By Lawrence Lee

1. Research Summary

We summarize the key points of Circle’s valuation and investment as follows:

• Scarcity in the stablecoin industry : Circle is a player in the rapidly developing stablecoin industry. The gradual clarification of the US regulatory framework has further strengthened the industry's long-term development certainty, attracting many major investors to accelerate their investment. While intensified competition has put some pressure on Circle, it also demonstrates the market's recognition of the long-term value of the stablecoin sector. Circle currently holds a stable second place in the stablecoin market share and is the only investable listed entity in the market. This scarcity attribute has become a key consideration in investor decisions.

• Valuation Implicits High Growth Expectations : Across multiple valuation metrics, Circle's current valuation is high, reflecting that the market has already fully priced in its growth prospects. Some valuation logic even incorporates its future position as a leading financial infrastructure provider. Future stock price trends will be highly dependent on whether the company's actual performance matches or exceeds market expectations. If quarterly financial performance or key operating metrics fall short of optimistic expectations, a valuation correction could occur.

• Mid-term financial performance faces pressure : Circle's financial performance mainly depends on three major driving factors: USDC supply is expected to continue to grow with industry expansion and company operational optimization, but short-term US Treasury bond interest rates have entered a downward cycle, and distribution and transaction costs are still high. It is expected that its revenue and profit margins will continue to face pressure in the future.

• Large-scale lock-up period in November and December : Shares from early investors will be unlocked in large quantities in November and December. The vast majority of these investors have invested for nearly or more than ten years, leading to strong exit expectations. This event is likely to put significant pressure on Circle's stock price.

• Future Catalysts : In the short to medium term, several potential catalysts may impact Circle's valuation:

• Obtaining a banking license – If Circle is approved by the OCC for a trust charter, it will become the first stablecoin bank in the United States, significantly increasing its status and trust, which may trigger a revaluation of its value.

• Progress on Business Diversification – If Circle announces new revenue streams (e.g., the launch of a payment fee program) that exceed market expectations, it would improve the perception of interest rate dependence and boost its valuation.

• Mergers and Acquisitions and Partnerships – Any deepening collaboration with large banks/tech companies, or potential mergers and acquisitions (e.g., acquisition by a larger financial institution) will affect the market’s assessment of its ultimate value.

• On the contrary , negative catalysts such as a sudden interest rate cut by the Federal Reserve, the launch of stablecoins by competitors, and security incidents will suppress valuations.

Investment advice:

Based on the above, we are leaning towards a "Neutral" stance on Circle's stock . Our rationale is that, despite Circle's bright long-term prospects, its current price already fully, if not ahead of, reflects optimistic expectations, leaving a low margin of safety. Furthermore, given the ongoing macro and industry uncertainties, the risk of short-term volatility is high.

PS: This article represents the author's interim thinking at the time of publication. It may change in the future, and the views are highly subjective. There may also be errors in facts, data, and reasoning logic. All views in this article are not investment advice. We welcome criticism and further discussion from colleagues and readers.

2. Business and product lines

Circle Internet Financial was founded in 2013 by Jeremy Allaire and Sean Neville with a mission to "enhance global economic prosperity through frictionless value exchange." While the company initially focused on crypto payments, its development has been challenging. Throughout this journey, Circle has actively explored other business directions, including establishing the cryptocurrency market-making platform Circle Trade, acquiring the crypto exchage Poloniex, and acquiring the crowdfunding platform SeedInvest.

In 2018, Circle and Coinbase jointly established the Centre consortium and launched the USD Coin (USDC), a stablecoin positioned as a compliant and transparent digital dollar exchange. USDC quickly grew to become the world's second-largest stablecoin, second only to Tether (USDT). Since then, Circle has gradually divested non-core assets such as Poloniex and SeedInvest, refocusing its strategy on stablecoins and related businesses.

Currently, Circle's core business revolves around stablecoins, and also covers derivative sectors such as payment settlement, corporate treasury services, developer platforms, and wallet services. Specifically, they include:

2.1 Stablecoin Issuance and Reserve Management

USD Coin (USDC) issuance

USDC is Circle's flagship product, minted and redeemed on demand by its regulated subsidiary. As of September 15, 2015, there were 72.7 billion USDC in circulation. Circle pledges to hold one USDC in reserve assets in a bank custodial account or regulated fund for every USDC issued, ensuring a 1:1 peg between USDC and the US dollar. The company utilizes daily monitoring and a T+2 settlement mechanism: When a user submits a USDC mint request through their Circle account, Circle immediately generates the corresponding USDC on the blockchain upon confirmation of the fiat currency arrival and sends it to the user's wallet. Redemption proceeds in reverse, with Circle destroying the USDC and returning the equivalent fiat currency to the user. This "in, out" mechanism ensures a stable supply of USDC.

Composition of reserve assets

Circle implements a strict reserve management policy, investing reserve assets exclusively in cash and US government bonds with maturities of no more than three months to ensure their "safety, high liquidity, and transparency." According to the latest disclosure on July 31, 2025, approximately 85% of the USDC reserve consists of US dollar market funds (primarily holding US Treasuries), and 15% consists of deposits with global systemically important banks (GSIBs). This means that the vast majority of reserve assets are redeemable daily, enabling them to meet concentrated redemption demands.

Circle partnered with BlackRock to establish the "Circle Reserve Fund," placing Treasury bond reserve assets in this SEC-registered fund, with BlackRock responsible for investment management. Fund holdings and net asset value are disclosed publicly on a regular basis. As both the sponsor and beneficiary, Circle does not directly interfere with investment decisions, thereby enhancing the professionalism and transparency of reserve operations. Remaining cash reserves are held in a diverse network of global systemically important banks (such as Bank of New York Mellon and JPMorgan Chase) to support daily redemption liquidity and payment system integration.

Reserve transparency and auditing

Circle regards transparency as the cornerstone of its USDC trust system. Since its launch in 2018, the company has engaged an independent auditor to issue monthly reserve certification reports, disclosing the total USDC in circulation and the corresponding reserve assets. Currently, Deloitte provides audit services. Audit reports consistently indicate that the total value of USDC reserve assets is slightly higher than the total value of USDC in circulation, demonstrating a 100% reserve ratio and risk mitigation mechanisms. Circle's own funds and USDC reserves are strictly separated to prevent misappropriation risks.

Unlike Tether, which was penalized by regulators for its opaque reserve management practices, Circle's self-regulatory and transparent approach has earned the trust of regulators and institutional clients. In 2023, Circle was the first to comply with SEC accounting guidance, disclosing detailed USDC reserve fund holdings in its 10-K financial report. As the company's IPO process progresses, Circle will submit financial and operating data to the SEC on a quarterly basis to further enhance operational transparency and market confidence.

EURC and other currency expansion

In addition to its USD stablecoin, Circle will launch Euro Coin (EURC) in 2022, pegged 1:1 to the Euro. EURC shares the same governance model as USDC, with its reserve assets consisting of euro cash and short-term European government bonds. Although EURC's current market capitalization is relatively small (approximately €200 million), it has significant growth potential with the implementation of the EU's Markets in Crypto-Assets Directive (MiCA) and the Eurozone's shifting attitude towards digital finance.

Circle has stated that it will explore issuing stablecoins in other G10 currencies (such as the British pound and the Japanese yen) in the future, depending on market demand and the regulatory environment. The company recently received approval in principle from the Abu Dhabi Global Market in the United Arab Emirates to provide payment services, including stablecoins, hinting at potential expansion into the Middle East market and even the launch of stablecoin products pegged to local currencies (such as the dirham). Through multi-currency expansion, Circle aims to build a stablecoin portfolio covering major fiat currencies, solidifying its leading position in the global stablecoin space.

2.2 Payment and Settlement and Corporate Treasury Services

Circle Business Account

Circle provides comprehensive Circle Account services to businesses and financial institutions. Through a single account, clients can exchange, send, receive, and manage balances between fiat currencies and digital currencies like USDC. For example, in cross-border e-commerce, businesses can deposit USD into their Circle account, instantly convert it to USDC, and pay their overseas suppliers directly in USDC. Suppliers can also convert USDC into local fiat currency at any time. The entire process takes just minutes, significantly improving efficiency compared to traditional SWIFT remittances.

Circle accounts support a variety of fiat currency deposit and withdrawal channels, including ACH, SWIFT, wire transfers, and SEPA, leveraging integration with global banks and payment networks to achieve broad coverage. For blockchain payments, accounts support multi-chain USDC receiving addresses, allowing customers to choose a network (such as the Ethereum mainnet or Solana) based on cost and speed requirements. Furthermore, Circle accounts offer treasury features such as multi-user permission management and transaction history export to meet the financial operational needs of businesses.

Payments API

Circle's payments API allows developers to integrate fiat and stablecoin payments into their platforms. Through API calls, merchants can receive customer payments and convert them into USDC in real time. For example, if a user pays $100 with a credit card, the merchant can use the Circle API to instantly convert the amount into USDC and deposit it into a Circle account. This avoids the high fees and exchange rate risks of cross-border clearing while maintaining a seamless and transparent payment experience for users.

Merchants can also use the "Payouts" feature to convert USDC into local fiat currency through an API and distribute it to users through the Circle banking network. Currently, the Circle payment network covers over 100 countries, effectively connecting the unbanked with digital wallets.

Treasury and Exchange Services

Circle provides critical treasury infrastructure for digital asset exchanges and brokers. Traditional banking channels often present slow speeds and complex compliance requirements. By integrating with Circle accounts, exchanges can rapidly convert user deposits into USDC, achieving near-real-time on-chain transfers. Withdrawals are facilitated through cross-chain transfers and local exchanges using USDC, significantly improving efficiency and user experience.

USDC is currently widely used as a USD alternative on numerous exchanges, including Coinbase. While USDC still accounts for a smaller share of trading volume than USDT on centralized platforms, it already accounts for approximately one-third of all USDC on leading exchanges like Binance. Circle's OTC minting service for key clients enables exchanges and institutions to efficiently and efficiently purchase and redeem USDC in bulk, particularly helping to stabilize liquidity during periods of market volatility.

Furthermore, Circle's API supports large-scale over-the-counter (OTC) transactions and clearing, such as using USDC to settle loans and securities transactions between institutions, thus avoiding cross-border bank settlement delays. Overall, Circle's payment and treasury services not only directly serve end-use scenarios like e-commerce and remittances, but also provide underlying financial support for exchanges and institutions. This enterprise-centric model has broadened the USDC application ecosystem, strengthening business stickiness and customer relationships.

2.3 Developer Platform and Wallet Services

Wallet API and development tools

Circle has launched a suite of developer tools to lower the barrier to entry for blockchain integration. The Wallets API enables businesses to quickly create and manage digital asset wallets without having to manage private keys and on-chain interactions. Developers can use the API to generate USDC wallet addresses for users, check balances, and initiate transfers. Secure key custody and signing are handled centrally by Circle's backend.

This type of service is particularly useful for traditional businesses looking to introduce digital asset functionality. For example, gaming companies can use the Wallet API to create USDC wallets for players, distribute game rewards, and support cash withdrawals and redemptions, without requiring deep blockchain expertise. Circle also provides blockchain node services and smart contract interfaces, supporting interaction with multiple chains like Ethereum and Solana, improving development efficiency.

In 2022, Circle acquired CYBAVO, further strengthening its institutional-grade security features, including multi-signature wallets and permission management, to help clients securely manage large amounts of digital assets. This series of initiatives aims to establish Circle as the "AWS of the blockchain world," integrating traditional applications into the stablecoin ecosystem through underlying digital currency services. While API service revenue currently represents a small portion, its strategic significance lies in expanding the scale and circulation of USDC, indirectly boosting the growth of its core business.

Cross-chain interoperability and CCTP

USDC is currently deployed on over 10 blockchains, including the Ethereum mainnet, multiple Layer 2 networks (such as Arbitrum and Optimism), Solana, Avalanche, and Tron. To address the issue of fragmented liquidity across multiple chains, Circle developed the Cross-Chain Transfer Protocol (CCTP), enabling users to transfer USDC between chains without requiring a centralized exchange or third-party bridge.

CCTP enables cross-chain transfers by destroying USDC on the source chain and minting an equal amount on the target chain, with Circle issuing a certificate to ensure a secure and reliable process. The protocol gained widespread attention in 2023 and is considered a key innovation in addressing cross-chain bridge security risks and enabling efficient value transfer. CCTP not only strengthens Circle's ability to manage USDC cross-chain flows but also improves the consistency of USDC across multiple chains (the total amount remains unchanged, with only inter-chain transfers occurring), further solidifying Circle's core position in the stablecoin ecosystem.

2.4 Future Product Line Expansion

Looking ahead, Circle is actively developing new products and services to broaden its revenue streams and consolidate its ecosystem advantages:

• ARC, a stablecoin blockchain : In August 2025, Circle announced the launch of ARC, an open L1 blockchain designed specifically for stablecoins. The chain uses USDC as its native gas token, features a built-in foreign exchange engine, supports 24/7 peer-to-peer on-chain settlement, and is EVM-compatible. The ARC testnet is expected to launch this fall, with the mainnet planned for 2026. ARC will become a core platform for Circle's future business, with multiple services built on top of it.

• Cross-border foreign exchange exchange : After the launch of ARC, Circle can develop cross-border foreign exchange exchange services based on USDC/EURC, enabling rapid swaps between US dollars and euros, providing better exchange rates and efficiency than traditional foreign exchange channels, and thus entering the trillion-dollar foreign exchange market.

• Digital identity and compliance : To meet compliance requirements, Circle may launch on-chain identity verification services, enabling institutions to verify the KYC status of counterparty addresses, build a "permissioned stablecoin" ecosystem, and attract financial institutions that are sensitive to anonymous transactions to use the USDC network.

• Lending and Yield Products : While current laws restrict stablecoins from paying interest to the public, Circle can still offer USDC financing services to institutions, such as accepting collateral and lending USDC, collecting interest income, similar to securities lending. If regulations allow, Circle may relaunch regular income products for institutions (such as "Circle Yield") to expand profit channels while maintaining strict risk management.

• CBDC Collaboration : As central banks around the world advance their digital currency (CBDC) initiatives, Circle could play a role in providing technology or distribution. For example, Circle could participate in the UK's planned digital pound pilot program as a private distributor, providing exchange and custody services. The company is also actively exploring collaborations with CBDC teams in other countries to maintain its core position in the digital currency space.

In short, Circle is evolving from a single stablecoin issuer into a comprehensive digital financial ecosystem encompassing stablecoins, payments, developers, and banking services. Through both horizontal and vertical business expansion, Circle is not only opening up new growth opportunities but also embedding itself more deeply within the digital economy's infrastructure. As synergies across its business lines are unlocked, Circle is poised to build a digital financial network centered around USDC, creating long-term value for shareholders.

3. Management and Governance

3.1 Core Management Team

Co-founder and CEO Jeremy Allaire is a serial internet entrepreneur who founded and successfully IPOed the video streaming platform Brightcove. He has profound insights into the open web and fintech, and is widely regarded as a leading figure in the stablecoin industry. He frequently participates in US congressional hearings and policy discussions, actively advocating for appropriate regulation of the industry.

Another co-founder, Sean Neville, served as president of the company in its early days, laying the foundation for its products and technology. He became a board advisor in 2019 and still holds shares in the company.

The company's executive team also includes Chief Financial Officer (CFO) Jeremy Fox-Geen, who joined Circle in 2021. He previously served as Managing Director of Barclays Investment Bank in the UK. He has extensive experience in traditional finance and capital markets and led the company's SPAC merger and IPO preparations.

Chief Operating Officer (COO) Elisabeth Carpenter and Chief Legal Officer (CLO) Flavia Naves both come from traditional finance and technology giants, bringing valuable operational and compliance management experience to the company. The legal team played a key role in navigating the complex regulatory environment and obtaining licenses in various regions.

Overall, Circle's management team combines a technologically innovative mindset with a rigorous compliance approach, laying a solid foundation for the company to maintain stable operations during its rapid growth.

3.2 Board of Directors and Governance

In 2018, Circle and Coinbase formed a joint venture, Centre Consortium, to oversee USDC-related matters, with each party holding a 50%:50% stake. In 2023, Circle restructured its partnership with Coinbase, transitioning to direct management of USDC affairs. Coinbase relinquished its original equity stake in favor of a minority stake in Circle, while retaining a 50% share of USDC revenue (see Section 5.2, "Distribution and Transaction Costs," for a detailed description of the partnership). As a result, Coinbase continues to play a significant role in the development of USDC and currently serves on Circle's board of directors.

In addition to Coinbase, Circle's board of directors includes industry veterans and strategic investor representatives. Jeremy Allaire serves as Chairman, and investor representatives include directors from funds such as Goldman Sachs, Excel, and Breyer, ensuring the company's strategy balances investor interests. Circle has also appointed several independent directors, including Heath Tarbert, former Chairman of the Federal Deposit Insurance Corporation (FDIC), with extensive regulatory backgrounds, to provide strong support for the company's IPO process and compliance operations.

3.3 Governance Structure and Shareholder Rights

Circle utilizes a dual-class share structure: Class A common stock is available to public investors, while Class B shares, which carry enhanced voting rights, are held by the founding team and early investors. This structure ensures that founder Jeremy Allaire maintains strategic direction even after the company goes public, preventing short-term market pressures from interfering with long-term development plans.

Prior to its IPO, the company completed multiple rounds of internal governance improvements, including the establishment of an Audit Committee and a Compliance and Risk Committee, with independent directors leading the oversight of financial reporting and risk management. According to its prospectus, Circle has established a comprehensive internal control system for anti-money laundering (AML) and sanctions compliance, employing a dedicated team of compliance officers and undergoing annual external audits.

Circle also has a clear reserve management policy and contingency plan. For example, during the Silicon Valley Bank incident in March 2023, Circle's $3.3 billion in cash reserves were temporarily unavailable, causing USDC to temporarily de-peg. Company management quickly issued a transparent announcement, pledging to cover the potential shortfall with its own funds. Ultimately, with the intervention of the Federal Reserve, reserve assets were preserved, and USDC's peg was restored. This incident highlighted management's expertise in crisis response and risk communication, as timely and effective measures prevented widespread panic among users.

3.4 Compliance and Regulatory Relationship

Since its founding, Circle has consistently prioritized compliance and earned the reputation of "a model for embracing regulation." In 2015, Circle became the holder of New York State's first BitLicense, considered one of the strictest state-level regulatory licenses in the cryptocurrency industry and a testament to the company's commitment to compliance.

Since then, Circle has obtained money transmission licenses in 46 US states, an electronic money institution license from the UK's Financial Conduct Authority (FCA), and an exempt license in Singapore. The company invests significant resources annually to meet Anti-Money Laundering (AML) and Know Your Customer (KYC) requirements. Its internal compliance team monitors large and unusual transactions in real time and promptly reports suspicious activity.

This compliance-first image gives Circle a stronger foundation of trust in its communications with regulators. CEO Jeremy Allaire has repeatedly spoken at US congressional hearings, supporting the establishment of federal stablecoin regulations and expressing a willingness to serve as a "litmus test" for stricter oversight in exchange for the long-term health of the industry.

In June 2025, after the US Senate passed the Stablecoin Act, Circle quickly initiated the application process for a federal trust bank charter, striving to become one of the first compliant stablecoin issuers. Circle's relationship with regulators is primarily collaborative, and management clearly understands that only by proactively embracing regulation can it win mainstream market acceptance. This governance philosophy will help Circle maintain its leading position in future compliance competition and continue to cultivate a positive image with governments and the public.

4. Industry Analysis

4.1 Overview of the Global Stablecoin Market

Stablecoins are cryptocurrencies pegged to fiat currencies or other assets. They aim to combine the price stability of fiat currencies with the efficiency of blockchain technology and have become a crucial bridge between the crypto ecosystem and the traditional financial system. Since 2020, the stablecoin market has experienced explosive growth, with its total market capitalization rapidly climbing from less than $10 billion to nearly $200 billion in 2022. Despite a short-term decline during the cryptocurrency market correction, the market has rebounded, pushing the total market capitalization of stablecoins past $270 billion. By July 2025, the supply of stablecoins will account for over 1.2% of the US M2 money supply (which totals $22.12 trillion), a significant amount.

The current stablecoin market is dominated by USD-denominated products, accounting for over 95% of the market. Other stablecoins, such as the Euro and British Pound, are still in their early stages of development. Among USD-denominated stablecoins, USDT and USDC together hold approximately 85% of the market share, forming a duopoly.

The demand for stablecoins mainly comes from the following aspects:

1. Cryptocurrency trading needs

Stablecoins continue to serve as a primary unit of account and hedge tool in the digital asset market, helping traders quickly switch between different currencies and lock in value during market fluctuations. The cryptocurrency market saw a complete shift from BTC to stablecoins during the 2019-2021 trading cycle. Currently, over 95% of spot trading volume comes from cryptocurrency-stablecoin pairs. Perpetual swaps based on stablecoins have also seen rapid growth in recent years, with trading volume already several times that of spot trading and comparable trading depth. The promotion of perpetual swaps has further increased the penetration of stablecoins among traders.

Transaction settlement demand from the crypto market remains the primary source of demand for stablecoins.

2. Cross-border payments and financial inclusion

Stablecoins, with their advantages of fast cross-border transfers, low fees, and 24/7 availability, show significant potential in international remittances and trade settlements. Traditional remittances rely on multiple intermediaries, resulting in a multi-day, costly process. Stablecoins like USDC, however, enable near-instant peer-to-peer settlement. Numerous payment providers and remittance companies are actively piloting the integration of stablecoin networks, and traditional payment giants like Visa and Mastercard are also closely monitoring this technological convergence.

3. DeFi and digital financial applications

In the decentralized finance (DeFi) ecosystem, stablecoins serve as the underlying collateral and unit of account for lending, market making, and derivatives protocols. Users can deposit stablecoins into DeFi platforms to earn interest or participate in liquidity mining, giving them deposit-like functionality. During the 2021 DeFi boom, demand for USDC on-chain lending surged, prompting Circle to launch "Circle Yield," a service offering fixed deposit yields to institutions. However, following industry turmoil in 2022 (such as the collapse of the Terra algorithmic stablecoin), these yield-based businesses have become more cautious.

4. Macro-environmental impact

Geopolitical and global financial trends are also driving the development of stablecoins. Despite growing calls for a "de-dollarization," stablecoins have objectively expanded the use of the US dollar: due to their high convenience, many overseas markets prefer to hold USDC or USDT rather than local currencies, which in turn strengthens the dollar's actual influence. According to ARK Invest analysis, the total amount of US Treasury bonds held by stablecoins has surpassed that of countries like Germany and South Korea. Stablecoins are becoming a significant new buyer of US Treasury bonds and a new vehicle for the internationalization of the US dollar, to a certain extent consolidating the dollar's reserve currency status. In emerging markets, high inflation and capital controls are particularly driving residents to view stablecoins as alternatives to the US dollar for daily payments and as a store of value. For example, in Argentina and Nigeria, USDT and USDC are already widely used, forming a "parallel currency network" that complements the shortcomings of local financial systems.

Also worth mentioning is the Agentic Payments Protocol 2 (AP2), jointly launched by Google and Coinbase on September 17th. It aims to securely initiate and process payments led by AI agents across platforms. AP2 introduces stablecoins as a primary payment method, which is expected to accelerate their circulation in the short term. Furthermore, stablecoins, being tied to blockchain rather than human biometrics, are naturally more suitable for economic activities between AI agents than other payment systems. Future economic activities between AI agents may also drive further expansion of the stablecoin market.

4.2 Competition Landscape

The current stablecoin market is characterized by a "two superpowers and many strong" competition: Tether (USDT) and Circle (USDC) hold first and second place, respectively. Based on current issuance volume, USDT holds approximately 58% of the market share, while USDC holds approximately 25%. USDT, issued by the offshore company Tether, maintains its dominant position thanks to its first-mover advantage and deep integration with numerous exchanges. However, its operational transparency and compliance have long been questioned, with insufficient reserve disclosure and auditing becoming key concerns for European and American regulators.

In contrast, USDC, issued by Circle, is renowned for its compliance and transparency, holding multiple US state money transmission licenses and a New York BitLicense. Circle proactively conducts monthly audits, and its reserve assets consist 100% of cash and short-term US Treasury bonds, the vast majority of which are held in US-regulated funds. This robust strategy has significantly strengthened institutional trust in USDC. With tightening global regulation, USDC is expected to further expand its market share in markets with high compliance requirements (such as the US and the EU), while USDT may face restrictions in certain jurisdictions (such as those under the EU's MiCA regulations).

Other key contenders include:

• Payment giant PayPal launched its USD stablecoin, PYUSD, in 2023, leveraging its vast user and merchant network to promote stablecoin payments. While PYUSD currently has a circulation of 1.17 billion, it's still significantly smaller than USDC. However, PayPal's brand and channel capabilities make its potential significant. Stripe also recently announced the launch of its L1 Tempo stablecoin, while Visa and Mastercard are expanding into the stablecoin payment space through partnerships and investments.

• Financial institutions : JPMorgan Chase issued JPM Coin for inter-institutional settlements; Societe Generale launched a euro-denominated stablecoin. Now that the stablecoin bill has been successfully passed, it is expected that more banks will participate in the competition based on their creditworthiness. However, their applications are likely to be concentrated in B-side scenarios such as corporate payments and on-chain settlements, with limited direct competition with USDC in the public market.

• Decentralized stablecoins include Ethena's USDE and MakerDAO's DAI and USDS. Based on issuance volume, USDE and USDS+DAI are currently the third and fourth largest stablecoins (with issuance volumes of 13 billion and 9.5 billion, respectively). USDE incorporates cryptocurrency perpetual contract fee arbitrage into its stablecoin system, resulting in stablecoin returns significantly higher than those of short-term US Treasury bonds, demonstrating its innovative and profitable performance. However, in terms of absolute scale and application scenarios, these stablecoins remain relatively small in terms of scale and influence. Users primarily use them as income-generating tools, and they pose no significant threat to USDC in the short term.

• Other compliant issuers include USDP issued by Paxos and BUSD, which was launched by Binance but discontinued in 2023 due to regulatory pressure. While institutions like Paxos hold US trust licenses and demonstrate high compliance, their market penetration and ecosystem development still lag behind Circle. Since 2025, compliant stablecoin projects have rapidly emerged, including WLFI, in which the Trump family participates, launching USD1 (with over $2.5 billion in circulation), the Plasma project's governance token XPL, which saw a pre-market market capitalization exceeding $7 billion, and Ethena's launch of the fiat-backed stablecoin USDTB (with over $1.6 billion in circulation). More small and medium-sized projects are also entering the market.

In summary, Circle has established a certain first-mover advantage by leveraging USDC's long-standing expertise in regulatory compliance and ecosystem collaboration. However, as the regulatory framework for stablecoins becomes increasingly clear and more and more participants enter the competition, the market environment facing Circle is becoming increasingly competitive.

4.3 Regulatory Environment and Policies

The trend for stablecoins to move from "wild growth" to "regulation" is inevitable. The Terra stablecoin incident in 2022 triggered global regulatory vigilance, and countries around the world have been discussing regulatory frameworks.

In July 2025, the U.S. Congress passed the Guiding and Establishing a National Innovation Stablecoin Act (GENIUS Act). This bill established a federal regulatory framework for payment stablecoins. The bill:

• Stablecoins are required to have a 1:1 reserve ratio and are limited to holding highly liquid assets (such as cash, short-term US Treasury bonds, etc.);

• Issuers are required to publish monthly reserve composition reports and submit them to independent audits or reviews. Reserves cannot be arbitrarily misappropriated or re-pledged.

• Stablecoin issuers are required to establish sufficient capital and liquidity buffers and improve risk management to match the business scale and risk profile.

• Direct payments of interest or returns to coin holders are prohibited to prevent stablecoins from being treated as deposits or securities.

• Securities and commodity regulators such as the SEC and CFTC are explicitly excluded from direct regulatory authority over payment stablecoins, and supervision will be jointly undertaken by banking regulators (the Federal Reserve, OCC, FDIC, etc.) and state financial regulatory authorities.

Overall, the GENIUS Act establishes a regulatory compliance baseline for stablecoins at the US federal level, clearly stipulating issues such as issuer qualifications, reserve asset transparency, and redemption obligations. The GENIUS Act will be fully implemented 18 months after its entry into force (end of 2026), prohibiting unauthorized institutions from issuing payment stablecoins in the US.

It's foreseeable that the GENIUS Act will eliminate unqualified issuers and promote the survival of the fittest in the industry. For Circle, which already adheres to high compliance standards (holding money transmission licenses in 46 states, a New York BitLicense, and licenses in Bermuda and the UK), the new federal licensing threshold will further highlight its legal and compliance advantages, potentially squeezing out non-compliant competitors.

Beyond the US, the European Union passed the MiCA legislation in 2023, bringing stablecoins (also known as electronic money tokens) under unified regulation, requiring them to obtain a license and meet reserve and capital requirements. Circle became the first global stablecoin issuer to comply with the MiCA framework in 2024, paving the way for its expansion into the European market. In Asia, international financial centers such as Singapore and Hong Kong are also developing stablecoin licensing systems. The Hong Kong Monetary Authority published proposals at the end of 2023 to regulate stablecoin issuance and require a 1:1 reserve ratio for Hong Kong dollar stablecoins. Japan already allows the issuance of stablecoins regulated by trust companies. Overall, major jurisdictions are competing to introduce stablecoin regulations, aiming to attract related businesses while ensuring financial stability. This policy competition benefits leading companies operating in compliance. Circle, with its multi-regional license portfolio (such as the UK FCA e-money license and Bermuda's DABA digital asset business license), is well-positioned to quickly enter various compliant markets and seize opportunities in international expansion.

4.4 Industry Trend Outlook

There are several major development trends in the stablecoin industry worth paying attention to in the next few years:

• Rapid Market Growth : Ark Invest predicts that by 2030, stablecoins could account for 0.9% of global M2, exceeding $1.4 trillion. While JPMorgan Chase remains conservative about the stablecoin market cap reaching $1 trillion by 2028, predicting only $500 billion, most institutions are more optimistic, believing that stablecoins are still in the early stages of penetration and are expected to grow 5-10 times over the next five years. As regulatory frameworks become more clarified, traditional financial institutions and financial markets are likely to adopt stablecoins on a large scale for settlement and liquidity management, such as in securities settlement pilots and as alternative settlement options in the government bond market. Standard Chartered Bank even predicts that the stablecoin market could reach $2 trillion by 2028.

• Shifting from primarily transactional use to payment and commerce : Currently, approximately 94% of stablecoin demand still comes from crypto trading and DeFi scenarios, with only about 6% used for real-world payments and settlements. With the entry of payment companies like PayPal, the integration of networks like Visa, and the legalization of stablecoins as payment tools, the proportion of payments and settlements is expected to gradually increase. A Grayscale research report dubbed 2025 the "Summer of Stablecoins," noting that major US companies (such as Amazon and Walmart) are also exploring stablecoin applications. In the future, stablecoins may be embedded in e-commerce payments, supply chain finance, gaming and entertainment, and other fields, achieving large-scale commercial payment applications.

• Deepening Integration with Traditional Finance : Stablecoins are gaining increasing recognition among traditional financial institutions. Major banks like JPMorgan Chase and Bank of America are participating in related investments or pilot programs. Trading infrastructure provider DTCC is exploring the use of stablecoins to improve settlement efficiency. US mortgage lenders are even considering including digital assets in borrowers' net worth. Stablecoins may become a tool for banks to manage liquidity and cash in the future, with some banks potentially holding USDC directly as reserve assets. US Treasury officials have also noted the role of stablecoins in purchasing US Treasury bonds, suggesting that policymakers may gradually accept and support stablecoins as a "private sector supplement" to the US financial system. It is foreseeable that stablecoin issuers may be integrated into payment systems (such as the Federal Reserve's FedNow real-time payment network), enabling seamless integration between traditional banks and on-chain digital dollars.

• Technological Evolution and Multi-Chain Layout : Stablecoins will expand to more high-performance public chains and second-layer networks to meet the needs of diverse scenarios. USDC is currently issued on over 10 blockchains (including Ethereum, Solana, Tron, Algorand, Arbitrum, etc.). In 2025, new Ethereum Layer 2 and cross-chain protocols will develop rapidly. Circle has launched the Cross-Chain Transfer Protocol (CCTP) to facilitate the circulation of USDC between different chains. Looking ahead, Circle may issue stablecoins in more currencies (such as Asia-Pacific currencies) or support the integration of CBDCs issued by central banks into its network, further solidifying its position as a global hub for digital currency circulation.

In summary, the stablecoin industry is transitioning from unregulated growth to a new phase of compliant competition. Circle, with its leading market share and regulatory advantages, is well-positioned to navigate this process. However, the industry is rapidly changing, and the company must continuously innovate and maintain robust operations to maintain growth amidst both opportunities and challenges.

5. Operational and financial performance

5.1 Historical Performance Review

User and usage growth

USDC has maintained steady growth since its launch in 2018, with a surge in supply during the 2020 DeFi boom and the 2021 bull market. At the end of 2020, USDC circulation was approximately $4 billion, and by the end of 2021, it had exceeded $42 billion. Despite the bear market in 2022, USDC circulation continued to grow to nearly $50 billion.

However, in March 2023, USDC faced a liquidity crisis due to the successive bankruptcies of crypto-friendly banks Silvergate and Signature, leading to a sharp increase in redemption demand and a brief de-pegging. Although the Circle team responded promptly and successfully completed all redemptions, the incident still caused the circulating supply of USDC to drop rapidly from 43 billion to 30 billion within a month.

From 2024 to 2025, driven by favorable regulatory policies and accelerated institutional adoption, USDC's circulation gradually recovered. In March 2025, its circulation returned to a record high of $60 billion. Subsequently, with the passage of the GENIUS ACT, USDC's circulation continued to reach new highs, currently exceeding 72 billion.

In terms of users, the cumulative number of on-chain addresses exceeded 8.5 million in 2022, with monthly active addresses exceeding 1.1 million. By 2025, the average daily active addresses reached approximately 280,000, with annual transaction volume increasing by 118%. The scale of on-chain transactions also expanded significantly: as of mid-2025, USDC's total on-chain transaction volume over the previous 12 months reached approximately $17.5 trillion, primarily driven by large-scale transfers from exchanges and DeFi protocols. These data demonstrate that USDC has become one of the most widely used stablecoins in the blockchain ecosystem, with a solid user and ecosystem foundation.

Assets, liabilities and cash flow

Circle's balance sheet structure is relatively simple. The largest asset is the investment corresponding to its USDC reserves, which has an equivalent USDC liability and is not included in shareholders' equity.

Excluding reserve assets, the company's assets primarily consist of raised funds and retained earnings. After raising $1.05 billion in its 2025 IPO, according to its Q2 report, the company currently has over $1.1 billion in cash reserves. Furthermore, Circle raised $455 million on August 15th through a 3.5 million share offering at $130 per share, ensuring a relatively ample cash balance. Circle has no long-term interest-bearing debt, and its business model requires virtually no leverage (reserve assets represent user funds and are not considered company loans).

In terms of operating cash flow, influenced by the characteristics of USDC's business, Circle's daily operating cash flow primarily comes from interest income, which is very healthy. Net operating cash flow is expected to exceed $1 billion in 2024, significantly exceeding capital expenditures and dividends (Circle has not yet distributed a dividend, retaining all profits). Therefore, the company's financial structure is sound, with sufficient capital to cope with market fluctuations and support new business investments.

Revenue and profit trends

Circle's income can be divided into two categories: interest income and non-interest income, among which interest income (i.e., USDC reserve investment income) is absolutely dominant.

Circle's business model is essentially to earn the interest rate difference between "user deposit costs" and "reserve investment income", which is similar to banks, so changes in interest rates have a greater impact on Circle's revenue.

During the Federal Reserve's zero interest rate policy in 2020, Circle's total revenue was only $15.4 million, primarily from miscellaneous fees such as trading. Starting in the second half of 2021, as USDC supply expanded and interest rates rebounded, reserve interest became a core source of revenue, and revenue jumped to $84.9 million that year. A rapid rise in interest rates in 2022 (the federal funds rate reached 4.5% by year-end), coupled with a doubling of USDC's annual circulation, saw the company's annual revenue surge to $772 million.

In 2023, with the Federal Reserve raising interest rates to over 5% and maintaining them high, Circle's full-year revenue will further double to approximately $1.43 billion. In 2024, Circle's full-year revenue will reach $1.676 billion, a 15.6% year-on-year increase, a slower growth rate. In the first quarter of 2025, the company achieved revenue of approximately $579 million, a record high. If this pace is annualized, Circle's full-year revenue in 2025 is expected to exceed $2.3 billion, demonstrating strong profitability in a high-interest rate environment.

Non-interest income (including API service fees and transaction fees) has consistently accounted for less than 1% of total revenue. This is because Circle proactively made USDC issuance and redemption free to encourage ecosystem usage and did not charge users a minting fee. While this strategy sacrificed some direct revenue, it significantly facilitated the rapid expansion of the stablecoin ecosystem. Over the long term, as payment, API, and other businesses develop, the proportion of non-interest income is expected to increase, but in the short term, it will remain low.

The following table summarizes Circle's key performance data for 2020-2024 (all in US$ billion).

We will now analyze in detail the key drivers of Circle’s financial metrics:

5.2 Key drivers

Key drivers of Circle’s financial metrics include USDC supply, short-term U.S. Treasury bond interest rates, and the proportion of distribution and transaction costs.

5.2.1 USDC Supply

The supply of USDC directly determines the size of Circle's reserves, which in turn affects its asset base for generating interest income. Circle's revenue is significantly positively correlated with the amount of USDC in circulation. Changes in the USDC supply are primarily determined by the following two factors:

(1) The overall prosperity of the stablecoin market :

The stablecoin market is booming, and the supply of USDC, currently the second-largest stablecoin, has naturally surged. Currently, the stablecoin market is primarily driven by the bull and bear cycles of cryptocurrencies. During bull markets, crypto trading and DeFi activity are active, driving demand for stablecoins and driving USDC supply expansion; bear markets experience the opposite effect.

(2) USDC’s own competitiveness :

If USDC itself has a clear advantage over other stablecoins, it will increase its share of the total stablecoin supply, thereby increasing USDC's supply. If Circle can continue to leverage its advantages in compliance and transparency, seize opportunities presented by regulatory policies, and expand its application in traditional financial scenarios, USDC's share of the total stablecoin supply is expected to increase further.

Currently, the overall crypto market is projected to be on an upward trajectory from 2023 to 2025, providing continued growth momentum for stablecoins like USDC. Demand from other sectors, such as payments, is also growing, and the overall stability of the stablecoin market is expected to continue to strengthen. With the gradual clarification of regulatory policies, USDC's competitiveness has increased relative to its main competitor, USDT. Furthermore, USDC has recently begun collaborating frequently with centralized exchanges, using operational measures (subsidizing exchanges to indirectly return a portion of the reserve interest to users) to increase USDC holdings and enhance its competitiveness. Both factors will drive an increase in USDC supply.

5.2.2 Short-term US Treasury bond interest rates

Short-term US Treasury bond rates are another key variable in determining Circle's interest income. The Federal Reserve's aggressive rate hikes in 2022-2023, pushing rates to 5.25%, pushed Circle's effective average yield (after deducting some non-interest-bearing cash) to 2.68% in 2024. Excluding Coinbase's share, this yield corresponds to an overall return on reserve assets of approximately 5%, roughly in line with the three-month US Treasury bond rate over the same period.

Comparing USDC supply, short-term interest rates, and Circle's revenue also shows that interest rate fluctuations are more dramatic than changes in USDC supply, so interest rate fluctuations have a more significant impact on Circle's operating income. For example, USDC supply in 2023 will be significantly lower than in 2022, but Circle's revenue will double due to the rapid rise in interest rates. USDC supply in 2024 will also be much higher than in 2023, but due to the decline in interest rates, Circle's revenue in 2024 will only increase by 15% compared to 2023.

Looking ahead, there's some uncertainty about interest rate trends, but the market generally anticipates a period of rate cuts. According to an ARK report, if the Federal Reserve cuts interest rates by 2 percentage points to around 3% starting in 2025, Circle's annual interest income could decrease by approximately $631 million (2024 data), and its net profit would shift from a profit of $156 million to a loss of $475 million. This demonstrates that declining interest rates have a significant impact on Circle's profitability. Conversely, if interest rates remain high or even rise further, Circle's profits will rapidly increase.

It is generally expected that the Federal Reserve will gradually cut interest rates to a neutral level (about 2-3%) in 2025-2026, which means that Circle's interest income growth rate may slow down or even decline in absolute terms.

5.2.3 Distribution and Transaction Cost Ratio

Distribution and transaction costs are Circle's primary direct cost item. In 2024, this expense reached $1.01 billion, representing 60% of the company's total revenue. Of this, revenue sharing fees paid to core partner Coinbase reached $908 million, representing 54% of total revenue. Distribution and transaction costs primarily include USDC distribution incentives paid to partners, on-chain transaction-related expenses, and reserve asset management fees.

1. Coinbase's profit sharing mechanism

The vast majority of USDC distribution incentives go to Coinbase, stemming from the long-standing and complex partnership between the two parties. The current partnership agreement is valid from August 2023 to August 2026, with details on whether it will be renewed or adjusted after expiration. The profit-sharing mechanism can be summarized as follows: Coinbase first receives a share of net profits proportional to the USDC it holds in custody, and then receives 50% of the remaining net profits. Specific terms include:

• First, the payment base is determined. The payment base is based on the daily income generated by the reserves backing USDC, minus third-party management fees (such as asset management and custody fees) and other related expenses.

• Circle retains a certain percentage of revenue (approximately between 0.08% and 0.2% annualized, "low-double-digit basis point to high tenth of a basis point") to cover the indirect costs of issuing stablecoins and managing reserves, such as accounting, finance, regulation and compliance.

• Coinbase receives a daily share of the payment base’s net profit based on the proportion of USDC held in its custody or managed wallets. For example, if Coinbase custody holds 20% of USDC, it will first receive 20% of the payment base.

• After deducting the amounts payable to other approved participants (such as Binance, Bybit, etc.), Coinbase will also receive 50% of the remaining payment base.

Actual profit sharing:

• In 2022–2024, Coinbase's weighted average USDC custody ratio was 3%, 8% and 18% respectively.

• During the same period, Coinbase's revenue from Circle was US$248.1 million, US$691.3 million and US$907.9 million, respectively, accounting for the vast majority of distribution and transaction costs.

• In 2022–2024, Circle’s reserve income was US$735.9 million, US$1.4306 billion, and US$1.6611 billion, respectively, of which Coinbase’s share accounted for 33.7%, 48.32%, and 54.65%, respectively.

Data from the first quarter and first half of 2025 show that Coinbase held 7.594 billion and 7.275 billion USDC in custody, respectively, representing 12.6% and 11.86% of the circulating supply of USDC at the time, a decrease from the 2024 average. Coinbase's average custody ratio is projected to be between 11.8% and 12.3% in 2025, with its share of Circle's reserve revenue projected to remain between 50% and 53%.

2. Collaboration with other exchanges

In addition to Coinbase, Circle is also actively expanding into other distribution channels. In November 2024, Circle reached a two-year strategic partnership with Binance, paying it a one-time upfront fee of US$60.25 million and agreeing to pay monthly incentive fees.

This incentive fee is calculated as a percentage (annualized interest rate) of the amount of USDC held on Binance's platform and in its treasury. The benchmark is the three-month SOFR rate (approximately equal to the Circle Reserve Composite Rate), and is reset quarterly at a discount to SOFR. The incentive percentage increases as the amount of USDC held by Binance grows, ranging from a "mid- to high-double-digit percentage" of the benchmark interest rate.

For example, assuming the discount-adjusted base rate for the current quarter is 5%:

• If Binance holds 3 billion USDC (the agreed-upon level), the incentive ratio will be approximately 50% of the base rate (a mid-double-digit percentage), with an annualized incentive rate of 2.5%. Circle will pay Binance approximately $75 million annually.

• If the holdings increase to 4.8 billion, the incentive ratio can reach 80% (a high double-digit percentage), and the annualized incentive rate is 4%. Circle will need to pay approximately US$216 million each year.

The agreement requires Binance to hold at least 1.5 billion USDC, and typically more than 3 billion. In short, under this partnership, Binance will also receive a share of USDC reserve interest proportional to its holdings of USDC in circulation. However, unlike Coinbase, Binance does not receive the full amount of reserve interest, but only a "mid-double-digit to high-double-digit percentage." According to the latest reserve data, Binance holds 8.15 billion USDC, representing 11.3% of the circulating supply, far exceeding 3 billion, and is expected to receive a share of the "high double-digit percentage." In July 2025, Circle and Bybit also reached a similar USDC revenue-sharing arrangement, the specific details of which have not been disclosed.

Collaboration with exchanges has become Circle's primary method for expanding USDC circulation, incentivizing partners to hold and promote USDC by ceding a portion of the reserve interest. While this strategy has been effective, it has also resulted in a significant diversion of Circle's interest income.

From a shareholder perspective, Circle retains all of its USDC interest income primarily held by decentralized exchanges. The circulating supply of this type of USDC has a more direct impact on the company's EBITDA. Notably, the decentralized derivatives exchange Hyperliquid currently holds approximately 7.5% of the total circulating supply of USDC, making it a favorite USDC holder among Circle shareholders. However, Hyperliquid recently launched an open call for teams to develop its own stablecoin, USDH, which could significantly impact this portion of USDC holdings.

In summary, Circle's distribution and transaction costs are likely to rise further in the future. We estimate these costs to represent 60%–63% of reserved revenue in 2025 (compared to 38.99%, 50.31%, 60.85%, and 60.08% in 2022–2024 and the first quarter of 2025, respectively). This will continue to squeeze Circle's profit margins and put pressure on the company's overall profitability.

5.2.4 On-chain transaction costs

On-chain transaction costs primarily include gas fees, custody fees, and fees paid to the underlying blockchain protocols, all incurred by Circle to support USDC's multi-chain operation. While this cost is relatively small compared to large interest payments (typically a few percentage points of revenue), its specific amount fluctuates depending on blockchain network congestion. For example, when mainnet like Ethereum are congested, large USDC minting and burning operations incur higher gas fees.

To address these expenses, Circle holds approximately $31 million in crypto assets on its balance sheet, specifically to cover on-chain transaction costs. Looking ahead, with the gradual launch and promotion of Circle's proprietary blockchain, ARC, on-chain transaction efficiency is expected to improve, significantly reducing related costs.

5.2.5 Reserve management fees

Circle has partnered with BlackRock to manage USDC's reserve assets. Under the latest agreement, BlackRock will manage approximately 90% of the USDC reserves and pledge to prioritize Circle's stablecoin business. In return, BlackRock will receive investment management and custody fees based on assets under management, totaling approximately $100 million annually.

This fee is financially included as transaction costs, effectively eroding returns on some stablecoin assets, and will account for approximately 6% of Circle's total revenue in 2024. If USDC continues to expand and market interest rates enter a downward cycle, BlackRock's management fees (accrued based on asset size) may increase as a percentage of revenue, as fees are accrued based on assets under management, and interest income is proportional to the interest rate.

Overall, if Circle's revenue-sharing arrangement with Coinbase remains unchanged after the 2026 renewal, we estimate Circle's distribution and transaction costs (DTC) as a percentage of revenue will slowly increase from 60% in 2024, remaining in the 60%-63% range by 2028. This ratio is subject to uncertainty: if Circle continues to incentivize circulation through partnerships with centralized exchanges, the cost ratio may remain high; however, increasing the proportion of directly connected users will help reduce costs.

Every one percentage point change in distribution cost will have a significant impact on Circle's overall profitability. Therefore, the company needs to carefully balance ecosystem expansion with profitability, while actively pursuing technology upgrades (such as the ARC Chain) and optimizing its partnership structure to achieve long-term cost control.

5.2.6 Summary and Outlook

Of the three core drivers of Circle’s financial performance—USDC supply, short-term U.S. dollar interest rates, and distribution and transaction costs—we believe only USDC supply is expected to show positive growth in the future.

The decline in short-term US dollar interest rates will directly reduce Circle's interest income. In an extreme scenario, if the Federal Reserve re-imposes its zero interest rate policy from 2020 to 2022, Circle's revenue based on its current business model will shrink significantly, forcing the compa