Circle Depth Analysis: Opportunities and Challenges for Stablecoin Giants

This article will provide an in-depth analysis of the issuance mechanism of USDC, its competitive advantages, and the investment value of Circle. Author: Biteye core contributor dddd Introduction In the global digital currency market, stablecoins serve as a bridge connecting traditional finance with the world of cryptocurrencies, playing an increasingly important role. As the second-largest stablecoin by market share, USDC (USD Coin) and its issuer Circle have recently captured market attention. Circle's stock price has soared from an IPO price of $31 at the beginning of June to nearly $200 (reaching a peak of $298.99). This astonishing stock performance not only reflects the growth trajectory of the stablecoin industry but also reveals the opportunities and challenges faced by this emerging financial instrument. This article will delve into the issuance mechanism of USDC, its profit model, competitive advantages, as well as the financial condition and investment value of Circle. The issuance mechanism and profit model of USDC Capital Guarantee System USDC adopts a strict fund protection mechanism. For every USDC purchased, investors must pay 1 USD as a reserve. To ensure the safety of investor funds, USDC implements a separation of ownership and control system. Legally, Circle, as the issuer, holds the ownership of the USDC reserves and manages these assets in a "trust form." USDC holders, by holding the tokens, enjoy actual control over the reserves, and Circle can only operate the reserves according to user instructions. In terms of custody, USDC reserves are held by Bank of New York Mellon in a dedicated account, ensuring the safety and independence of the funds. Investment management is handled by the globally renowned asset management firm BlackRock, primarily investing in money market funds managed by them, with U.S. Treasury securities as the main investment target, obtaining returns through interest rate spreads. Risks and Limitations of Profit Models The profit model of USDC is relatively stable, but it also has obvious risks and limitations. Firstly, the reserve income is entirely determined by BlackRock's money market fund (which mainly invests in short-term government bonds), and Circle lacks proactive control over this income. From the actual performance perspective, according to Circle's 2024 financial report, the interest income from USDC reserves was $1.661 billion, with a total issuance of $60 billion, resulting in an actual annualized yield of 2.77%, while the yield on U.S. six-month Treasury bonds during the same period was 4.2%. This data shows that the yield of the money market fund managed by BlackRock is significantly lower than the yield level of direct investments in government bonds, which may be mainly due to factors such as management fees of the money market fund, liquidity management needs (requiring the retention of some cash), and the risk diversification requirements of the investment portfolio. In addition, reserve income is extremely sensitive to fluctuations in government bond yields; profits increase when interest rates rise and decrease when interest rates fall. This passiveness makes Circle's profitability highly dependent on changes in the macroeconomic environment and monetary policy. The current interest rate hike cycle by the Federal Reserve has provided Circle with a relatively favorable income environment, but once it enters a rate-cutting cycle, the company's profitability will face significant pressure. More importantly, Circle cannot enjoy all the benefits brought by USDC alone. Due to historical cooperation, Circle needs to share the investment income of USDC with Coinbase. The specific distribution mechanism is as follows: all USDC income within the Coinbase platform belongs entirely to Coinbase, while income from USDC outside the platform is shared equally by both parties, each taking 50%. This arrangement results in Circle actually receiving only 38.5% of the total investment income from USDC, while 61.5% of the income from USDC belongs to Coinbase (calculated based on 2024 financial data). Market competition and channel expansion In order to reduce dependence on Coinbase, Circle is actively exploring new distribution channels. The company has partnered with Binance, paying $60.25 million and monthly trading incentive fees in exchange for Binance's support. This strategy has yielded significant results, as Binance has become the world's largest USDC trading market, accounting for 49% of total trading volume, 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 the Base chain, collaborating with Stripe to support USDC on the Base chain, and offers users holding USDC in the Coinbase Advance version of the derivatives market up to 12% yield to maintain its market position and distribution revenue. Analysis of Competition Between USDC and USDT Market Share Comparison In the stablecoin market, USDT still holds a dominant position. As of May 31, 2025, the market capitalization of USDT reached 153 billion USD, accounting for 61.2% of the market share; while the market capitalization of USDC was 61 billion USD, accounting for 24.4% of the market share. The issuance growth rate of USDT also continues to exceed that of USDC, demonstrating its strong position in the market. The competitive advantage of USDC Although it lags behind USDT in market share, USDC has significant advantages in several aspects. Transparency and Audit Advantages: USDC adopts a "100% transparent peg" model, with reserve assets consisting solely of cash (23%) and short-term US Treasury bonds (77%), audited monthly by institutions such as Grant Thornton and releasing public reports. By the fourth quarter of 2024, the reserve size reached $43 billion. This transparency has led institutions like BlackRock and Goldman Sachs to choose USDC as a cross-border settlement tool, with an institutional holding ratio of 38% in 2024. In contrast, USDT was investigated due to issues with reserve transparency and faced controversies from 2017 to 2019, ultimately reaching a settlement of $41 million. Although USDT improved its reserve structure after 2024, its "self-audit" model still suffers from a lack of transparency. Regulatory Compliance: USDC holds a New York BitLicense, EU MiCA license, and Japan FSA certification, becoming the first global stablecoin approved for circulation in Japan. By participating in the U.S. "GENIUS Act" legislation, USDC is expected to become the "industry benchmark" under the regulatory framework, successfully attracting banks such as JPMorgan and Citibank to connect to its payment network in 2024. USDT adopts a "gray area" strategy, with its headquarters located in Hong Kong and registered in the British Virgin Islands, operating in a regulatory framework that is ambiguous. The EU MiCA legislation excludes USDT from the compliance list, leading to a significant drop in its market share in the EU from 12% at the beginning of 2024 to 5%. Investor confidence: In the 2023 Silicon Valley Bank incident, USDC briefly fell to $0.87, but after Circle publicly demonstrated its reserves the next day, the price rebounded to $0.99 within 48 hours, showcasing its market recovery ability under a compliant model. BlackRock only accepts USDC as collateral in its on-chain fund products, reflecting institutional trust in it. Traditional finance infiltration: USDC collaborates with SWIFT to develop a "digital dollar payment gateway," connecting 150 international banks in 2024, aiming to become the "blockchain version of SWIFT" for enterprise cross-border settlements. The impact of regulatory policies The introduction of the "2025 U.S. Stablecoin Innovation and Establishment Act" (GENIUS Act) may reshape the landscape of the stablecoin market. As the first federal regulatory framework for stablecoins in the U.S., this act could make USDC the only globally compliant stablecoin, attracting more institutions to incorporate it into their asset management products. For USDT, if the bill requires stablecoin issuers to be federally chartered banks, USDT may be banned from operating in the US due to offshore registration, and it is expected to lose about 20% of its market share. Circle Company Financial Analysis Profitability Analysis Circle's financial situation presents some contradictory characteristics. In terms of profitability, the company's gross margin is 24.00%, significantly lower than the industry median of 50.18% (hereafter, all "industry" refers to the banking sector as well as financial technology companies like PayPal, Visa, and Stripe). The main reason is that the revenue comes from money market funds managed by BlackRock, with yields limited by U.S. Treasury rates, lacking pricing power, and incurring channel fees. However, Circle's EBITDA profit margin is 11.43%, slightly higher than the industry median of 10.43%, indicating that the company performs well in terms of operational efficiency. More notably, the company's net profit margin reaches 9.09%, far exceeding the industry median of 3.57%, reflecting the firm's efficiency in managing operating costs. The asset utilization rate is relatively low. Circle's asset utilization performance is poor. The company's asset turnover ratio is only 0.05 times, far below the industry median of 0.59 times, meaning that every 1 dollar of assets only generates 0.05 dollars in revenue. The return on total assets (ROA) is 0.28%, also well below the industry median of 2.05%. The root cause of this situation lies in Circle's substantial investment in government bonds, which, although stable in return, have a lower yield, resulting in lower asset utilization efficiency. However, as long as Circle can retain more funds, the total profits generated will still be considerable. cash flow situation Circle has excelled in cash flow management, with operating cash flow reaching $324 million, far exceeding the industry median of $113.92 million. This is mainly due to the regulatory requirements of the stablecoin business, which necessitate the company to maintain high cash reserves. Growth Prospects and Concerns Circle's revenue growth performance 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 a significant deterioration in profit growth. EBITDA growth is -31.75%, EBIT growth is -32.57%, and earnings per share growth is -61.90%, resulting in a "growing revenue but not profit" situation. This situation is mainly due to the significant increase in costs during the company's expansion process. Distribution and transaction costs increased by 71.3% month-on-month, marketing expenses reached 3.9 million USD, and the company's salary expenses grew by 23.7% year-on-year. Valuation Analysis and Investment Perspective Current valuation level

Circle's price-to-earnings ratio, price-to-sales ratio, price-to-cash flow ratio, and price-to-book ratio are all higher than the industry median, reflecting investors' extremely high expectations for the company's future operational performance. To support these high expectations, Circle needs to achieve strong growth in profitability, sales, and disposable cash to absorb the current high valuation. It is worth noting that the future growth momentum of Circle may mainly come from product diversification, particularly the rapid expansion of the EURC euro stablecoin in the European market, as well as breakthroughs in the digitalization of physical assets with the RWA tokenized product USYC. Equity structure analysis The equity structure of Circle is not healthy. Institutional investors hold only 10% of the shares, while institutional investors in Coinbase account for 30%. The shareholding ratio of the company’s senior management is 7.4%, which is relatively low. Retail and other investors hold 37% of the shares, which is more than both institutional and executive holdings. The IPO pricing range given by JPMorgan, Citigroup, and Goldman Sachs is $27-28, reflecting a lack of confidence from institutions in Circle. Investment Logic Analysis Bullish logic: Stablecoins address the inherent pain points of traditional fiat currency trading systems, and the market is in an expansion phase. USDC has a significant compliance pioneer advantage in the stablecoin market, gradually reducing its reliance on Coinbase for distribution. In the future, it could obtain a larger share of investment dividends. The GENIUS Act may force major competitor USDT to exit the U.S. market. Bearish logic: The valuation is disconnected from the fundamentals, with a significant contradiction between the continuous decline in profits and the high valuation. The asset return rate is low, making it difficult to support long-term value growth. Over 60% of the USDC investment income belongs to Coinbase, and Circle cannot obtain the full benefits (2024 financial data). The proportion of institutional investors' shareholding is too low, and the equity structure is unhealthy. Conclusion and Outlook Circle company presents characteristics of "high market expectations, rapid growth, and overvaluation." On one hand, the company's stock price has increased by over 540% since its IPO, reflecting the market's recognition of its advantages in regulatory compliance and market share expansion. USDC, as the most transparent stablecoin, enjoys a high reputation among institutional investors, laying a solid competitive foundation for the company. On the other hand, the company faces challenges such as limited profitability, low asset utilization, and the digestion of high valuation. In the short term, the substantial rise in Circle's stock price has already fully reflected the market's optimistic expectations, and investors need to pay attention to the alignment between valuation and fundamentals. In the long term, whether Circle can achieve breakthroughs through product diversification will be key. The expansion of the EURC euro stablecoin in the European market, the innovative application of the RWA tokenized product USYC, and the gradual reduction of reliance on Coinbase's revenue sharing are all expected to bring new growth momentum to the company. With the advancement of regulatory policies such as the "GENIUS Act" and the continuous development of the stablecoin market, USDC's first-mover compliance advantage may translate into a larger market share and profitability. When evaluating Circle, investors need to balance its innovative potential with the current valuation level, paying attention to whether the company can justify the high expectations set by the market through diversification strategies and operational efficiency improvements.