Circle IPO Interpretation: Growth Potential Behind Low Net Interest Rate

Circle chose to go public during the industry's accelerated clearing phase, behind which lies a seemingly contradictory yet imaginative story: the net profit margin continues to decline, yet it still harbors enormous growth potential. On one hand, it has high transparency, strong regulatory compliance, and stable reserve income; on the other hand, its profitability appears surprisingly "gentle", with a net profit margin 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: 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, and its profits are strategically "reinvested" into market share enhancement and regulatory leverage. This article will trace the seven-year journey of Circle's IPO, deeply analyzing the growth potential and capitalization logic behind its "low net profit margin" from corporate governance, business structure to profitability models.

1 Seven-Year Listing Marathon: A History of the Evolution of Crypto 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 companies and regulatory frameworks. The first IPO attempt in 2018 occurred during a period of ambiguity regarding the attributes of cryptocurrencies as defined by the U.S. Securities and Exchange Commission. At that time, the company formed a "payment + trading" dual-drive model through the acquisition of an exchange and secured $110 million in financing from multiple institutions. However, regulatory doubts about the compliance of exchange operations and the impact of the bear market caused the valuation to plummet from $3 billion to $750 million, exposing the vulnerability of early crypto companies' business models.

The SPAC attempts of 2021 reflect the limitations of regulatory arbitrage thinking. Although mergers can circumvent the stringent scrutiny of traditional IPOs, regulators' inquiries into the accounting treatment of stablecoins hit the nail on the head. This challenge led to the collapse of transactions but drove companies to complete critical transformations: divesting non-core assets and establishing a strategic focus on "stablecoin as a service." Subsequently, Circle fully committed to building USDC compliance and applied for regulatory licenses in multiple countries around the world.

The IPO options in 2025 mark the maturity of the capitalization path for crypto enterprises. Listing on the NYSE requires meeting a full set of disclosure requirements and undergoing internal control audits. Notably, the listing documents for the first time detailed the reserve management mechanism: of the approximately $32 billion in assets, 85% is allocated to overnight reverse repurchase agreements, and 15% is kept in systemically important financial institutions. This transparent operation effectively constructs an equivalent regulatory framework to traditional money market funds.

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

As early as the launch of USDC, Circle partnered with a well-known trading platform through an alliance. When the alliance was established in 2018, the platform held a 50% stake and quickly opened the market through a "technology output in exchange for traffic entry" model. According to Circle's listing documents disclosed in 2023, it acquired the remaining 50% stake in the alliance for $210 million in stock, and the profit-sharing agreement regarding USDC was also re-negotiated.

The current revenue-sharing agreement is a term of dynamic games. According to the disclosure, both parties share the USDC reserve income at a certain ratio, with the article mentioning that the platform shares about 50% of the reserve income, and the sharing ratio is related to the amount of USDC supplied by the platform. Public data shows that in 2024, the platform holds about 20% of the total circulating supply of USDC. With a 20% supply share, the platform takes about 55% of the reserve income, which poses some hidden dangers for Circle: when USDC expands outside the platform ecosystem, the marginal cost will rise non-linearly.

2 USDC Reserve Management and Equity and Shareholding Structure

( 2.1 Reserve Fund Tiered Management

The reserve management of USDC shows a clear characteristic of "liquidity layering":

• Cash ) 15% ###: deposited in large banks, used to cope with sudden redemptions.
• Reserve Fund (85%): Allocation of Circle Reserve Fund managed by asset management companies.

Starting from 2023, the USDC reserves are limited to cash balances in bank accounts and the Circle reserve fund, with its asset portfolio mainly including 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 Layered Governance

According to the listing documents, Circle will adopt a three-tier equity structure after going public:

• Class A shares: Common stock issued through IPO, one vote per share;
• Class B shares: held by co-founders, with five votes per share, a total voting power cap of 30%, ensuring decision-making dominance for the core team;
• Class C shares: no voting rights, can be converted under specific conditions, ensuring that corporate governance complies with exchange rules.

The equity structure aims to balance the stability of public market financing with the long-term strategy of the enterprise, while ensuring the executive team has control over key decisions.

) 2.3 Distribution of Holdings by Executives and Institutions

The prospectus discloses that the executive team holds a significant amount of shares, while several well-known venture capital and institutional investors hold more than 5% equity, with these institutions collectively owning over 130 million shares. An IPO with a valuation of 5 billion can bring them substantial returns.

![Circle IPO Analysis: The Growth Potential Behind Low Net Profit Margin]###https://img-cdn.gateio.im/webp-social/moments-bd15829dda1a8f869614d355f24ddc1b.webp###

3 Profit Model and Revenue Breakdown

( 3.1 Revenue Model and Operational Indicators

• Revenue Source: Reserve income is the core revenue source for Circle. Each USDC token is backed by an equivalent amount of US dollars, and the invested reserve assets mainly include short-term U.S. Treasury bonds and repurchase agreements, which generate stable interest income during high interest rate periods. In 2024, total revenue reached $1.68 billion, of which 99% ) approximately $1.661 billion ### came from reserve income.

• Revenue Sharing with Partners: The 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 lower actual income belonging to Circle and dragging down net profit performance. Although this revenue-sharing ratio has affected 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 issuance, cross-chain fees, etc., but the contribution is small, only 15.16 million dollars.

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

Behind the superficial contradictions lie structural causes:

• Converging from a diversified to a 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%. Reserve income has become the core source of revenue, with its share of income increasing from 95.3% in 2022 to 99.1% in 2024. This increase in concentration reflects the successful implementation of the "stablecoin as a service" strategy, but it also means a significant increase in dependence on macro interest rate changes.

• Distribution expenses surge compressing gross profit space: Distribution and transaction costs have risen 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, growing rigidly alongside the expansion of USDC circulation.

Due to the difficulty in significantly compressing 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 downward interest rate cycle.

• Profitability turned from loss to profit but showed marginal slowdown: Circle officially turned 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, after deducting operating costs and taxes, the disposable income 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: In 2024, the investment in general administrative expenses will reach 137 million USD, a rise of 37.1% year-on-year, marking three consecutive years of growth. According to disclosed information, this expenditure is mainly used for global license applications, audits, and the expansion of legal compliance teams, confirming the cost rigidity brought by the "compliance-first" strategy.

Overall, Circle completely broke away from the "exchange narrative" in 2022, reached 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 is highly dependent on the spread of US Treasury yields and trading volume, which 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 deeper contradiction lies in the flaws of the business model: when USDC's attributes as a "cross-chain asset" enhance the on-chain transaction volume to $20 trillion in 2024, its currency multiplier effect instead weakens the profitability of the issuer. This parallels 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, a year-on-year decrease of 42%, its business model and financial data still hide multiple rise drivers.

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

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%. In 2025, USDC's market capitalization has grown by $16 billion. Considering that its market capitalization was less than $1 billion in 2020, the annual compound growth rate )CAGR( from 2020 to early April 2025 has reached 89.7%. Even if USDC's growth slows down 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 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 a high commission 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, the collaboration with a certain exchange involved a one-time payment of $60.25 million, which increased its platform's USDC supply from $1 billion to $4 billion, resulting in a significantly lower customer acquisition cost compared to the former. Combining this with the partnership plan between Circle and the exchange in the listing documents, we can expect market value growth at a lower cost.

• Conservative valuation does not price in market scarcity: Circle's IPO valuation is between $4-5 billion, based on an adjusted net profit of $200 million, with a P/E ratio between 20-25x. This is similar to some traditional payment companies and seems to reflect the market's perception of its "low growth stable profit" positioning. However, this valuation system has not fully priced in its scarcity value as the only pure stablecoin target in the US stock market. Unique targets in niche segments typically enjoy valuation premiums, which Circle has not accounted for. At the same time, if stablecoin-related legislation is successfully implemented, offshore issuers will need to significantly adjust their reserve structures, while the existing compliance framework can be directly transitioned, creating a "regulatory arbitrage termination dividend." Corresponding policy changes could lead to a significant increase in USDC's market share.

• The market value trend of stablecoins shows resilience compared to Bitcoin: the market value of stablecoins can maintain relative stability when the price of Bitcoin falls sharply, demonstrating their unique advantages in the volatility of the crypto market. When the market enters a bear phase, investors often seek safe-haven assets. The stability of the market value growth of stablecoins may make Circle a "safe harbor" for funds. Compared to some companies that are highly dependent on market conditions, Circle, as the main issuer of USDC, relies more on the trading volume of stablecoins and interest income from reserve assets for its profit model, rather than being directly affected by the price fluctuations of crypto assets. Therefore, Circle has a stronger risk resistance ability in a bear market and higher profitability stability. This allows Circle to be