holds up in the long term. This is in part due to the history of the firms and their very different founders. Allaire founded Circle in 2013 with aspirations of replacing Coinbase as the leading blockchain company in the U.S., and has always seen himself as part of the traditional financial industry. Coinbase's Brian Armstrong, by contrast, is a crypto true believer who would much prefer to hang out with coders than bankers. And he likely remembers Allaire's one-time mission to take out his company.
Aside from the lack of personal chemistry between their two founders, Coinbase and Circle must also figure out how to contend with a shrinking stablecoin market, and with new competition from PayPal, which is seeking to take a big bite of the market for itself. In light of all of this, it's worth asking how long the two companies can exist as frenemies—or if a breakup, or acquisition, is inevitable.
Jeff John Roberts
jeff.roberts@fortune.com
@jeffjohnroberts
