Circle IPO Analysis: Growth Potential Behind Low Intrerest Rate

Amid the accelerated reshuffling in the industry, Circle has chosen to go public, hiding a seemingly contradictory yet imaginative story—net interest rates are continuously declining, yet it still harbors great growth potential. On one hand, the company boasts high transparency, strong regulatory compliance, and stable reserve income; on the other hand, its profitability appears exceptionally "mild"—with a net interest rate of only 9.3% in 2024. This apparent "inefficiency" does not stem from a failed business model but rather reveals a deeper growth logic: against the backdrop of gradually diminishing high-interest rate dividends and a complex distribution cost structure, Circle is building a highly scalable, compliance-first stablecoin infrastructure, with its profits strategically "reinvested" into market share enhancement and regulatory leverage. This article will trace Circle's seven-year public listing journey, deeply analyzing its growth potential and capitalization logic "behind the low net interest rate" from the perspectives of corporate governance, business structure, and profitability model.

1. Seven Years of Listing Journey: A Reflection of the Evolution of Crypto Regulation

1.1 The paradigm shift of the three attempts at capitalization(2018-2025)

The listing journey of Circle can be regarded as a typical case of the dynamic game between cryptocurrency enterprises and regulatory frameworks. The first IPO attempt in 2018 coincided with a period of ambiguity regarding the classification of cryptocurrency by the U.S. SEC. At that time, the company formed a "payment + trading" dual-drive model through the acquisition of the Poloniex exchange and secured $110 million in financing from institutions such as Bitmain and IDG Capital. However, doubts from regulatory agencies about the compliance of exchange operations, along with the sudden impact of the bear market, led to a valuation drop of 75% from $3 billion to $750 million, exposing the fragility of early cryptocurrency enterprises' business models.

The SPAC attempts in 2021 reflected the limitations of regulatory arbitrage thinking. Although merging with Concord Acquisition Corp could bypass the stringent scrutiny of traditional IPOs, the SEC's inquiries regarding the accounting treatment of stablecoins pointed to the crux of the issue—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 key transformation: divesting non-core assets and establishing "stablecoin as a service" as the strategic focus. Subsequently, Circle fully committed to building USDC compliance and actively applied for regulatory licenses in multiple countries around the world.

The IPO choices of 2025 mark the maturation of the capitalization path for crypto enterprises. Listing on the NYSE not only requires compliance with the full set of disclosure requirements under Regulation S-K, but also acceptance of internal control audits under the Sarbanes-Oxley Act. Notably, the S-1 filing disclosed for the first time the reserve management mechanism: of the approximately $32 billion in assets, 85% is allocated through BlackRock's Circle Reserve Fund into overnight reverse repurchase agreements, and 15% is held at key financial institutions. This transparent operation effectively builds an equivalent regulatory framework with traditional money market funds.

( Cooperation with a certain trading platform: from ecological co-construction to a delicate relationship

When USDC was first launched, both parties collaborated through the Centre consortium. At the time of the establishment of the Centre consortium in 2018, a certain trading platform held 50% of the shares and quickly opened the market through a "technology output in exchange for traffic entry" model. According to Circle's 2023 IPO filing, it acquired the remaining 50% stake in the Centre Consortium from a certain trading platform for $210 million in stock, and the revenue-sharing agreement regarding USDC was also redefined.

The current profit-sharing agreement is based on dynamic game terms. According to the S-1 disclosure, both parties share profits based on USDC reserve income at a certain ratio (the article mentions that a certain trading platform shares about 50% of the reserve income), and the profit-sharing ratio is related to the amount of USDC supplied by that platform. From publicly available data, it is known that in 2024, the total circulation of USDC held by that platform is about 20%. A certain trading platform taking about 55% of the reserve income with a 20% supply share poses a risk for Circle: as USDC expands outside this platform's ecosystem, the marginal cost will increase non-linearly.

2. USDC Reserve Management and Equity Structure

) 2.1 Reserve Fund Tiered Management

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

• Cash ### 15% ###: Deposited in important financial institutions to respond to sudden redemptions.
• Reserve Fund ( 85% ): Allocated through the Circle Reserve Fund managed by BlackRock

Starting from 2023, USDC reserves are limited to cash balances in bank accounts and the Circle reserve fund, with its asset portfolio mainly 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 life 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 shares issued during the IPO process, with one vote per share;
• Class B shares: Held by co-founders Jeremy Allaire and Patrick Sean Neville, each share has five votes, but the total voting power is capped at 30%, ensuring that the core founding team retains decision-making control after the company goes public.
• 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.

The equity structure aims to balance public market financing with the long-term strategic stability of the enterprise, while ensuring the executive team's control over key decision-making.

) 2.3 Distribution of Holdings by Executives and Institutions

The S-1 filing reveals that the executive team holds a significant number of shares, with several well-known venture capital and institutional investors (such as General Catalyst, IDG Capital, Breyer Capital, Accel, Oak Investment Partners, and Fidelity) holding more than 5% equity. These institutions collectively own over 130 million shares. An IPO valued at $5 billion could bring them substantial returns.

3. Profit Model and Revenue Breakdown

3.1 Revenue Model and Operating Indicators

• Revenue Source: Reserve income is the core source of Circle's revenue, with each USDC token backed by an equivalent amount of USD. The reserve assets mainly include short-term US Treasury bonds and repurchase agreements, generating stable interest income during high-interest periods. According to S-1 data, total revenue in 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 actual revenue attributable to Circle, which negatively impacts net profit performance. Although this revenue sharing ratio drags down 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 Intrerest Rate, Circle also generates revenue through enterprise services, USDC Mint business, cross-chain transaction fees, etc., but the contribution is small, only 15.16 million USD.

3.2 The Paradox of Income Growth and Profit Contraction###2022-2024###

Behind the surface contradictions lie structural causes:

• Converging from multi-core to single-core: From 2022 to 2024, Circle's total revenue is expected to grow from $772 million to $1.676 billion, with a compound annual growth rate of 47.5%. Among them, reserve income has become the company's core revenue source, with its income 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 also indicates that the company's dependence on macro Intrerest Rate changes has significantly increased.

• Surge in distribution expenses compresses gross profit margins: Circle's distribution and transaction costs have significantly increased over three years, jumping from $287 million in February 2022 to $1.01 billion in 2024, a staggering increase of 253%. These costs are primarily used for the issuance, redemption, and payment settlement system expenses of USDC, and with the expansion of USDC circulation, this expenditure has rigidly grown.

Due to the inability to significantly compress these costs, Circle's gross margin quickly fell from 62.8% in 2022 to 39.7% in 2024. This reflects that although its ToB stablecoin model has scale advantages, it will face systemic risks of profit compression during a declining Intrerest Rate cycle.

• Profitability turns from loss to profit but with marginal slow down: Circle officially turned a profit in 2023, achieving a net profit of $268 million and a net profit margin of 18.45%. Although profitability continues in 2024, after deducting operating costs and taxes, the disposable income is only $101,251,000. With the addition of $54,416,000 in non-operating income, the net profit is $155 million, but the net profit margin has declined to 9.28%, a year-on-year decrease of about half.

• Cost Rigidity: It is worth noting that the company will invest as much as $137 million in general administrative expenses in 2024, a year-on-year increase of 37.1%, marking three consecutive years of growth. Combined with the information disclosed in its S-1, this expenditure is primarily used for global licensing applications, audits, and the expansion of legal compliance teams, confirming the cost rigidity brought about by its "compliance-first" strategy.

Overall, Circle completely broke away from the "exchange narrative" in 2022, achieved a profit 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 bonds and trading volume, also means that once it encounters a downward interest rate cycle or a slowdown in USDC growth, it will directly impact its profit performance. In the future, Circle needs to seek a more robust balance between "cost reduction" and "expansion of volume" to maintain sustainable profitability.

The deep-seated contradiction lies in the flaws of the business model: as USDC enhances its "cross-chain asset" attributes (with an on-chain transaction volume of $20 trillion in 2024), its currency multiplier effect ironically weakens the profitability of issuers. This resonates with the dilemmas faced by traditional banking.

( 3.3 The growth potential behind the low Intrerest Rate

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

• The continuous increase in circulation drives stable growth in reserve income:

According to the data, as of early April 2025, the market capitalization of USDC has surpassed $60 billion, second only to a certain stablecoin's $144.4 billion; by the end of 2024, USDC's market share had increased to 26%. On the other hand, the growth of USDC's market capitalization in 2025 remains strong. The market capitalization of USDC has increased by $16 billion in 2025. Considering that its market capitalization was less than $1 billion in 2020, the compound annual growth rate (CAGR) from 2020 to April 2025 has reached 89.7%. Even if the growth rate of USDC slows in the remaining 8 months, its market capitalization 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 demand for USDC, and strong scale expansion can partially offset the downside risks of Intrerest Rate.

• Structural optimization of distribution costs: Although a high commission will be paid to a certain trading platform in 2024, this cost has a non-linear relationship with the increase in circulation volume. For example, the collaboration with a well-known exchange only requires a one-time payment of $60.25 million, which significantly boosts its platform's USDC supply from $1 billion to $4 billion, with the customer acquisition cost per unit being significantly lower than that of a certain trading platform. Coupled with the collaboration plan between Circle and the well-known exchange in the S-1 document, Circle can be expected to achieve market value growth at a lower cost.

• Conservative valuation does not price in market scarcity: Circle's IPO valuation is between $4 billion and $5 billion, based on an adjusted net profit of $200 million, with a P/E ratio between 20x and 25x. This is similar to certain payment companies (19x) and a payment technology company (22x), reflecting the market's perception of its "low growth stable profit" positioning. However, this valuation system has not fully priced in its scarcity value as the only pure stablecoin asset in the US stock market. Unique assets in niche segments typically enjoy valuation premiums, which Circle has not included. Additionally, if the stablecoin-related legislation is successfully implemented, offshore issuers will need to significantly adjust their reserve structures, while the existing compliant architecture can be directly transitioned, creating a "regulatory arbitrage endowment." Corresponding policy changes could significantly enhance USDC's market share.