Original Article Title: "Circle In-Depth Analysis: Opportunities and Challenges of the Stablecoin Giant"

Original Article Authors: dddd, Biteye

In the global cryptocurrency market, stablecoins serve as a bridge between traditional finance and the crypto world, playing an increasingly important role. As the second-largest stablecoin by market share, USDC (USD Coin) and its issuer Circle have recently attracted significant market attention. Since its IPO at $31 in early June, Circle's stock price has surged to nearly $200 (peaking at $298.99). This remarkable stock price performance not only reflects the growth journey of the stablecoin industry but also reveals the opportunities and challenges faced by this emerging financial instrument. This article will provide an in-depth analysis of USDC's issuance mechanism, revenue model, competitive advantages, as well as Circle's financial situation and investment value.

01 USDC Issuance Mechanism and Revenue Model

Fund Safeguard System

USDC has implemented a rigorous fund safeguard mechanism. For every 1 USDC purchased, investors are required to deposit $1 as a reserve. To ensure the safety of investor funds, USDC operates under a system of ownership and control separation. Legally, Circle, as the issuer, holds ownership of the USDC reserve and manages these assets in a "trust form." USDC holders, through token ownership, have actual control over the reserve, and Circle can only operate the reserve based on user instructions. In terms of custody, the USDC reserve is held in custody by the New York Mellon Bank, stored in a dedicated account, ensuring the security and independence of the funds. Investment management is handled by the globally renowned asset management company BlackRock, primarily investing in its managed money market funds, with US Treasury bonds as the main investment target, generating returns through interest differentials.

Risks and Limitations of the Revenue Model

While USDC's revenue model is relatively stable, it also has clear risks and limitations. Firstly, the reserve income is entirely determined by BlackRock's money market fund (mainly invested in short-term Treasury bonds), and Circle lacks active control over this portion of the revenue. In terms of actual performance, according to Circle's 2024 financial report, USDC's reserve interest income was $1.61 billion, with a total USDC issuance of $60 billion, resulting in an actual annualized yield of 2.77%. However, the yield on the US half-year Treasury bond during the same period was 4.2%. This data shows that the yield of BlackRock-managed money market funds is significantly lower than the yield of direct investment in Treasury bonds, potentially due to factors such as the fund's management fees, liquidity management requirements (holding cash reserves), and portfolio risk diversification requirements.

Secondly, reserve revenue is highly sensitive to government bond yield fluctuations. Profit increases when yields rise and decreases when yields fall. This passivity makes Circle's profitability highly dependent on the macroeconomic environment and monetary policy changes. The current Fed rate-hiking cycle has provided a relatively favorable revenue environment for Circle. However, once the Fed enters a rate-cutting cycle, the company's profitability will face significant pressure.

More importantly, Circle cannot enjoy all the revenue generated by USDC. Due to a historical partnership, Circle needs to share USDC's investment revenue with Coinbase. The specific allocation mechanism is as follows: all USDC revenue within the Coinbase platform belongs to Coinbase, while external platform USDC revenue is split 50-50 between the two parties. This arrangement means that Circle actually only receives 38.5% of the total USDC investment revenue, while 61.5% goes to Coinbase (based on 2024 financial data).

Market Competition and Channel Expansion

To reduce reliance on Coinbase, Circle has actively explored new distribution channels. The company partnered with Binance, paying $60.25 million plus monthly trading rewards to secure Binance's support. This strategy has been highly effective, with Binance becoming the world's largest USDC trading market, accounting for 49% of total trading volume and successfully reducing Coinbase's market share.

However, this competitive relationship has also brought new challenges. Coinbase has designated USDC as the core settlement token on Base Chain and partnered with Stripe to support USDC on Base Chain. Coinbase also offers up to 12% yield for holding USDC for users in the Coinbase Advance version of the derivatives market to maintain its market position and distribution revenue.

02 USDC vs. USDT Competitive Analysis

Market Share Comparison

In the stablecoin market, USDT still holds a dominant position. As of May 31, 2025, USDT has a market cap of $153 billion, with a market share of 61.2%; while USDC has a market cap of $61 billion, with a market share of 24.4%. USDT's issuance growth rate continues to outpace USDC, demonstrating its strong position in the market.

USDC's Competitive Advantage

Despite lagging behind USDT in market share, USDC has significant advantages in multiple aspects.

Transparency and Auditability Advantage: USDC adopts a "100% transparent anchoring" model, with reserve assets consisting only of cash (23%) and short-term US Treasury bonds (77%), audited monthly by institutions like Grant Thornton and publicly disclosed. By the fourth quarter of 2024, the reserve size reached $43 billion. This transparency has led institutions such as BlackRock and Goldman Sachs to choose USDC as a cross-border settlement tool, with institutional holdings reaching 38% by 2024.

In contrast, USDT has faced scrutiny over reserve transparency issues and was embroiled in controversies from 2017 to 2019, ultimately settling for $41 million. Although USDT has improved its reserve structure after 2024, its "self-attestation" model still lacks transparency.

Regulatory Compliance: USDC holds a New York BitLicense, EU MiCA license, and Japan FSA certification, becoming the first globally circulated stablecoin approved in Japan. Through participation in the U.S. "GENIUS Act" legislation, USDC aims to become an industry benchmark under a regulatory framework, successfully attracting banks such as JPMorgan Chase and Citigroup to join its payment network in 2024.

USDT, on the other hand, adopts a "gray area" strategy, with its headquarters in Hong Kong and registration in the British Virgin Islands, operating in a regulatory gray zone. The EU MiCA proposal excludes USDT from the compliance list, leading to a significant drop in its EU market share from an initial 12% in early 2024 to 5%.

Investor Trust: During the 2023 Silicon Valley Bank incident, USDC briefly dropped to $0.87, but after Circle publicly demonstrated its reserves the next day, the price rebounded to $0.99 within 48 hours, showcasing the market's confidence in its compliant model. BlackRock only accepts USDC as collateral in its on-chain fund products, reflecting institutional trust in USDC.

Traditional Financial Penetration: USDC collaborates with SWIFT to develop the "Digital Dollar Payment Gateway," connecting with 150 international banks in 2024, aiming to become the "blockchain version of SWIFT" for enterprise cross-border settlements.

Impact of Regulatory Policies

The introduction of the "2025 U.S. Stablecoin Innovation Guidance and Establishment Act" (GENIUS Act) could reshape the stablecoin market landscape. As the first U.S. federal regulatory framework specifically for stablecoins, this act may position USDC as the only globally compliant stablecoin, attracting more institutions to include it in asset management products.

For USDT, if the bill requires the stablecoin issuer to be a Federal Chartered Bank, USDT may be prohibited from operating in the US due to its offshore registration, and it is expected to lose a 20% market share.

03 Circle Company Financial Analysis

Profitability Analysis

Circle Company's financial situation presents some contradictory features. In terms of profitability, the company's gross profit margin is 24.00%, significantly lower than the industry median of 50.18% (hereafter, all "industry" refers to the banking industry and fintech companies such as PayPal, Visa, Stripe, etc.). The main reason is that revenue comes from the money market fund managed by BlackRock, the yield is constrained by the US Treasury bond rate, lacks pricing power, and incurs channel fees.

However, Circle's EBITDA margin is 11.43%, slightly higher than the industry median of 10.43%, indicating that the company performs well in operational efficiency. More notably, the company's net profit margin reaches 9.09%, far exceeding the industry median of 3.57%, reflecting the enterprise's high efficiency in operating cost management.

Low Asset Utilization

Circle performs poorly in asset utilization. The company's asset turnover ratio is only 0.05 times, much lower than the industry median of 0.59 times, indicating that every $1 of assets can only generate $0.05 of revenue. The return on assets (ROA) is 0.28%, also significantly lower than the industry median of 2.05%.

The fundamental reason for this situation is that Circle invests a large amount of funds in Treasury bonds. Although the income is stable, the yield is low, leading to inefficient asset utilization. However, as long as Circle can accumulate more funds, the total profit generated is still considerable.

Cash Flow Situation

Circle demonstrates excellent cash flow management, with operating cash flow reaching $324 million, far exceeding the industry median of $113.92 million. This is mainly due to regulatory requirements in the stablecoin business, where the company needs to maintain high cash reserves.

Growth Prospects and Concerns

Circle's revenue growth is strong, with a growth rate of 15.57%, which is 2.6 times the industry median of 5.95%. However, the company has experienced significant deterioration in profit growth. EBITDA growth is -31.75%, EBIT growth is -32.57%, and EPS growth is -61.90%, forming a "revenue growth without profit growth" trend. This situation is mainly due to a sharp increase in costs during the company's expansion. Distribution and transaction costs increased by 71.3% QoQ, marketing expenses reached $3.9 million, and company salary expenses grew by 23.7% YoY.

04 Valuation Analysis and Investment Perspective

Current Valuation Level

Circle's P/E ratio, P/S ratio, P/CF ratio, and P/B ratio are all higher than the industry median, reflecting investors' very high expectations for the company's future performance. To support these high expectations, Circle needs to achieve strong growth in profitability, revenue, and free cash flow to justify its current high valuation. It is worth noting that Circle's future growth drivers may mainly come from a diversified product portfolio, especially the rapid expansion of the EURC Euro stablecoin in the European market and the breakthrough of the RWA tokenized product USYC in the digitalization of real-world assets.

Equity Structure Analysis

Circle's equity structure is not healthy. Institutional investors only hold 10% of the shares, compared to Coinbase where institutional investors hold 30%. The ownership percentage of senior management at the company is 7.4%, which is relatively low. Retail and other investors hold 37% of the shares, more than institutional and executive holdings combined. The IPO pricing range given by JPMorgan Chase, Citigroup, and Goldman Sachs is $27-28, reflecting institutional lack of confidence in Circle.

Investment Logic Analysis

Bullish Logic:

· Stablecoins have addressed inherent pain points in the traditional fiat currency transaction system, and the market is in an expansion phase

· USDC has a significant compliance advantage in the stablecoin market

· Gradually reducing reliance on Coinbase for distribution, which may lead to a larger share of investment dividends in the future

· The GENIUS Act may force major competitor USDT out of the U.S. market

Bearish Logic:

· Valuation is disconnected from fundamentals, with continued profit decline conflicting with high valuation

· Low asset return rates make it difficult to support long-term value growth

· Over 60% of the investment returns from USDC belong to Coinbase, and Circle cannot fully benefit (2024 financials data)

· Institutional investors have a disproportionately low ownership percentage, and the equity structure is unhealthy

05 Conclusion and Outlook

Circle exhibits the characteristics of "high market expectations, rapid growth, and high valuation." On the one hand, the company's stock price has risen by over 540% since its IPO, reflecting the market's recognition of its strengths in regulatory compliance, market share expansion, and more. USDC, as the most transparent stablecoin, enjoys a strong reputation among institutional investors, laying a solid foundation for the company's competitiveness. On the other hand, the company faces challenges such as limited profitability, low asset utilization rate, and digesting a high valuation.

In the short term, the significant rise in Circle's stock price has fully reflected the market's optimistic expectations, and investors need to pay attention to the alignment between valuation and fundamentals. Looking ahead, whether Circle can achieve breakthroughs through product diversification will be critical. The expansion of the EURC Euro stablecoin in the European market, innovative applications of RWA tokenized product USYC, and gradual reduction of reliance on Coinbase revenue sharing all hold the potential to bring new growth drivers to the company.

With the advancement of regulatory policies such as the "GENIUS Act" and the continued development of the stablecoin market, USDC's compliance-first advantage may translate into a larger market share and profitability. When evaluating Circle, investors need to balance its innovation potential with its current valuation level, focusing on whether the company can prove that the market's high expectations are reasonable through a diversified strategy and operational efficiency enhancement.

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