Circle (NASDAQ: CRCL) says its stablecoin will continue to outperform all its new competitors because they lack USDC’s reach and interoperability, but someone really needs to tell that to their nervous shareholders.
Figures released Wednesday show Circle’s revenue and profits soaring in the three months ending September 30, as the total amount of its USDC stablecoin more than doubled from the same period last year. ‘Revenue and reserve income’ rose by two-thirds year-on-year to $740 million, while profits from continuing operations shot up 202% to $214.4 million.
However, the net income stat was goosed by a $61 million tax benefit and a $48 million benefit from Circle’s share price falling after the initial excitement of its June listing on the Nasdaq wore off, which pushed down the fair value of Circle’s convertible debt.
Also, the revenue figure was actually $292 million once you strip out ‘distribution costs.’ These costs shot up 74% year-on-year to $448 million “primarily from increased distribution payments” and “other strategic partnerships.” On the plus side, Circle’s ‘revenue less distribution costs’ (RLDC) margin was 39%, up 270 basis points year-on-year.
Distribution costs include the payments Circle makes to digital asset exchanges—like Circle’s equity partner Coinbase (NASDAQ: COIN) and Binance, which struck a partnership with Circle last December—to ensure USDC enjoys prominent placement over its stablecoin rivals.
Distribution/transaction costs totaled $406 million in Q2-25 ($347 million in Q1), making the Q3 figure 10% higher.
The vast majority ($711 million, ~96%) of Circle’s revenue continues to come from the interest on the U.S. Treasury bills backing the $74 billion in circulating USDC at the end of Q3 (up from $61.5 billion at the end of Q2 and currently $76 billion).
While this revenue was up 60% year-on-year, the interest rates on those T-bills fell by nearly a full percentage point from Q3 2024, and further rate cuts are in the offing (at least, if President Trump gets his way).
The ’other revenue’ category contributed $29 million, up from just $1 million a year ago, on the strength of subscription & services and transaction revenue. Circle’s share of overall stablecoin transaction volume hit 40% in Q3, four points higher than Q2 but only one point better than Q1.
Looking ahead, Circle expects the final quarter of 2025 to see USDC’s market cap grow 40% from the end of 2024, which should boost T-bill revenue by a slightly smaller percentage (given declining interest rates). ‘Other revenue’ is expected to come in between $90-$100 million, up from its previous forecasted range of $75-$85 million. The RLDC margin is expected to slip one point to 38% in Q4, while operating expenses have been raised to a range of $495-$510 million.
Bernstein analysts recently projected that USDC’s market cap could triple by the end of 2027, accounting for 33% of the total stablecoin market, four percentage points higher than its current share. The projection is based in part on Circle’s compliance record, which appears stellar compared to that of Tether, the issuer of the market-leading USDT (current cap: $183.4 billion). Bernstein also forecast Circle’s revenue will enjoy a compound annual growth rate of 47% through 2027.
Despite all the bullish talk, Circle’s shares took a beating on Wednesday, falling 12.5% to $85.94. That price is barely one-third of the peak that the shares enjoyed in the immediate aftermath of their public listing, and the stock has fallen by 40% in just the past two weeks.
Arc, USYC, CPN updates
Among the recent achievements Circle was eager to promote was last month’s launch of the public testnet of Arc, its “open Layer-1 blockchain.” Circle says the Ethereum Virtual Machine-compatible Arc currently has over 100 companies kicking its tires, including “leading institutions spanning capital markets, banks, asset managers, insurers, payments, fintech and technology, as well as all parts of the digital asset ecosystem.”
Circle says it’s now “exploring the possibility of launching a native token” on Arc (mirroring its USDC partner Coinbase’s recent musings about similar ‘exploration’ of a native token on its Base Layer-2 network).
Circle also launched its USYC tokenized money market fund on Arc’s testnet as USYC’s assets under management have topped $1 billion since its launch in May 2023. USYC is basically a token representing shares in the Cayman Islands-registered Hashnote International Short Duration Fund Ltd, which is administered by a Bermuda-licensed Circle offshoot.
The recently launched Circle Payments Network (CPN) claims to have already enrolled 29 financial institutions, with another 55 currently enduring eligibility reviews and 500 more “in the pipeline.”
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Winner take most
Asked about CPN’s vast ‘pipeline’ on the earnings call, Circle CEO Jeremy Allaire said the company was trying to emphasize quality over quantity. The focus is on adding “participants that have meaningful flows, participants that want the benefit of a multilateral framework like this, participants that have good reach into businesses, enterprises, consumer retail, etc.”
Circle CFO Jeremy Fox-Geen acknowledged that there are costs associated with onboarding so many new companies through “the risk and compliance reviews and ongoing monitoring.” But he claimed Circle was doing so “in a very cost effective, cost efficient manner,” in part by using AI technology “wherever possible.”
While CPN participants are currently making money, Allaire said Circle was emphasizing growing the network before seeking to monetize it or extract value. Down the road, there will be “many opportunities for very small fees which benefit these new, more efficient Internet scale architectures.”
Allaire celebrated the growth in the number of firms looking to take advantage of the “speed and capital efficiency and cost efficiency of stablecoin infrastructure.” These firms were learning that “if they can internalize how they move money, it actually frees up capital, reduces the amount of collateral that they have to have, creates more capital efficiency and can deliver a faster, better product, user experience.”
As for Arc’s native token plans, Allaire said Circle was “actively evaluating” the possibility but declined to offer specifics. Instead, Allaire said Circle is “looking broadly at utility economic incentives, stakeholder participation and governance across the full ecosystem that will engage with Arc. And we are exploring a token for Arc that aligns with trying to accomplish all those things.”
Asked about Circle’s ‘other’ revenue, Allaire said it involved Circle’s “blockchain network partnerships,” including “upfront revenues from the various integrations that we do, and then there are ongoing revenues for maintaining those.”
But transaction revenue fell to $4.7 million in Q3 from $5.8 million in Q2, which Allaire blamed on “a spike in the prior quarter, a spike in redemption revenues associated with USYC.” Never fear, though, for USYC has “returned to growth,” rising “200% from the end of the last quarter to today and now stands as the second-largest tokenized money fund product in the world.”
Asked why USDC will prevail in the stablecoin market-share fight, Allaire said he’s seen “consortiums of major companies launch stablecoin products that effectively have zero circulation.” This could be a reference to the USDG token issued by the Global Dollar Network, whose members include Anchorage Digital, Kraken, Robinhood (NASDAQ: HOOD), Bullish, and Galaxy Digital (NASDAQ: GLXY). And yet, USDG currently has a market cap of only $1 billion.
Other dollar-denominated stablecoins issued by companies like PayPal (NASDAQ: PYPL) (PYUSD, market cap $3.1 billion) and Ripple Labs (RLUSD, market cap $1 billion) over the last year or two have similarly struggled to gain traction. Allaire noted that USDC continues to grow despite “a lot of noise from a lot of people who think, ‘oh, I need to do a stablecoin.’”
Allaire said the stablecoin market was “not a ‘winner take all’ market structure, but it’s a ‘winner take most’ market structure.” Allaire sees “major B2B firms adding USDC as the payment option without a deal with Circle, without any relationship with Circle. They’re doing it because [USDC has] the most reach and interoperability.”
Allaire said, “stablecoin networks are like other Internet platform utilities, meaning they have network effects. And those network effects come from the number of products and services and integrations to the network.” Developers “want to build and integrate to things that are going to help them provide utility directly to their users. And so the reach of the network and the utility of the network compound each other.”
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Don’t mention the rewards
Later Wednesday, Allaire visited CNBC to expound on this view, noting that when “major companies” like Visa (NASDAQ: V) are “choosing what to build with, they’re choosing to build with us because we have this broad utility and these broad network effects.”
On November 12, Visa announced that it was piloting a program that will allow “businesses and platforms to send payouts directly to recipients’ stablecoin wallets.” Businesses using Visa Direct can fund payouts in fiat currency while recipients “can choose to receive their funds in USD-backed stablecoins like USDC.” Visa said it’s currently onboarding partners and expects wider access to this payout option next year.
Allaire called Circle’s infrastructure “an economic [operating system] for the internet” and sees “providing our infrastructure to banks” as “one of the single largest opportunities for us.”
Speaking of banks, Allaire was asked about the increasingly contentious fight between banks and companies like Coinbase over the stablecoin ‘yield/reward’ divide. The banks argue that allowing exchanges to offer customers interest for holding stablecoins on their platforms will result in massive withdrawals of bank deposits, thereby reducing banks’ ability to offer loans to customers.
Allaire said he would “take very firmly the other side of that debate.” Allaire claimed that “stablecoin money is safer money, and stablecoin money will become the most desirable money to borrow, and credit markets will develop all around the world, around borrowing and using this form of money.”
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