Author: Leo Z
I. What is a Circle?
Circle is the issuer of USDC. USDC is the world's second-largest stablecoin, with a circulating supply of approximately $77 billion. Each USDC is backed by an equivalent amount of US dollar assets (mainly short-term US Treasury bonds) as reserves.
Circle's revenue stream is simple: it invests these reserves in US Treasury bonds, earning the interest rate spread. Total revenue in FY2025 was $2.75 billion, 95% of which came from reserve interest. It is scheduled to go public in June 2025, with a current market capitalization of approximately $15-20 billion.
The market's pricing of Circle is essentially equal to "USDC circulating supply × interest rate × conservative multiple". This means that if you consider Circle simply an interest-earning company, the current pricing is roughly reasonable. However, if you believe it is transforming into a fee-based digital dollar infrastructure network, then the current price does not reflect that value at all.
This article aims to answer the following questions: Is a transformation taking place? How much evidence is there? And how much is it worth?
II. Core Question: Is USDC being "held" or "used"?
Before discussing valuation, let's answer a question that's more important than any financial model.
With the same $77 billion USDC, if Circle is merely used by institutions to earn interest spreads, it's an interest rate-sensitive financial company with a valuation of 10-15x. However, if it's being frequently used for payments, settlements, cross-border transfers, and developer inquiries, Circle is growing into a fee-based infrastructure network with a valuation of 25-30x.
Two key data points can help you make a judgment:
First, the growth rate of on-chain transaction volume for USDC far exceeds the growth rate of its circulating supply. In FY2025, the circulating supply of USDC increased by 72%, but the on-chain transaction volume increased by 247%. This means that every US dollar of USDC is being used more frequently. This is not a matter of "increased supply," but rather "faster flow."
Second, USDC has surpassed USDT to become the largest settlement asset. Visa Onchain Analytics removes approximately 85% of on-chain noise (bots, internal exchange transfers, high-frequency arbitrage). After adjustment, USDC accounts for 64% of real economic settlements (Mizuho, February 2026), while USDT accounts for only about 28%—despite USDT's circulating supply being 2.4 times that of USDC.
This gap itself is the strongest signal: USDC is transforming from "an asset people hold" into "a network people use." But this transformation is not yet complete—we'll discuss the conditions required for this to be confirmed later.
III. Three-tiered income structure
Circle's revenue is tiered. The market is currently pricing almost exclusively in the first tier.
First layer: USDC interest income – How does Circle make money today?
USDC is the starting point for Circle and currently generates 95% of its revenue. As of the end of 2025, the circulating supply of USDC was $75.3 billion, representing a year-on-year increase of 72%, far exceeding Circle's own annualized growth target of 40%.
The income logic is simple: about 80% of USDC reserves are invested in short-term US Treasury bonds (through the USDXX fund managed by BlackRock), earning interest rate spreads.
Interest income ≈ Average USDC circulation × Reserve yield
The reserve yield for Q4 2025 was 3.81%, a decrease of 68 basis points from the previous quarter. This exposes a core contradiction: circulation is growing rapidly, but interest rates are falling, and the two are offsetting each other. If the Federal Reserve's target rate falls to 3%, Circle would need USDC to grow to over $150 billion to maintain its current revenue level.
Structural problem: Coinbase takes the lion's share of the revenue. Under the revenue-sharing agreement signed in 2023, Coinbase receives 100% of the interest earned on the USDC platform, while taking 50% of the interest earned outside the platform. In FY2025, for every $1 in interest Circle earned, approximately 60 percent went to its distribution partners.
The good news is that profit margins are improving. RLDC (Revenue Less Distribution Costs) margin expanded from 30.0% in Q4 2024 to 40.1% in Q4 2025. Net income margin was 1.2-1.8%, excluding Coinbase commission and operating costs.
Second tier: Payment and transaction revenue – a growing new business
This is the key to whether Circle can shed its "interest rate company" label.
CPN (Circle Payments Network) launched in May 2025, providing banks, payment companies, and businesses with 24/7 cross-border settlement based on USDC. As of February 2026, its annualized TPV reached $5.7 billion, representing approximately 100-fold growth since its launch. 55 institutions have already joined, 74 are under review, and over 500 are on the pipeline. It covers 14 markets including Brazil, Canada, Hong Kong, India, Mexico, Nigeria, and the United States.
However, $5.7 billion is still less than 0.04% of the global cross-border payments market of $16 trillion. CPN's value lies not in its current size, but in its ability to sustain growth. If it can capture 1% of the cross-border market, that's $160 billion in annualized transaction volume—the resulting fees could approach or even exceed interest income, and be unaffected by interest rates.
CCTP (Cross-Chain Transfer Protocol) enables native cross-chain transfers of USDC through a "burn-mint" process. In Q4 2025, it processed $41.3 billion, a 3.7-fold year-over-year increase. USDC's cross-chain market share rose from 25% at the end of 2024 to 62% in January 2026, covering 30 chains. CCTP V2 introduced Fast Transfer fees—a new source of revenue.
Other revenue (non-interest income) is the most direct evidence of this transformation. In FY2025, it surged from $3 million/quarter to $37 million/quarter, including $24.7 million from subscription services, $12.2 million from transaction revenue, and $7 million from Canton Network validator revenue. Management guides for $150-170 million in 2026.
This portion of revenue is unaffected by interest rates and does not require revenue sharing with Coinbase. When it exceeds 10% of total revenue, the market may start to view Circle using different valuation methods. Currently, it's around 4%.
Third layer: Settlement platform – long-term possibility
Arc is Circle's institutional-grade settlement chain, planned for mainnet launch in 2026, with USDC as its native gas token. The testnet has already processed over 166 million transactions with a confirmation time of 0.5 seconds, and has attracted participation from over 100 institutions (including Goldman Sachs and Mastercard).
Arc's roadmap is divided into four phases:
M1 Public Testnet (Completed) → M2 Real Funds On-Chain (2026) → M3 Implementation of Margin/Collection/Settlement Scenarios (2027-28) → M4 Writing into Institutional Standard Operating Procedures (2029-30)
Before M2, Arc's value was zero. But if it eventually becomes the institutional-grade settlement standard, Circle's value will no longer be that of a "fee-charging company," but rather a "platform company." This is a necessary condition for returns of 10x or more.
IV. Determining if a transformation is underway: Seven dimensions
Looking at any single metric can easily lead to misjudgment. The key is to see if multiple dimensions are improving simultaneously—when scale, activity, profit margin, new revenue, and user growth all point in the same direction, transformation is underway.
V. Three Most Important Tracking Indicators
① USDC circulating supply (check daily)
The base for Circle's income. Circulating supply × Reserve yield = Interest income. The "quarterly average circulating supply" should be tracked, not the year-end snapshot. Currently, it's approximately $77 billion.
Data source: defillama.com/stablecoin/usd-coin (daily updates), circle.com/transparency (weekly proof of reserves)
② The percentage of USDC in Visa's adjusted transaction volume (viewed weekly)
To answer the core question: Is USDC being used or held? It accounts for only 25% of the supply, but 64% of the adjusted trading volume—each USDC does 2-3 times more work than USDT.
Data source: visaonchainanalytics.com → Filter by Stablecoin → Click "Show % of Total" → Read the USDC line.
③ Other Revenue (Non-interest income, viewed quarterly)
The only direct indicator that proves Circle earns money beyond interest. It's unaffected by interest rates and doesn't share revenue with Coinbase. Currently $37 million/quarter, with guidance of $150-170 million (2026). The valuation methodology will change when it surpasses 10% of total revenue.
Data source: circle.com/pressroom (quarterly financial reports), SEC EDGAR search Circle Internet Group
VI. Recent Catalysts
Coinbase revenue sharing agreement expires (August 2026)
This is the biggest single catalyst in 24 months. Currently, Circle shares about 60% of its revenue with partners. If RLDC's profit margin increases from 40% to 50-55% after renegotiation, the effect would be an instantaneous increase of 25-35% in profits. However, Coinbase has no incentive to make significant concessions—USDC distribution on the Coinbase platform remains Circle's biggest growth engine. The outcome is uncertain, but the direction is likely to be better than the current situation.
OCC National Trust Bank License
Conditional approval is expected in December 2025. Full approval means: a direct master account can be opened at the Federal Reserve (earning IORB interest rates and eliminating counterparty risk), bypassing commercial banks to handle the annual $483 billion minting/redemption flow, and establishing an insurmountable trust barrier for businesses and governments to adopt USDC. No other stablecoin issuer has this.
x402 Foundation (established in April 2026)
Coinbase has contributed its x402 payment protocol to the Linux Foundation. x402 activates the HTTP 402 status code as an internet-native payment layer, allowing AI agents, APIs, and applications to settle directly in HTTP interactions—using USDC by default.
Participants include: Google, AWS, Stripe, Visa, Mastercard, Amex, Shopify, Microsoft, Cloudflare, and Circle. If x402 becomes the payment standard for AI agents, each machine-to-machine microtransaction will increase USDC usage (velocity) without requiring an increase in supply.
Note: x402 is led by Coinbase, not Circle. Impact on CRCL: Mildly bullish, expands the use cases for USDC, but does not change the fundamental magnitude.
VII. Conditions for 5-10 times return
3-5x (High Confidence) – Growth purely driven by USDC
USDC, at a 40% CAGR, will reach approximately $200-300 billion by 2028. Even if interest rates drop to 3%, $250 billion × 1.5% net interest margin = $3.75 billion in net income. At a 20x leverage, this translates to a market capitalization of $75 billion. From the current $15-20 billion to $75 billion, this represents approximately a 4x leverage. No contribution from CPN or Arc is required.
10x (requires multiple conditions to be met simultaneously)
The change from $15-20B to $150-200B must occur simultaneously:
1. CPN TPV will exceed $100 billion within 2-3 years, with at least one major corridor entering formal production.
2. Coinbase's revenue sharing agreement improved, RLDC's profit margin reached 50%+
3. Other revenue exceeds 10% of total revenue, proving the existence of scalable non-interest income.
4. Arc has at least reached the M2 stage (real funds are on-chain) and has begun to be priced by the market.
Of these four conditions, only the second (profit margin) is showing clear improvement. 10x is a position you "earn," not a position you "gamble."
VIII. Major Risks
Interest rates are falling faster than USDC is growing.
This signal already appeared in Q4 2025: interest rates fell by 68 basis points, partially offsetting 100% of the increase in circulation. If the Fed lowers rates to 2.5-3% in 2026-2027, there could be a window of 1-2 quarters of earnings falling short of expectations.
Tether Compliance
USDC's biggest differentiating advantage is compliance. However, Tether earned $10 billion in the first three quarters of 2025 and is currently in talks with the Big Four accounting firms for a full audit. If Tether achieves compliance status within 2-3 years, USDC's differentiating advantage will be significantly weakened. USDT currently holds over 60% market share and has a market capitalization of $183 billion—it has ample resources.
Competition from new yield-generating stablecoins & payment giants like Stripe
New stablecoins like Ethena (USDe) and Sky are gaining market share by directly paying returns to holders. Circle, however, is currently unable to directly pay interest to USDC holders due to regulatory compliance constraints.
Stripe is a founding member of the x402 Foundation and is also building its own stablecoin payment system. Stripe's strategy is to integrate with all potentially winning standards—its inclusion does not imply exclusive support for USDC, nor does it rule out the possibility of Stripe launching its own stablecoin or deeply integrating USDT in the future.
IX. Conclusion
Circle is not a company "certainly destined to become a trillion-dollar company." But it may be one of the few fintech companies currently possessing the structural conditions to reach that ceiling.
Current pricing reflects almost exclusively USDC interest income. The market is asking: Is Circle an interest rate-driven financial company or a fee-based digital dollar infrastructure? The answer is not yet clear—but the data is leaning towards the latter.
The core of the tracking boils down to three things: whether the circulating supply of USDC is increasing, whether each US dollar in USDC is being used more frequently, and whether income beyond interest is growing. When all three improve simultaneously, a transformation is underway.
Data sources: Circle IR, SEC EDGAR, DefiLlama, Visa Onchain Analytics, Artemis Terminal, CoinDesk, Mizuho Research
Disclaimer: This article does not constitute investment advice. All data is as of April 2026.
