Follow the Float (OUSD)

Every stablecoin runs on a quiet engine.

You put a dollar in. The issuer holds it, buys short-dated Treasuries, and keeps the interest. You get a coin that spends like a dollar and pays you nothing. That gap, between the dollar working in the reserve and the dollar dead in your wallet, is the whole business. Almost all of Circle's revenue comes from it.

On 30 June, a company called Open Standard launched Open USD and changed exactly one thing about that engine. Not the reserve, not the coin. Where the interest goes. Instead of the issuer keeping it, more than 140 firms split it.

That is the whole story, and it hangs on one question. OUSD moves the float from the issuer to the distributors.

Does that actually work?

I argued at Bluechip last November that the float was where single-issuer economics would crack, the obvious place for everyone else to apply pressure. OUSD is that argument with a cap table attached, being right that the float would get contested tells you nothing about whether this coin works.

So, I followed a hundred dollars through it. The design gives itself away the moment the money starts to move.

The obvious guess is that a big partner like Coinbase funds it: parks its own money in the reserve and earns the interest. It doesn't.

When Coinbase mints, its cash does a round trip. A hundred dollars in, a hundred in OUSD back, the coin sold on, a hundred collected. Coinbase ends up holding no coin and the exact money it started with.

So whose hundred dollars is sitting in the reserve, earning the interest? The user's. The person at the end of the chain handed over real money for a token that pays nothing.

The dollar funding the engine belongs to whoever holds the coin right now, almost never the firm that minted it. Minting is close to free. Three questions from now, that turns into a problem.

Not to the minter, and not to the holder. The holder earns nothing by law: the GENIUS Act bars any US dollar stablecoin from paying interest to the people who hold it. USDC is no different.

It goes to the distributor, whoever's book the coin is sitting on. The reserve earns yield, Open Standard takes a management fee, and the rest flows to partners in proportion to the balances they carry. We can be fairly sure that's the rule, because it's already how USDC works: Coinbase's cut of Circle's reserve revenue scales with how much USDC sits on Coinbase, not with who minted it. OUSD is that arrangement across 140 firms. (The exact split isn't published, so treat it as a grounded assumption.)

Which sets up the awkward question. If the yield follows the coin, what happens when it moves? First, a stranger one: if the holder earns nothing, why hold it at all?

For the same reason you hold a twenty in your pocket. It is as good as a dollar and it does a job: you can move it, settle with it, hold dollars without a bank, plug it into something on-chain. The interest you forgo is the price of the convenience, and the law was never going to let you earn it here anyway. So you give up nothing. The user is fine.

The user is also, for OUSD's purposes, inert. Someone holding the coin because it works as money will not sweep it into a Treasury fund, and will not care whether it says OUSD or USDC on the tin, because both pay the same nothing. To the person holding it, they are the same product.

Which means OUSD has no demand pull. Nobody is asking for it. What it has is supply push: enterprises steering users onto it because the enterprises earn. That is why the launch story is Stripe making it the default for its merchants. The user did not choose OUSD. Stripe chose it for them, because Stripe gets a share of the float. And a coin that circulates only because it is somebody's default is only as sticky as that default. Supply push is rented, and it lasts exactly as long as the incentive paying for it.

Holding dollars on-chain for operational reasons, settlement, round-the-clock availability, programmability, is real demand, and the rails help, so it clears. Holding non-yielding dollars as savings is blocked by the fact that yield is one tap away in a tokenised Treasury fund, and the rails make that tap easier, not harder. So the operational float is durable and the savings float is a flight risk. OUSD is being sold hardest into treasury use, which is the flighty kind.

Here is where the design turns on itself.

Coinbase mints a hundred dollars of OUSD, a user takes it, and then moves it to their Kraken account, which people do constantly. Nothing happens to the reserve or the supply. The only thing that changes is custody: the coin leaves Coinbase's wallet and lands in Kraken's. And because the yield follows the balance, Kraken now earns the interest. Coinbase put up the capital, did the mint, carried the compliance, and earns nothing. It minted a coin that pays a competitor.

What does that do to incentives? If you only earn while the balance rests on your book, you want it to stop moving and settle on you. You do not want to mint coins that wander off to a rival, or be the on-ramp that creates float for someone else to collect. All 140 partners have the same incentive at once: be the place the money lands and stays, not the place it passes through.

But a stablecoin is only useful if the money passes through. The whole promise is one dollar that moves anywhere, to anyone, without friction. OUSD hands every backer a reason to work against that. And it gets worse at the edge: if the user moves the coin to self-custody, or anywhere that is not a partner, the balance is credited to no one. The float goes dark. Somebody minted it, and nobody in the consortium earns on it at all.

There is an obvious fix for a coin that pays nobody when it wanders off. Make sure it never wanders off. If a partner earns only while the balance sits on its book, a user leaving for a self-custody wallet is revenue out the door. So the profit-maximising move is to keep you in: default you into custody, make leaving for your own wallet the slow, buried option. The incentive doesn't just fail to reward self-custody. It punishes the partner who allows it.

Self-custody is the one thing crypto was built to make possible. Not your keys, not your coins.

OUSD quietly pays 140 institutions to make sure the keys stay theirs. It rebuilds the custodial lock-in of the banking system, the exact thing stablecoins were sold as an escape from, as the profit-maximising strategy rather than an accident. The more OUSD succeeds, the more its backers are paid to wall users in.

The honest objection sharpens the point rather than blunting it. Regulated firms already prefer to custody your coin, for reasons that have nothing to do with yield: they have to know who holds it and screen it against sanctions lists, and GENIUS sharpened all of that. So a sceptic can say the custody bias is just regulation. The trouble is that it is both. OUSD stacks a financial reward on top of the compliance reason, and now the two point the same way with nothing pulling against them. Under USDC, an exchange holds your coin for compliance but earns nothing extra, so it has no reason to fight you leaving. Under OUSD, every dollar that reaches your wallet is yield walking out with it. The model turns a compliance preference into a revenue defence.

USDC has none of this. Circle keeps the float, and everyone else treats the coin as neutral plumbing, with no reason to hoard it and no reason to trap you. OUSD made the float worth fighting over, and the fight is with the coin's own reason to exist. That, more than any Libra comparison, is how a thing like this quietly fails: not a dramatic collapse, just 140 firms each trying to be a reservoir in a system that only works as a river.

At the top level, the protection is real. The reserve dollars are the issuer's assets, held for coin holders, and GENIUS puts those holders first in line if the issuer goes down, with a bar on mixing reserves into anyone's operating cash. If the model works as designed, the backing is ring-fenced. (I would want to see how OUSD actually implements that)

But your claim on the reserve is only as good as your grip on the coin, and most people never hold the coin themselves. They hold it inside an account at a Coinbase or a PayPal. So trace the failure. Self-custody your OUSD and you hold the claim directly; a failing exchange cannot touch you. Let an exchange hold it for you and that exchange goes bankrupt, and your claim runs through its estate. The recent record there is bleak.

Celsius told its users the balances were theirs; the court ruled they belonged to the bankruptcy estate. FTX customers fought the same battle. The reserve can be whole, every cent intact, and you still cannot reach your dollar, because the coin is frozen inside a failed company while lawyers argue for years over whose it was.

So, the user or the intermediary? The user owns it, right up until they let someone hold it for them. Which nearly everyone does.

Two things break a dollar peg, and a single large partner failing can pull both levers.

The first is a hole in the reserve. In March 2023, Circle had a few billion dollars of USDC reserves sitting in Silicon Valley Bank. SVB failed over a weekend and USDC fell toward 87 cents, until the US government stepped in and made SVB's depositors whole. Nothing was wrong with USDC. The dollars were just parked somewhere that broke.

Now run it for OUSD: a partner holding tens of billions goes bankrupt, and its estate redeems the lot to pay creditors. A redemption that size forces the issuer to sell Treasuries fast, maybe at a loss, and if the reserve comes up short, every coin still outstanding is backed by less than a dollar. The peg breaks for everyone, not just the failed partner. These coins carry no deposit insurance, and the SVB rescue was discretionary. It may not come twice.

The second path doesn't even need the reserve to be short. The exchange holding tens of billions for its users fails, those balances freeze, and holders who cannot redeem start selling on the open market below a dollar. The sight of a large share of supply trapped sets off a run in the coins that are not. Full backing, still a depeg, because access broke rather than backing.

Here is why this bites OUSD harder than USDC. The yield-follows-custody rule, and every partner's drive to be the balance silo, concentrate the float onto the biggest distributors. The design that hands the economics to the largest partners stacks the coin onto the exact balance sheets whose failure would be systemic to it. USDC concentrates on Coinbase too, but there is one issuer and one clean claim behind it. OUSD scatters the coin across 140 estates, and the entity meant to stand behind the reserve, the legal issuer of record, has not been named. The layer meant to be the clean backstop is the one OUSD hasn't disclosed.

Call it a tail risk, not a forecast. But it is a tail with two real precedents behind it and an ownership question the launch says nothing about.

The float move doesn't only create the circulation problem. It concentrates power. Because the yield is split by contribution, the biggest distributors take the biggest cut, and almost certainly the biggest say, yet Open Standard hasn't disclosed how its board is composed, how votes are weighted, or whether all 140-plus members count the same. One-member-one-vote and weighted-by-balances are very different structures, and the economics point at the second.

The collective is also fraying before the coin exists. Within a week of launch, several South Korean firms named as partners, Samsung, Shinhan and K Bank among them, said they had never formally agreed to join. And the one consortium stablecoin live today, Paxos-powered USDG, has gathered around three billion dollars in nearly two years, against USDC's seventy-odd billion. The shared-economics model already exists, and so far it has moved almost nothing. That gap is the honest starting point, not the 140 logos. Libra, the last coalition this size to try, lost its marquee members within four months when the regulatory weather turned. A partner list is a starting condition, not a finished network although, today the regulations are very different.

The float is contested now. That was the call, and OUSD makes it undeniable in a way a slide last November could not.

But every problem here comes from the same place. The user has no reason to prefer the coin. The partners have every reason to hoard it and to wall users in. Minting feeds your rivals. The economics pile the float onto the balance sheets least able to fail safely. These are not bugs to be patched. They are what moving the float does.

Whether a coin can survive being built this way, or whether OUSD turns out to be the bargaining chip that forces Circle to share more of its own float, quietly doing the industry a favour without ever winning itself.

That gets answered onchain in 2027, when the token ships and the settlement data either shows up or doesn't. A consortium that can move real volume looks nothing like one that can only announce itself.

See you next week.

James Smith