Circle IPO Analysis: The Growth Potential Behind Low Net Interest Rate

Circle chose to go public during the industry's accelerated clearing phase, hiding a seemingly contradictory yet imaginative story - the net interest rate continues to decline, yet it still harbors enormous growth potential. On one hand, it possesses high transparency, strong regulatory compliance, and stable reserve income; on the other hand, its profitability appears surprisingly "mild" - with a net interest rate of only 9.3% in 2024. 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 diminishing high-interest dividends and a complex distribution cost structure, Circle is building a highly scalable, compliance-first stablecoin infrastructure, with its profits strategically "reinvested" in market share enhancement and regulatory leverage. This article will trace Circle's seven-year journey to listing, deeply analyzing the growth potential and capitalization logic behind its "low net interest rate" from corporate governance, business structure to profit model.

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

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

The上市 journey of Circle can be described as a living specimen of the dynamic game between crypto enterprises and regulatory frameworks. The initial IPO attempt in 2018 occurred during a period of ambiguity regarding the classification of cryptocurrencies by the SEC. At that time, the company formed a "payment + trading" dual-driven model through the acquisition of an exchange and secured $110 million in financing from several institutions. However, doubts from regulators about the compliance of exchange operations and the sudden bear market shock led to a valuation drop of 75%, from $3 billion to $750 million, exposing the vulnerability of early crypto enterprises' business models.

The SPAC attempts in 2021 reflect the limitations of regulatory arbitrage thinking. Although the merger with Concord Acquisition Corp could circumvent the stringent scrutiny of traditional IPOs, the SEC's inquiries into the accounting treatment of stablecoins struck at the core 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 the strategic focus of "stablecoin as a service." From that moment to 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 in 2025 mark the maturation of the capitalization pathway for crypto enterprises. Listing on the NYSE not only requires meeting the full set of disclosure requirements under Regulation S-K but also necessitates undergoing internal control audits under the Sarbanes-Oxley Act. Notably, the S-1 filing first disclosed in detail the reserve management mechanism: of the approximately $32 billion in assets, 85% is allocated through an asset management company's Circle Reserve Fund to overnight reverse repurchase agreements, and 15% is held at systemically important financial institutions such as BNY Mellon. This transparency in operations effectively establishes 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 the Centre consortium. When the Centre consortium was established in 2018, a certain trading platform held 50% of the equity, quickly opening the market through a "technology output for traffic entry" model. According to Circle's IPO documents disclosed in 2023, it acquired the remaining 50% equity of the Centre Consortium from a certain trading platform for $210 million in stock, and the profit-sharing agreement regarding USDC was also redefined.

The current revenue-sharing agreement is the terms of a dynamic game. According to the S-1 disclosure, the two parties share the USDC reserve income at a certain ratio, and the article mentions that a certain trading platform shares about 50% of the reserve income (, with the sharing ratio related to the amount of USDC supplied by the trading platform. Public data from the trading platform reveals that in 2024, it holds about 20% of the total circulating USDC. A certain trading platform, with a 20% supply share, has taken about 55% of the reserve income, which poses some hidden dangers for Circle: when USDC expands outside of the trading platform's ecosystem, the marginal cost will rise non-linearly.

2. USDC Reserve Management and Equity and Shareholding Structure

) 2.1 Reserve Tiered Management

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

• Cash ###15% (: held at GSIBs such as Bank of New York Mellon, used to respond to sudden redemptions.
• Reserve Fund )85% (: Allocation through a Circle Reserve Fund managed by a certain asset management company.

Starting in 2023, USDC reserves are limited to the cash balance in bank accounts and the Circle reserve fund, 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 Tiered Governance

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

• Class A shares: Common stock 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 even after going public, the core founding team retains decision-making control;
• Class C shares: no voting rights, convertible under certain conditions, ensuring the company's governance structure complies with the rules of the New York Stock Exchange.

The 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 Shareholding

According to the disclosure in the S-1 filing, the executive team holds a large number of shares, while several well-known venture capital and institutional investors hold more than 5% of the equity, with these institutions collectively owning over 130 million shares. An IPO valued at 5 billion can bring them significant returns.

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3. Profit Model and Revenue Breakdown

) 3.1 Revenue Model and Operating Metrics

• Sources of Revenue: Reserve income is the core revenue source for Circle, with each USDC token backed by an equivalent amount of US dollars. 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, of which 99% ### approximately $1.661 billion ( comes from reserve income.
• Revenue sharing with partners: The cooperation agreement with a certain trading platform stipulates that the trading platform receives 50% of the reserve income based on the amount of USDC held, resulting in relatively low actual revenue attributable to Circle, which has dragged down net profit performance. Although this revenue-sharing ratio has impacted profits, it is also a necessary cost for Circle to co-build the 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 transaction fees, etc., but the contribution is relatively small, only $15.16 million.

) 3.2 The paradox of income rise and profit contraction ### 2022-2024 (

The structural causes exist behind the apparent contradictions:

• Convergence from diversification to a single core: From 2022 to 2024, Circle's total revenue will rise 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 most core source of revenue, with its proportion of income 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 signifies that the company's dependence on macro Interest Rate fluctuations has significantly strengthened.

• Distribution expenses surge, compressing gross profit margins: Circle's distribution and transaction costs have significantly increased over three years, rising from $287 million in 2022 to $1.01 billion in 2024, a rise of 253%. These costs are primarily used for the issuance, redemption, and payment settlement systems of USDC. As the circulation of USDC expands, this expenditure grows rigidly.

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

• Profitability turns from loss to profit but margin slows down: Circle officially turned a profit in 2023, with a net profit of $268 million and a net profit margin of 18.45%. Although the profitability trend continues in 2024, after deducting operating costs and taxes, the disposable income is only $101,251,000. Adding $54,416,000 of 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's investment in General & Administrative expenses in 2024 will reach $137 million, a rise of 37.1% year-on-year, marking three consecutive years of growth. Combined with the information disclosed in its S-1, this expenditure is mainly used for license applications, auditing, and the expansion of legal compliance teams globally, 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 profit turning point in 2023, successfully maintained profits in 2024 but with a slowdown in growth, and its financial structure has gradually aligned with traditional financial institutions.

However, its revenue structure is highly dependent on the yield spread of U.S. Treasury bonds and trading volume, which 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, Circle needs to seek a more robust balance between "cost reduction" and "expansion" to maintain sustainable profitability.

The deeper contradiction lies in the flaws of the business model: when USDC's attributes as a "cross-chain asset" enhance the on-chain transaction volume to 20 trillion dollars in 2024 ), its currency multiplier effect instead weakens the profitability of the issuer. This resonates similarly with the predicaments faced by traditional banking.

( 3.3 rise potential behind low Intrerest Rate

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

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

According to data from a certain data platform, as of early April 2025, the market value of USDC has surpassed $60 billion, second only to USDT's $144.4 billion; by the end of 2024, USDC's market share had risen to 26%. On the other hand, the market value growth of USDC in 2025 remains strong. The market value of USDC has already 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, with the CAGR rising to 160.5%. Although reserve income is highly sensitive to Interest Rate, low Interest Rates may stimulate demand for USDC, and strong scale expansion can partially offset the downside risk of Interest Rate.

• Structural optimization of distribution costs: Although high commissions will be paid to a certain trading platform in 2024, this cost has a non-linear relationship with the rise in trading volume. For example, the cooperation with a certain trading platform involves a one-time payment of $60.25 million, which drives 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. In conjunction with the cooperation plan between Circle and a certain trading platform mentioned in the S-1 document, we can expect Circle to achieve market value growth at a lower cost.

• Conservative valuation does not price market scarcity: Circle's IPO valuation is between 4-5 billion USD, based on an adjusted net profit of 200 million USD, with a P/E ratio between 20-25x. This is similar to traditional payment companies like a certain payment company )19x### and a certain payment company (22x), seemingly reflecting the market's perception of its "low growth stable profit" positioning. However, this valuation system has not fully priced its scarcity value as the only pure stablecoin subject in the US stock market. Unique subjects in niche segments usually enjoy valuation premiums, which Circle has not accounted for.