Circle IPO Interpretation: Growth Potential Behind Low Intrerest Rate

In the stage where the industry is accelerating its clearing, Circle has chosen to go public, behind which lies a seemingly contradictory yet imaginative story—a continuous decline in net interest rate, yet still harboring immense growth potential. On one hand, it has 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: in the context of gradually fading 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 take Circle's seven-year journey to listing as a clue, and delve into 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 Evolving Cryptocurrency Regulation

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

The listing journey of Circle is a living specimen of the dynamic game between crypto enterprises and regulatory frameworks. The initial IPO probe in 2018 occurred during a period of ambiguity regarding the attributes of cryptocurrencies as recognized by the U.S. Securities and Exchange Commission (SEC). At that time, the company formed a "payment + trading" dual-drive through the acquisition of a certain exchange and secured $110 million in financing from several well-known institutions. However, the regulatory scrutiny over the compliance of the exchange's operations and the sudden impact of a bear market led to a valuation plummet of 75% from $3 billion to $750 million, exposing the vulnerability of early-stage crypto enterprises' business models.

The SPAC attempts in 2021 reflected the limitations of regulatory arbitrage thinking. Although merging with Concord Acquisition Corp 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 deal but unexpectedly pushed the company to complete a key transformation: divesting non-core assets and establishing the strategic focus of "stablecoin as a service." 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 choice in 2025 marks the maturation of the capitalization path for cryptocurrency enterprises. Listing on the NYSE not only requires compliance with the full disclosure requirements of Regulation S-K but also subject to internal control audits under the Sarbanes-Oxley Act. Notably, the S-1 filing has for the first time detailed the reserve management mechanism: of approximately $32 billion in assets, 85% is allocated through an overnight reverse repurchase agreement via an asset management company’s Circle Reserve Fund, and 15% is held in systemically important financial institutions such as Bank of New York Mellon. This transparent operation essentially constructs an equivalent regulatory framework to that of traditional money market funds.

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

Since the launch of USDC, the two have collaborated through the Centre Consortium. When the Centre Consortium was established in 2018, a certain trading platform held 50% of the equity and quickly opened up 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 revenue-sharing agreement regarding USDC has also been redefined.

The current profit-sharing agreement is a term of dynamic games. According to the S-1 disclosure, the two parties share the income from USDC reserves at a certain ratio, which is related to the amount of USDC supplied by a certain trading platform. From the public data of a certain trading platform, it can be seen that in 2024, the platform holds approximately 20% of the total circulating supply of USDC. By leveraging a 20% supply share, a certain trading platform takes approximately 55% of the reserve income, posing some risks for Circle: when USDC expands outside the ecosystem of a certain trading platform, 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 at GSIBs such as Bank of New York Mellon to meet unexpected redemptions
• Reserve Fund (85%): Managed by an asset management company, allocated by the Circle Reserve Fund.

Starting from 2023, USDC reserves are limited to cash balances in bank accounts and Circle 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 Hierarchical 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 stocks issued during the IPO process, each share has one vote.
• 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, can be converted under specific conditions, ensuring 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 Holdings by Executives and Institutions

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

3 Profit Model and Revenue Breakdown

3.1 Revenue Model and Operational Indicators

• Sources of income: Reserve income is the core revenue source for Circle, with each USDC token backed by an equivalent amount of US dollars. The reserve assets mainly include short-term U.S. Treasury securities and repurchase agreements, yielding stable interest income during high interest rate cycles. According to S-1 data, total revenue for 2024 will 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 this trading platform receives 50% of the reserve income based on the amount of USDC held, resulting in the actual income attributable to Circle being relatively low, which has dragged down the net profit performance. Although this sharing ratio has affected profitability, it is also a necessary cost for Circle to build an ecosystem with partners and promote the widespread application of USDC.
• Other income: In addition to reserve interest, Circle also increases revenue through enterprise services, USDC Mint business, cross-chain fees, and other methods, but the contribution is relatively small, only 15.16 million dollars.

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

Behind the surface contradictions lie structural causes:

• Converging from multiple to a single core: From 2022 to 2024, Circle's total revenue rose from $777 million to $1.676 billion, with a compound annual growth rate of 47.5%. Among them, reserve income has become the company's core source of revenue, 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 also means that the company's dependence on macro Interest Rate changes has significantly increased.
• Distribution expenses surge, compressing gross profit margins: 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 systems related to USDC. As the circulation of USDC expands, this expense rigidly grows.
• Due to the inability to significantly reduce 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 a declining interest rate cycle.
• Profit turning from loss to gain but marginal slowdown: Circle officially turned a profit in 2023, with a net profit of $268 million and a net profit margin of 18.45%. Although the profitable trend continues in 2024, the disposable income, after deducting operating costs and taxes, is only $101,251,000. Adding $54,416,000 in non-operating income, the net profit stands at $155 million, but the net profit margin has dropped to 9.28%, approximately halving year-on-year.
• Cost Rigidity: It is worth noting that the company's investment in general administrative expenses (General & Administrative) for 2024 reaches $137 million, 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 primarily used for global licensing applications, audits, 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, achieving 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 bonds and trading scale, also means that once it encounters a declining 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 "incremental expansion" to maintain sustainable profitability.

The underlying contradiction lies in the defects of the business model: as the attributes of USDC as a "cross-chain asset" are enhanced (with on-chain transaction volume reaching $20 trillion in 2024), its currency multiplier effect actually weakens the profitability of issuers. This resonates with the dilemmas faced by traditional banking.

3.3 rise potential behind low Intrerest Rate

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, down 42% year-on-year), its business model and financial data still hide multiple drivers of growth.

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

According to data from the data platform, as of early April 2025, the market capitalization of USDC has surpassed $60 billion, second only to USDT's $144.4 billion; by the end of 2024, USDC's market share has risen to 26%. On the other hand, the market capitalization growth of USDC in 2025 remains strong. The market capitalization of USDC has grown 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 early 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 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: Despite paying high commissions to a certain trading platform in 2024, this cost has a non-linear relationship with the increase in circulation volume. For example, the partnership with a certain trading platform only incurs a one-time fee 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. Coupled with the collaboration plan between Circle and a certain trading platform outlined in the S-1 document, Circle can be expected to achieve market capitalization growth at a lower cost.

Conservative valuation does not price the market scarcity: Circle's IPO valuation is between $4 billion and $5 billion, calculated based on an adjusted net profit of $200 million, with a P/E ratio between 20 and 25x. This is similar to certain payment companies (19x) and certain financial companies (22x), reflecting the market's perception of its "low growth stable profit" positioning. However, this valuation system has not fully priced its uniqueness as the only pure stablecoin target in the U.S. stock market.