2Q2025 Investor Letter

Jul 9

July 5th, 2025

“If you want to improve, be content to be thought foolish and stupid.” — Epictetus, Enchiridion, 13

Dear Partner:

Eaglestone Capital Partners LP (“Eaglestone Partners” or the “Fund”) enjoyed a “snap-back” in 2Q2025, generating returns for the typical limited partner for the periods ending 2Q2025 and YTD 30 June 2025 as follows:

Long positions in Comfort Systems USA (FIX), IES Holdings (IESC), Amazon (AMZN) and Netflix (NFLX) were the largest contributors (in that order) to the Fund’s positive performance while long positions in BellRing Brands (BRBR), Arch Capital Group (ACGL) and ExlService Holdings (EXLS) were the largest detractors from performance (in that order).

This quarter, we dedicated significant research to the burgeoning stablecoin market, a key potential growth driver for the digital economy. Below, we share our findings and explain the trillion-dollar opportunity that firms like Circle (NYSE: CRCL) and its partner Coinbase (NASDAQ: COIN) are pursuing.

Thesis: The Trillion-Dollar Opportunity in Digital Payments

Foundation: Why Stablecoins Matter

A key part of our investing process is looking for new industry growth drivers that could provide tailwinds to existing firms and spark the creation of new entrants. Sorting the signal from the noise requires patience, but the potential rewards are substantial. This is why we spent the past quarter conducting a deep dive into Circle Internet Group (NYSE: CRCL), its partnership with Coinbase Global (NASDAQ: COIN), and the digital payments market they are set to revolutionize.

The Dollar’s Digital Future

The US dollar (USD) is the world’s undisputed reserve currency, underpinning the global economy. It accounts for 26% of world GDP but plays an outsized role in finance, comprising: (a) 58% of disclosed global foreign reserves (b) 88% of all global foreign exchange (FX) transactions.

This results in nearly $6.6 trillion in USD trading every day in the FX markets alone. In contrast, the entire market for US dollar-pegged stablecoins is less than $250 billion. This gap highlights the immense potential for growth.

Two Models for Digital Dollars: USDC vs. USDT

Regulatory focus from the EU and U.S. is increasingly shaping the stablecoin market. Lawmakers want stablecoins to solve the “payments problem” and avoid “banking and credit” functions like money creation through lending. This has created a fundamental divide in the market, best understood by comparing the two dominant players, USDC and USDT.

Their differences echo a concept from the 1930s known as the Chicago Plan, which proposed separating the monetary (payment) and credit (lending) functions of the banking system.

USDC: A True “Payment Money” System

USDC’s structure aligns with the “payment money” or “100% reserve” philosophy. Its model is built on stability and transparency.

Full-Reserve Principle: USDC is backed 1:1 by cash and short-term U.S. government securities held at regulated U.S. financial institutions. This prioritizes capital preservation and ensures every USDC is redeemable for one dollar.
Separation of Functions: Circle, the issuer, operates as a money transmitter, not a lender. It does not use reserve assets for risky lending, separating the payment function from credit risk.
Transparency and Regulation: USDC operates with monthly attestations from a “Big Four” accounting firm, aligning with its strategy of regulatory compliance.

USDT: A Hybrid “Lending Money” System

In contrast, USDT (Tether) operates a model that more closely resembles a fractional-reserve system, where payment and credit functions are combined.

Commingling of Functions: While holding safe assets, Tether’s reserves also include riskier, yield-generating assets like secured loans, corporate bonds, and other digital assets. This means Tether is explicitly engaging in credit creation with the assets backing its stablecoin.
Profit from Lending: Tether’s business model generates billions in income from the interest earned on its reserve portfolio—a classic banking function that involves taking on credit and duration risk.
Opacity and Risk: The commingling of functions and its offshore regulatory status expose USDT holders to the creditworthiness of Tether’s borrowers and the market risk of its investments.

In short, USDC is engineered to be a frictionless payment rail, while USDT is structured more like a yield-generating investment product.

Putting Programmable Money to Work

The ultimate vision is for USDC to become a foundational layer for the financial internet, much like VISA/MasterCard are for traditional commerce. As Patrick Collison testified before the House Financial Services Committee in March 2025:

“At Stripe, our history with and thinking about digital currencies has evolved. While we pioneered Bitcoin support in 2014 but paused it due to limited demand, we are now seeing meaningful business interest in stablecoins as the underlying technology has matured. To give a sense of the demand: when Stripe launched stablecoin pay-ins in April of 2024, we saw more volume in stablecoin payments over the first week than we saw with Bitcoin over a year and a half.”

This is possible because USDC is “programmable money”—a smart contract that allows for automated and conditional transactions. Major players are now building systems on top of this feature, creating a multi-layered ecosystem.

The Merchant Experience: Seamless Crypto Payments
- Who: Shopify, Stripe, and Coinbase.
- How it Works: A customer on a Shopify site can pay with USDC. Stripe’s interface connects to their crypto wallet, and a smart contract automates the transfer. Stripe then instantly converts the USDC to fiat currency for the merchant.
- The Magic: The merchant never has to touch cryptocurrency. They simply receive dollars in their bank account, making the experience identical to a credit card payment from their perspective.
The Spending Experience: A Crypto-Linked Debit Card
- Who: Stripe and Visa.
- How it Works: This model functions like a debit card. A user holds a balance of USDC in a digital wallet linked to a Visa-branded card. They can use this card anywhere Visa is accepted.
- The Magic: When a purchase is made, a smart contract is triggered. It automatically deducts the corresponding amount of USDC from the user’s wallet, converts it to fiat in real-time, and settles the payment through the Visa network. The on-chain digital asset is seamlessly spent in the physical world.
The Future – A True On-Chain Credit Card
- Who: This model is anticipated to involve a three-way partnership between a stablecoin issuer (like Circle), a payment network (like Visa), and a regulated credit institution (a bank).
- How it is Expected to Work: A partner bank would underwrite the user and issue a traditional line of credit. The cardholder could then spend against this credit line. At the end of the billing cycle, smart contracts could allow the user to settle their balance directly from their USDC holdings, potentially automating payments and rewards in a way not possible with traditional systems.
- The Magic: This would represent the holy grail of on-chain finance: the fusion of traditional credit underwriting with the programmable, efficient, and transparent nature of stablecoins. It would allow users to benefit from the credit facilities of the established financial system while using digital assets as the ultimate settlement layer, creating a true “credit card” experience.

Last Words on COIN and CRCL

Finally, how does the USDC partnership between COIN and CRCL work? They formed a partnership whereby CRCL issues and manages the yield-earning reserves (“payment base”) backing USDC while COIN agrees to support USDC’s growth by making it widely accessible and integrate USDC across multiple blockchains, products and services. In exchange, COIN receives roughly 50% of the payment base in respect of USDC held on third party platforms and 100% of the payment base in respect of USDC held on COIN’s platform. As of 1Q2025, that amounted to roughly $1.2 billion in annualized revenues for COIN.

Regards,

Eaglestone Capital Management LLC

66 Palmer Avenue, Suite 32B, Bronxville, NY 10708

914.202.8811

www.eaglestonecapital.net

Eaglestone Capital Management LLC prepared this letter. NAV Fund Services, our administrator, is responsible for the distribution of this information and not its content.

Eaglestone Capital’s Investment Philosophy

Eaglestone Capital is an independent registered investment adviser (RIA) based in Bronxville, NY, founded by Fred Stupart. It serves as the sole investment adviser to Eaglestone Capital Partners LP (the “Fund”), which targets 15% absolute annual returns to its limited partners through investments in daily-liquid securities. The Fund primarily invests in U.S. equities and may employ leverage to boost returns. The Fund offers an alternative to the array of index funds, annuities, and other common products available to individuals seeking a secure retirement.

Eaglestone Capital views the U.S. economy as sui generis—truly one of a kind: unparalleled, irreplaceable, and impossible to replicate. Consequently, applying insights drawn from U.S. data to other markets can yield misleading conclusions. Furthermore, the foundation of continued U.S. economic growth—encompassing employment gains, real estate appreciation, and other asset expansion—is its dynamic, highly competitive private sector, exemplified by many publicly traded firms. As a result, investing in high-quality U.S. companies that uphold shareholder rights is vital to any robust investment strategy. Furthermore, Eaglestone Capital appreciates the opportunities available outside the U.S. but prefers to invest with U.S. companies with foreign subsidiaries as the best means of taking advantage of such non-U.S. opportunities.

Eaglestone Capital also believes in the individual’s power to independently analyze and choose their path to economic freedom. Today’s investors are well-informed and enjoy abundant investment choices. Although we applaud rising participation in U.S. equity markets, the growing concentration of a few companies in major equity indexes could dampen equity index returns if margins or topline growth at those companies decline and investors become more selective.

Eaglestone Capital believes that intelligence, effort, and patience yield the best results. While this should be self-evident, many index fund philosophies conflict with it. When Jack Bogle introduced the S&P 500 index fund in 1976, he offered a new, low-cost product that helped keep large asset managers honest. Yet what is initially a clever innovation often becomes overused. We may soon see many index funds lag behind AI-empowered active managers able to allocate capital more flexibly.

Eaglestone Capital oversees a portfolio of 20–30 liquid equities, each run by leadership teams possessing a “fiduciary gene”—managers who respect shareholder rights and strive to develop innovative, capital-efficient businesses that deliver strong returns to owners. Eaglestone Capital recognizes that risks and rewards vary widely across the U.S. economy, welcoming multiple industries and business models into its portfolio. Some firms have attained scale and efficiency and thus generate high margins and robust returns on capital. Others, analogous to partially finished real estate developments, still have room to grow margins and returns on capital and hence during this “development phase” they might appear to have very high valuations based on traditional EV/EBIT or P/E multiples.

Finally, Eaglestone Capital acknowledges the U.S. equity market’s potential volatility, as shifting momentum can strongly influence investor behavior. However, Eaglestone Capital does not equate volatility with risk – in fact, volatility is a key benefit available only to public market investors seeking high absolute returns. Sometimes “the market” decides that it wants to sell stocks – Eaglestone Capital respects the market’s momentum, appreciates its power and will wait for an appropriate time to exercise any judgement.

General Disclaimer

By accepting this investment letter, you agree that you will not divulge any information contained herein to any other party. This letter and its contents are confidential and proprietary information of the Fund and any reproduction of this information, in whole or in part, without the prior written consent of the Fund is prohibited.

The information contained in this letter reflects the opinions and projections of Eaglestone Capital Management LLC (the “General Partner”) and its affiliates as of the date of publication, which are subject to change without notice at any time after the date of issue. All information provided is for informational purposes only and should not be deemed as investment advice or a recommendation to purchase or sell any specific security.

All performance results are based on the net asset value of the Fund. Net performance results are presented net of management fees, brokerage commissions, administrative expenses, and accrued performance allocation, as indicated, and include the reinvestment of all dividends, interest, and capital gains. The performance results represent Fund-level returns and are not an estimate of any specific investor’s actual performance, which may be materially different from such performance depending on numerous factors.

The market indices appearing in this letter have been selected for the purpose of comparing the performance of an investment in the Fund with certain well-known equity benchmarks. Statistical data regarding the indices has been obtained from public sources and the returns are calculated assuming all dividends are reinvested. The indices are not subject to any of the fees or expenses to which the funds are subject and may involve significantly less risk than the Fund. The Fund is not restricted to investing in those securities which comprise these indices, its performance may or may not correlate to these indices, and it should not be considered a proxy for these indices. The S&P 500 Total Return Index is a market cap weighted index of 500 widely held stocks often used as a proxy for the overall U.S. equity market. The Fund consists of securities which vary significantly from those in the benchmark indices. Accordingly, comparing results shown to those of such indices may be of limited use.

Statements herein that reflect projections or expectations of the future financial or economic performance of the Fund are forward-looking statements. Such “forward-looking” statements are based on various assumptions, which may not prove to be correct. Accordingly, there can be no assurance that such assumptions and statements will accurately predict future events or the Fund’s actual performance. No representation or warranty can be given so that the estimates, opinions, or assumptions made herein will prove to be accurate. Any projections and forward-looking statements included herein should be considered speculative and are qualified in their entirety by the information and risks disclosed in the Fund’s Private Placement Memorandum. Actual results for any period may or may not approximate such forward-looking statements. You are advised to consult with your own independent tax and business advisors concerning the validity and reasonableness of any factual, accounting and tax assumptions. No representations or warranties whatsoever are made by the Fund, the General Partner, or any other person or entity as to the future profitability of the Fund or the results of making an investment in the Fund. Past performance is not a guarantee of future results.

The funds described herein are unregistered private investment funds commonly called “hedge funds” (each, a “Private Fund”). Private Funds, depending upon their investment objectives and strategies, may invest and trade in a variety of different markets, strategies and instruments (including securities and derivatives) and are NOT subject to the same regulatory requirements as mutual funds, including requirements to provide certain periodic and standardized pricing and valuation information to investors.

There are substantial risks in investing in a Private Fund. Prospective investors should note that:

A Private Fund represents a speculative investment and involves a high degree of risk.
Investors must have the financial ability, sophistication/experience, and willingness to bear the risks of an investment in a Private Fund.
An investor could lose all or a substantial portion of his/her/its investment.
An investment in a Private Fund is not suitable for all investors and should be discretionary capital set aside strictly for speculative purposes.
Only qualified eligible investors may invest in a Private Fund.
A Private Fund’s prospectus or offering documents are not reviewed or approved by federal or state regulators and its privately placed interests are not federally, or state registered.
An investment in a Private Fund may be illiquid and there are significant restrictions on transferring or redeeming interests in a Private Fund.
There is no recognized secondary market for an investor’s interest in a Private Fund and none is expected to develop.
A Private Fund may have little or no operating history or performance and may use performance information which may not reflect actual trading of the Private Fund and should be reviewed carefully.
Investors should not place undue reliance on hypothetical, pro forma or predecessor performance.
A Private Fund’s manager/advisor has total trading authority over a Private Fund.
The death or disability of a key person, or their departure, may have a material adverse effect on a Private Fund.
A Private Fund may use a single manager/advisor or employ a single strategy, which could mean a lack of diversification and higher risk.
A Private Fund may involve a complex tax structure, which should be reviewed carefully, and may involve structures or strategies that may cause delays in important financial and tax information being sent to investors.
A Private Fund’s fees and expenses, which may be substantial regardless of any positive return, will offset such Private Fund’s trading profits.
If a Private Fund’s investments are not successful or are not sufficiently successful, these payments and expenses may, over a period, significantly reduce or deplete the net asset value of the Private Fund.
A Private Fund and its managers/advisors and their affiliates may be subject to various potential and actual conflicts of interest.
A Private Fund may employ investment techniques or measures aimed at reducing the risk of loss which may not be successful or fully successful.
A Private Fund may employ leverage, including involving derivatives. Leverage presents specialized risks.
The more leverage used, the more likely a substantial change in value may occur, either up or down.

The above summary is not a complete list of the risks, tax considerations and other important disclosures involved in investing in a Private Fund and is subject to the more complete disclosures in such Private Fund’s offering documents, which must be reviewed carefully prior to making an investment.

Eaglestone Capital Management LLC is an independent investment advisory firm based in Bronxville, New York. Additional information about Eaglestone Capital Management LLC and its associated persons (including Form ADV) is available on the SEC’s website at www.adviserinfo.sec.gov. You can search this site by a unique identifying number, known as a CRD number. The CRD number for Eaglestone Capital Management LLC is 297958.

Fred Stupart https://eaglestonecapital.net