Circle IPO Analysis: The Growth Potential and Capitalization Logic Behind Low Intrerest Rate

Circle IPO Analysis: The Logic Behind Growth Potential and Low Interest Rate

In the phase of accelerated reshuffling in the industry, Circle chose to go public, hiding a seemingly contradictory yet imaginative story behind it—net interest rates continue to decline, yet there is still huge potential for growth. 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 logic of growth: 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, and its profits are strategically "reinvested" into market share enhancement and regulatory leverage. This article will trace Circle's seven-year journey to listing, delving into corporate governance, business structure, and profitability models to analyze the growth potential and capitalization logic behind its "low net interest rate."

Circle IPO Interpretation: Growth Potential Behind Low Intrerest Rate

1. Seven-Year Public Listing Marathon: The Evolution of Cryptocurrency Regulation

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

The listing journey of Circle can be regarded as a living specimen of the dynamic game between crypto enterprises and regulatory frameworks. The initial IPO attempt in 2018 coincided with a time when the U.S. SEC was ambiguous about the properties of cryptocurrencies. 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 regarding the compliance of exchange operations and the sudden impact of the bear market led to a valuation collapse of 75% from $3 billion to $750 million, revealing the fragility of the business model of early crypto enterprises.

The SPAC attempts in 2021 reflect the limitations of regulatory arbitrage thinking. Although merging with Concord Acquisition Corp allows for bypassing the rigorous 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 key transformation: divesting non-core assets and establishing "stablecoin as a service" as the strategic focus. 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 for 2025 mark the maturation of the capitalization path for crypto enterprises. Listing on the NYSE not only requires meeting the full disclosure requirements of Regulation S-K but also undergoing 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 a certain asset management company's Circle Reserve Fund, while 15% is held in systemically important financial institutions such as Bank of New York Mellon. This transparency in operations essentially builds an equivalent regulatory framework to 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 shares and quickly opened up the market through the "technology output in exchange for traffic entry" model. According to Circle's IPO documents disclosed in 2023, it acquired the remaining 50% of the shares of the Centre Consortium from a certain trading platform for $210 million in stock, and the revenue-sharing agreement regarding USDC was also renegotiated.

The current revenue-sharing agreement is a term of dynamic game theory. According to the S-1 disclosure, the two parties share the revenue based on USDC reserve income at a certain ratio (the text mentions that a certain trading platform shares about 50% of the reserve income), and the sharing ratio is related to the amount of USDC supplied by that platform. From the public data of that platform, it is known that in 2024, the platform holds approximately 20% of the total circulating supply of USDC. A certain trading platform, by holding a 20% supply share, has taken about 55% of the reserve income, which poses some hidden risks for Circle: as USDC expands outside of that platform's ecosystem, the marginal cost will increase non-linearly.

Circle IPO Interpretation: Growth Potential Behind Low Intrerest Rate

2. USDC Reserve Management and Equity and Shareholding Structure

2.1 Reserve Fund Layered 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 respond to sudden redemptions.
  • Reserve Fund (85%): Allocated through the Circle Reserve Fund managed by an asset management company.

Since 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 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 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 the core founding team retains decision-making control even after the company goes public.
  • Class C shares: No voting rights, convertible under specific 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 Shareholdings

The S-1 filing discloses that the executive team holds a large number of shares, while several well-known venture capital and institutional investors each 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.

Circle IPO Analysis: Growth Potential Behind Low Intrerest Rate

3. Profit Model and Revenue Breakdown

3.1 Revenue Model and Operational Metrics

  • Revenue Source: Reserve income is the core source of revenue for Circle. Each USDC token is backed by an equivalent amount of US dollars, and the invested 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, the total revenue for 2024 is expected 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 platform receives 50% of the reserve income based on the amount of USDC held, resulting in relatively low actual income attributable to Circle, which negatively impacts net profit performance. Although this revenue sharing ratio has dragged 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 interest, Circle also increases revenue through enterprise services, USDC Mint business, cross-chain fees, and other means, but the contribution is relatively small, at only $15.16 million.

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

Behind the apparent contradiction lies a structural motivation:

  • Converging from multi-dimensional to 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 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 it also signifies a notable increase in the company's dependence on macro Intrerest Rate changes.
  • Distribution expenses surge compressing gross profit space: Circle's distribution and transaction costs have surged significantly over three years, jumping from $287 million in 2022 to $1.01 billion in 2024, an increase of 253%. These costs are mainly used for the issuance, redemption, and payment settlement system expenses of USDC. As the circulation of USDC expands, these expenses grow rigidly.
  • 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 while 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 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%. In 2024, although it continues to be profitable, the disposable income after deducting operating costs and taxes is only $101,251,000. After adding $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's investment in general administrative expenses (General & Administrative) reached $137 million in 2024, a year-on-year increase of 37.1%, marking three consecutive years of growth. Combined with its S-1 disclosure information, this expenditure is mainly 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, achieved a profitability turning point in 2023, successfully maintained profits in 2024 but with a slowing growth rate, and its financial structure has gradually aligned with traditional financial institutions.

However, its revenue structure, which is highly dependent on the spread of US Treasury interest rates and trading volume, also means that once it encounters a downtrend in 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 "incremental growth."

The deeper contradiction lies in the flaws of the business model: as USDC's attributes as a "cross-chain asset" strengthen (with an on-chain transaction volume of $20 trillion in 2024), its currency multiplier effect instead weakens the profitability of issuers. This is reminiscent of the predicaments faced by traditional banking.

3.3 low Intrerest Rate behind the rise potential

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 hide multiple rise drivers.

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

According to data from a certain data platform, as of early April 2025, the market value of USDC surpassed $60 billion, second only to a certain stablecoin'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 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 demand for USDC, and strong scale expansion can partially offset the downward risk of Intrerest 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 circulation volume. For example, a one-time payment of $60.25 million for cooperation with a certain exchange has driven its platform's USDC supply from $1 billion to $4 billion, with the unit customer acquisition cost significantly lower than that of a certain trading platform. Combined with the cooperation plan between Circle and a certain exchange in the S-1 document, it can be expected that Circle will achieve market capitalization growth at a lower cost.

The 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 close to traditional payment companies such as a certain payment company (19x) and a certain payment company (22x), seemingly reflecting the market's positioning of its "low growth and stable profitability". However, this valuation system has not fully priced in its unique status as the only one in the US stock market.

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RegenRestorervip
· 2h ago
Is this little profit still worth going public?
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rekt_but_not_brokevip
· 11h ago
It's happening, Old C is finally listed!
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gas_fee_therapistvip
· 11h ago
9.3% is already quite scary, okay?
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AltcoinHuntervip
· 11h ago
With this profit margin, are they still brave enough to go public? big pump expected.
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LiquidationWizardvip
· 11h ago
What does it matter if the profit is low? As long as it can resist the fall, that's all that matters.
View OriginalReply0
WhaleMinionvip
· 12h ago
This regulation is a bit stable.
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