Circle is often described as a stablecoin company. That is accurate, but it misses the business model.At its core, Circle is managing a large pool of cash and short-term treasuries behind its USD Coin, then earning interest on those reserves. The token is the product users see. The interest income is the engine.That explains why Circle’s real competitive problem is not just Tether. It is Coinbase, Visa, Stripe, banks and every payments company that has realised that stablecoins are not only digital dollars. They are reserve-income machines.In the first quarter, Circle generated $694.1m in total revenue and reserve income, according to the Decentralised News framework. Of that, $652.5m, or 94%, came from reserve income on roughly $77bn of USD Coin reserves. The technology business, meaning subscriptions, services and transaction revenue, was far smaller.That is not necessarily a weakness. A liquid, trusted stablecoin backed by treasury bills can be a lucrative business when interest rates are high. But it also makes Circle highly exposed to two forces it does not fully control: Federal Reserve rates and distribution partners.The most important partner is Coinbase. Under Circle’s revenue-sharing agreement with Coinbase, Coinbase receives all interest income on USD Coin held directly on its platform and half the interest income on USD Coin held elsewhere. In 2024, Coinbase received $908m from Circle, roughly 54% of Circle’s total revenue that year, despite directly holding only about a fifth of the USD Coin supply.That is the central tension in Circle’s economics. USD Coin can grow, reserves can expand and interest income can rise, but Circle’s retained share depends on what it must pay to the platforms that give USD Coin distribution. In other words, stablecoin circulation is not the same as stablecoin profitability. That is why the next phase of the market is becoming a margin war.On June 30 more than 140 companies, including Visa, Mastercard, Stripe, BlackRock, BNY and Coinbase, launched Open USD, a consortium-governed stablecoin designed to return most reserve income to distribution partners rather than one issuer. Circle’s stock fell sharply on the announcement because the threat was not technical. It was economic. Open USD in effect asks a question: if payment networks, exchanges, banks and fintechs bring the users, why should a single issuer keep the float?Visa’s follow-up move made the challenge even clearer. Its stablecoin platform, launched in beta in July 2026, gives banks, fintechs and crypto firms infrastructure to mint, hold, redeem and transfer stablecoins. It supports Open USD, USD Coin and USDG. That means Visa does not need one coin to win. It can profit from the rails.Banks are approaching the same opportunity from another angle. JPMorgan’s tokenised deposit, JPMD, represents a bank deposit rather than a payment stablecoin. Bank deposits can pay interest directly to holders, while USD Coin cannot. For institutions, tokenised deposits may offer a familiar banking relationship with faster settlement.Tether remains the giant of the sector, with USDT circulation far larger than USD Coin and a simpler economic model that lets it keep its reserve income. But Tether’s offshore structure leaves open questions about access to compliant, bank-integrated corridors.Circle still has strengths: trust, regulatory positioning, a national trust charter, institutional partners and a growing payments network. But its challenge is now clear. It must become more than a rate-sensitive treasury portfolio with a powerful distribution partner.The stablecoin race is no longer just USD Coin versus Tether. It is a fight over who owns the customer, who controls the rails and who keeps the interest. The token may be stable. The margins are not.• Muchena is the founder of Proudly Associated and author of ‘Artificial Intelligence Applied’ and ‘Tokenized Trillions’.