Circle IPO Interpretation: The Growth Potential Behind Low Intrerest Rate

In the stage of accelerated industry clearing, Circle chooses to go public, hiding a seemingly contradictory yet imaginative story behind it—net profit margin continues to decline, yet still harbors immense growth potential. On one hand, it boasts high transparency, strong regulatory compliance, and stable reserve income; on the other hand, its profitability appears surprisingly "gentle"—the net profit margin for 2024 is only 9.3%. 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 rate dividends and a complex distribution cost structure, Circle is constructing a highly scalable, compliance-first stablecoin infrastructure, while its profits are strategically "reinvested" into market share enhancement and regulatory leverage. This article will use Circle's seven-year journey to going public as a clue, delving into its "low net profit margin behind" growth potential and capitalization logic from company governance, business structure to profit model.

1 Seven Years of Public Listing: A History of Evolution in Cryptocurrency Regulation

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

The listing journey of Circle can be described as a living specimen of the dynamic game between cryptocurrency companies and regulatory frameworks. The initial IPO attempt in 2018 coincided with a period of ambiguity regarding the SEC's classification of cryptocurrencies. At that time, the company formed a "payment + trading" dual-driven model 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 exchange operations and the sudden impact of the bear market led to a valuation collapse of 75% from $3 billion to $750 million, exposing the vulnerabilities of early-stage cryptocurrency business models.

The SPAC attempts in 2021 reflected the limitations of regulatory arbitrage thinking. Although merging with Concord Acquisition Corp allowed for circumventing the strict scrutiny of traditional IPOs, the SEC's inquiry into the accounting treatment of stablecoins struck at the heart of the matter—requiring Circle to prove that USDC should not be classified as a security. This regulatory challenge led to the failure of the transaction, but unexpectedly propelled the company to complete a critical transformation: divesting non-core assets and establishing a strategic focus on "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 worldwide.

The IPO options for 2025 mark the maturation of the capitalization path for crypto enterprises. Listing on the NYSE not only requires meeting the full suite of disclosure requirements under Regulation S-K, but also accepting internal control audits under the Sarbanes-Oxley Act. Notably, the S-1 filing first detailed the reserve management mechanism: of the approximately $32 billion in assets, 85% is allocated through BlackRock's Circle Reserve Fund to overnight reverse repurchase agreements, and 15% is deposited with systemic important financial institutions like BNY Mellon. This transparent operation essentially constructs an equivalent regulatory framework to traditional money market funds.

1.2 Cooperation with a trading platform: from ecological co-construction to a subtle relationship

At the very beginning of USDC's launch, 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 in exchange for traffic entry" model. According to the IPO documents disclosed by Circle 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 a term of dynamic game. According to S-1 disclosure, the two parties share revenue 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 sharing ratio is related to the amount of USDC supplied by that platform. From the public data of a certain trading platform, it can be seen that in 2024, the platform holds about 20% of the total circulating USDC. A certain trading platform, with a 20% supply share, takes about 55% of the reserve income, which poses some hidden dangers for Circle: when USDC expands outside the ecosystem of that 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%): Deposited in GSIBs such as Bank of New York Mellon to respond to sudden redemptions.
• Reserve Fund (85%): Allocated through the Circle Reserve Fund managed by BlackRock.

Starting from 2023, the USDC reserves are limited to cash balances in bank accounts and the Circle Reserve Fund, with its asset portfolio primarily consisting of U.S. Treasury securities with remaining maturities not exceeding 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-tiered equity structure after going public:

• Class A shares: Common stocks issued during the IPO process, each 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: non-voting, convertible under specific conditions, ensuring that the company's 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 Executive and Institutional Shareholding

The S-1 filing disclosed 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 holding 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 Metrics

• Sources of income: Reserve income is the core source of revenue for Circle. Each USDC token is backed by an equivalent amount of US dollars, and 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 reached $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 a relatively low income attributable to Circle, which affects net profit performance. Although this 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 transaction fees, etc., but the contribution is small, totaling only $15.16 million.

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

Behind the surface contradictions lie structural motivations:

• Converging from Multi-core to Single-core: From 2022 to 2024, Circle's total revenue rose 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 revenue share increasing 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 means that the company's dependence on macro Intrerest Rate changes has significantly increased.
• Distribution expenses surge compress gross margin space: 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 primarily used for the issuance, redemption, and payment settlement system expenses of USDC. As the circulation of USDC expands, this expenditure rigidly increases.
• Due to the inability to significantly compress 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 downtrend in the Intrerest Rate.
• Profitability turns from loss to profit but marginal slowdown: Circle officially turned profitable in 2023, achieving a net profit of $268 million, with a net profit margin of 18.45%. Although it continues to be profitable in 2024, the disposable income after deducting operating costs and taxes 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 for 2024 will reach $137 million, a year-on-year rise of 37.1%, marking three consecutive years of growth. Combined with its S-1 disclosure information, this expenditure is primarily used for global licensing applications, auditing, and legal compliance team expansion, which corroborates the cost rigidity brought about by its "compliance-first" strategy.

Overall, Circle completely got rid of the "exchange narrative" in 2022, achieved a profitability turning point in 2023, successfully maintained profits in 2024 but with a slowdown in growth, and its financial structure has gradually moved closer to traditional financial institutions.

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

The deep-rooted contradiction lies in the flaws of the business model: as the attributes of USDC as a "cross-chain asset" are enhanced (with an on-chain transaction volume of $20 trillion in 2024), its monetary multiplier effect instead weakens the profitability of issuers. This is akin to the predicaments 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 (the net profit margin in 2024 is only 9.3%, a year-on-year decline of 42%), its business model and financial data still hide multiple rise drivers.

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

According to CryptoQuant data, as of early April 2025, the market capitalization of USDC has exceeded $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 remains strong in 2025. 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 down in the remaining 8 months, its market capitalization 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 Intrerest Rate, low Intrerest Rate may stimulate USDC demand, and strong scale expansion can partially offset the risks of declining 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. For example, cooperation with another trading platform only required a one-time payment of $60.25 million, which drove its platform's USDC supply from $1 billion to $4 billion, resulting in a significantly lower customer acquisition cost compared to the certain trading platform. Combined with the S-1 document, Circle's cooperation plan with this trading platform suggests that Circle can expect to achieve market value 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 comparable to traditional payment companies like PayPal (19x) and Square (22x), seemingly reflecting the market's perception of its "low growth stable profit" positioning, but this valuation framework has not yet fully priced in its status as the only pure stablecoin asset in the US stock market.