Circle IPO Interpretation: The Growth Potential Behind Low Interest Rate

In the stage where the industry is accelerating its clearance, Circle chooses to go public, hiding a seemingly contradictory yet imaginative story—while the net interest rate continues to decline, it still harbors enormous rise potential. On one hand, it boasts high transparency, strong regulatory compliance, and stable reserve income; on the other hand, its profitability appears surprisingly "mild"—the net interest rate for 2024 is only 9.3%. This apparent "inefficiency" does not stem from a failure of the business model, but rather reveals a deeper growth logic: against the backdrop of gradually dissipating high interest rate dividends and a complex distribution cost structure, Circle is building a highly scalable and compliance-first stablecoin infrastructure, with its profits strategically "reinvested" into market share enhancement and regulatory leverage. This article will follow Circle's seven-year journey to going public, deeply analyzing the growth potential and capitalization logic behind its "low net interest rate" from corporate governance, business structure to profitability model.

1 Seven-Year Listing Marathon: A History of Cryptocurrency Regulation Evolution

1.1 Paradigm Shift in Three Capitalization Attempts (2018-2025)

The listing journey of Circle can be regarded as a living specimen of the dynamic game between cryptocurrency enterprises and regulatory frameworks. The initial IPO attempt in 2018 occurred during a period of ambiguity regarding the classification of cryptocurrencies by the U.S. Securities and Exchange Commission. At that time, the company formed a "payment + trading" dual-drive model through the acquisition of a certain exchange and secured $110 million in financing from several well-known institutions. However, doubts from regulatory agencies about the compliance of the exchange's operations and the sudden impact of a bear market led to a valuation drop of 75% from $3 billion to $750 million, exposing the fragility of early-stage cryptocurrency business models.

The SPAC attempts in 2021 reflected the limitations of regulatory arbitrage thinking. Although merging with a company could circumvent the stringent scrutiny of traditional IPOs, the SEC's inquiries into the accounting treatment of stablecoins hit the nail on the head—requiring Circle to prove that USDC should not be classified as a security. This regulatory challenge led to the collapse of the transaction but unexpectedly propelled the company to complete a critical transformation: divesting non-core assets and establishing "stablecoin as a service" as its strategic focus. From that moment until today, Circle has fully committed to building USDC compliance and is actively applying for regulatory licenses in multiple countries around the world.

The IPO choices for 2025 mark the maturation of the capitalization path for crypto enterprises. Listing on the New York Stock Exchange not only requires meeting the full disclosure requirements of relevant regulations but also undergoes internal control audits. Notably, the S-1 filing disclosed for the first time the reserve management mechanism in detail: of the approximately $32 billion in assets, 85% is allocated through a certain fund to overnight reverse repurchase agreements, and 15% is held at systemically important financial institutions. This transparent operation effectively constructs an equivalent regulatory framework to traditional money market funds.

1.2 Cooperation with a certain trading platform: from ecological co-construction to subtle relationships

As early as the launch of USDC, the two collaborated through a certain alliance. When this alliance was established in 2018, a certain trading platform held 50% of the shares and quickly opened up the market through a "technology output for traffic entrance" model. According to Circle's IPO documents disclosed in 2023, it acquired the remaining 50% stake from a certain trading platform with $210 million in stock, and the revenue-sharing agreement regarding USDC was also renegotiated.

The current revenue sharing agreement is based on the terms of a dynamic game. According to the S-1 disclosure, the two parties share revenue based on USDC reserve income at a certain ratio, which is related to the amount of USDC supplied by a certain trading platform. From public data, it is known that in 2024, this platform holds approximately 20% of the total circulating supply of USDC. By securing a 20% supply share, this trading platform takes away about 55% of the reserve income, posing some risks for Circle: as USDC expands outside of its ecosystem, the marginal cost will rise non-linearly.

2 USDC Reserve Management and Equity and Shareholding Structure

2.1 Reserve Requirement Tiered Management

The reserve management of USDC shows a clear characteristic of "liquidity layering":

• Cash (15%): Held in systemically important financial institutions to respond to sudden redemptions.
• Reserve Fund (85%): Fund allocation managed by a certain asset management company.

Starting from 2023, USDC reserves are limited to cash balances in bank accounts and reserve funds, with its asset portfolio primarily consisting of U.S. Treasury securities with a remaining maturity of no more than three months and overnight U.S. Treasury repurchase agreements. The dollar-weighted average maturity of the asset portfolio does not exceed 60 days, and the dollar-weighted average duration does not exceed 120 days.

2.2 Equity Classification and Layered Governance

According to the S-1 filing submitted to the SEC, Circle will adopt a three-tier equity structure after going public:

• Class A shares: Common stock issued during the IPO process, each share enjoys one vote.
• Class B shares: held by the co-founders, each share has five votes, but the total voting power is capped at 30%, ensuring that even after going public, the core founding team retains decision-making control.
• Class C shares: No voting rights, convertible under specific conditions, ensuring that the corporate governance structure complies with the rules of the New York Stock Exchange.

This equity structure aims to balance public market financing with the stability of the company's long-term strategy, while ensuring that the executive team retains control over key decisions.

2.3 Distribution of Executive and Institutional Shareholdings

The S-1 filing discloses that the executive team holds a significant amount of shares, while several well-known venture capital firms and institutional investors each hold more than 5% of the equity, with these institutions collectively holding over 130 million shares. An IPO with a valuation of $5 billion can bring them significant returns.

3 Profit Models and Revenue Breakdown

3.1 Revenue Model and Operational Metrics

• Sources of Revenue: Reserve income is the core revenue source for Circle. Each USDC token is backed by an equivalent amount of US dollars, and the reserve assets primarily include short-term U.S. Treasury bonds and repurchase agreements, generating stable interest income during high-interest periods. According to S-1 data, total revenue for 2024 is projected to reach $1.68 billion, with 99% (approximately $1.661 billion) coming from reserve income.
• Revenue sharing with partners: The cooperation agreement with a certain trading platform stipulates that the platform receives 50% of the reserve income based on the amount of USDC held, resulting in relatively low income actually belonging to Circle, which has dragged down the net profit performance. Although this revenue sharing ratio has impacted profits, it is also a necessary cost for Circle to build an ecosystem with partners and promote the widespread use of USDC.
• Other income: In addition to reserve interest, Circle also increases revenue through enterprise services, USDC Mint business, cross-chain fees, etc., but the contribution is small, only 15.16 million dollars.

3.2 The Paradox of Income Rise and Profit Shrinkage (2022-2024)

Behind the apparent contradictions lies a structural motivation:

• Converging from multiple to a single core: From 2022 to 2024, Circle's total revenue rose from $772 million to $1.676 billion, with a compound annual growth rate of 47.5%. Among them, reserve revenue has become the company's core source of income, with its share rising from 95.3% in 2022 to 99.1% in 2024. This increase in concentration reflects the successful implementation of its "stablecoin as a service" strategy, but it also means that the company's dependence on macro interest rate changes has significantly increased.
• Distribution expenses surge compresses gross profit space: Circle's distribution and transaction costs have significantly increased over three years, jumping from $287 million in 2022 to $1.01 billion in 2024, a rise of 253%. These costs are mainly used for the issuance, redemption, and payment settlement system expenses of USDC. As the circulation of USDC expands, this expenditure rigidly grows.
• Due to the inability to significantly compress these costs, Circle's gross margin rapidly declined from 62.8% in 2022 to 39.7% in 2024. This reflects that while its ToB stablecoin model has scale advantages, it will face systemic risks of profit compression during the interest rate decline cycle.
• Profitability has turned around but the margin has slowed: Circle officially turned a profit in 2023, with a net profit of $268 million and a net margin of 18.45%. Although it continued to be profitable in 2024, the disposable income after operating costs and taxes was only $101,251,000. After adding $54,416,000 in non-operating income, the net profit was $155 million, but the net margin has dropped to 9.28%, approximately halving year on year.
• Cost rigidity: It is noteworthy that the company's investment in general administrative expenses reached $137 million in 2024, a year-on-year rise of 37.1%, marking three consecutive years of growth. Combined with the information disclosed in its S-1, this expenditure is mainly used for global licensing applications, auditing, and the expansion of legal compliance teams, which confirms the cost rigidity brought about by its "compliance first" strategy.

Overall, Circle completely broke away from the "exchange narrative" in 2022, achieved a profitability turning point in 2023, and successfully maintained profits in 2024, although the growth rate slowed down. Its financial structure has gradually aligned with traditional financial institutions.

However, its revenue structure, which is highly dependent on the spread of U.S. Treasury interest rates and trading volume, also means that once it encounters a period of declining interest rates or a slowdown in USDC growth, it will directly impact its profit performance. In the future, for Circle to maintain sustainable profitability, it needs to seek a more robust balance between "cost reduction" and "growth expansion."

The deeper contradiction lies in the defects of the business model: as USDC's attributes as a "cross-chain asset" are enhanced (with an on-chain transaction volume of $20 trillion in 2024), its currency multiplier effect actually weakens the profitability of the issuer. This is analogous to the dilemmas faced by traditional banking.

3.3 low Intrerest Rate behind the rise potential

Despite Circle's net interest rate being under pressure due to high distribution costs and compliance expenses (with a net profit margin of only 9.3% in 2024, a 42% year-on-year decline), its business model and financial data still hide multiple rise drivers.

The continuous increase in circulation drives stable rise in reserve income:

According to data from a certain platform, as of early April 2025, the market value of USDC has exceeded $60 billion, second only to a competitor's $144.4 billion; by the end of 2024, USDC's market share has risen to 26%. On the other hand, the market value growth of USDC in 2025 continues to maintain strong momentum. The market value of USDC has increased by $16 billion in 2025. Considering that its market value was less than $1 billion in 2020, the compound annual growth rate (CAGR) from 2020 to early April 2025 has reached 89.7%. Even if the growth rate of USDC slows down in the remaining 8 months, its market value is still expected to reach $90 billion by the end of the year, and the CAGR will rise to 160.5%. Although reserve income is highly sensitive to Intrerest Rate, low Intrerest Rate may stimulate USDC demand, and strong scale expansion can partially offset the down risk of Intrerest Rate.

Structural optimization of distribution costs: Although high commissions are paid to a certain trading platform in 2024, this cost has a non-linear relationship with the rise in circulation volume. For example, collaborating with another trading platform only incurs a one-time fee of $60.25 million, which boosts its platform's USDC supply from $1 billion to $4 billion, resulting in a significantly lower customer acquisition cost compared to a certain trading platform. Combined with the S-1 document, Circle's collaboration plan with this trading platform suggests that Circle can achieve market value growth at a lower cost.

Conservative valuation does not price in market scarcity: Circle's IPO valuation is estimated between $4 billion to $5 billion, based on an adjusted net profit of $200 million, with a P/E ratio between 20 to 25x. This is similar to traditional payment companies and seemingly reflects the market's positioning of "low growth and stable profitability," but this valuation system has not fully priced in its value as the only pure stablecoin asset in the US stock market. Unique assets in niche segments usually enjoy a valuation premium, which Circle has not accounted for. At the same time, if stablecoin-related legislation is successfully implemented, offshore issuers will need to significantly adjust their reserve structures, while existing compliance frameworks can be directly transferred, resulting in a "regulatory arbitrage termination dividend."