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In-Depth Research Analysis:
Executive Summary:
Core Thesis: We believe that Circle is not only the world's most compliant issuer of the digital dollar (USDC) but also a key infrastructure builder for the next-generation global financial network. Against a backdrop of increasing regulatory clarity, Circle is constructing a "value superhighway" connecting traditional and digital finance, leveraging its transparent reserves, deep institutional partnerships, and a robust developer ecosystem.
Core Business: Digital-Age "Seigniorage". Circle's primary profit is derived from the interest income generated by its vast USDC reserves (currently ~$60 billion). In a high-interest-rate environment, this constitutes an exceptionally clear and lucrative business model, making the company a direct beneficiary of the Federal Reserve's monetary policy.
Growth Engine: From "Issuer" to "Service Provider". Unlike its largest competitor, Tether (USDT), Circle's future growth potential extends far beyond reserve interest. The company is building a powerful developer ecosystem through its Web3 services (e.g., Wallet APIs, Cross-Chain Transfer Protocol - CCTP), aiming to become the "Visa" or "Mastercard" of the digital economy and transitioning from a pure asset issuer to a high-margin SaaS provider.
Investment Thesis: A Bet on "Compliance" and "Network Effects". Investing in Circle is essentially a bet on a regulated, transparent, and scalable dollar payment network. As trillion-dollar markets like global cross-border payments, B2B settlements, and Real-World Asset (RWA) tokenization gradually open up, the compliant USDC is poised to become the settlement unit of choice. Its deep integration with giants like Coinbase, BlackRock, and BNY Mellon creates a formidable regulatory and partnership moat.
Risk Factors: Investors must pay close attention to three core risks:
1) Interest Rate Sensitivity: The company's profits are highly correlated with macroeconomic interest rates; a future rate-cutting cycle will directly impact its profitability.
2) Channel Dependence: The deep distribution agreement with Coinbase, while driving scale, also allocates a significant portion of the profits, constituting a major cost center.
3) Intensifying Competition: Competition from traditional tech giants like PayPal and other compliant stablecoins should not be underestimated.
Conclusion: Circle (NYSE: CRCL) is a unique investment vehicle that combines the stable profit model of a financial stock with the long-term growth potential of a technology stock. For investors seeking a compliant, long-term position in the digital asset wave, Circle offers a scarce and direct opportunity to invest in the core of next-generation financial infrastructure.
1: Deconstructing the Business Model: "Digital Seigniorage" and the "Sweet Burden" of Coinbase
At its core, Circle's business model is exceptionally simple yet powerful. It can be summarized in two points: earning a form of digital-age "seigniorage" through its core product, USDC, and achieving rapid scale through a deep alliance with industry giant Coinbase, although the latter comes at a significant cost.
1.1 Core Revenue Source: "Digital Seigniorage" in the Digital Age
Circle's primary income is generated from the interest earned on the fiat currency reserves that users deposit in exchange for USDC. This is a classic and highly profitable financial business model.
Mechanism: When an institutional user deposits $1 million via Circle Mint, Circle mints an equivalent 1 million USDC on the blockchain and delivers it to the user. This $1 million in reserves is not held idle; it is invested in highly liquid, low-risk assets. According to the company's prospectus, these assets primarily consist of:
) Cash Deposits: Held in several global systemically important banks (G-SIBs), including BNY Mellon.
) Short-Term U.S. Treasuries: Held through the Circle Reserve Fund, a dedicated fund managed by BlackRock exclusively for Circle.
Revenue Scale: This interest income constitutes the absolute majority of Circle's revenue. Financial reports show that from 2022 to 2024, reserve income accounted for 95%, 99%, and 99% of total revenue, respectively. During the Federal Reserve's rate-hiking cycle, the profitability of this business was dramatically amplified by soaring Treasury yields, making Circle one of the most direct beneficiaries of macroeconomic interest rate policy.
1.2 Core Cost Structure: The "Sweet Burden" of Coinbase
If interest income is Circle's "accelerator," then its distribution agreement with Coinbase is the critical "throttle" that determines its net profit. This agreement is both a powerful engine for USDC's growth and Circle's largest cost center—a true "sweet burden."
According to publicly disclosed agreement details, the agreement, updated in August 2023, has a sharing model far more complex than a simple 50/50 split:
On-Platform Revenue Exclusivity:
For USDC circulating on the Coinbase platform (exchange, custody services), 100% of the reserve income generated belongs to Coinbase.
For USDC circulating on the Circle platform (e.g., Circle Mint), 100% of the income belongs to Circle
Off-Platform Revenue Sharing:
For USDC circulating on third-party platforms (e.g., other exchanges, DeFi protocols, wallets), the reserve income, after deducting certain issuance costs, is split 50/50 between Circle and Coinbase.
Where is the "Burden"? The key lies in the rapidly increasing share of USDC on Coinbase's platform. Data shows that this share surged from 5% in 2022 to a significant 20% in 2024. This means a growing portion of USDC reserve income is allocated directly to Coinbase, bypassing the "50/50 split" pool entirely.
The financial data clearly illustrates this: In 2024, Circle's total revenue was $1.661 billion, while distribution and transaction costs were $1.011 billion. Of this, Coinbase's share of the revenue was $911 million. This effectively means Coinbase took home approximately 55% of Circle's total revenue for the year.
And where is the "Sweetness"? This deep alignment of interests gives Coinbase a powerful incentive to promote and integrate USDC, forming the strongest alliance against USDT. Without Coinbase as its most compliant and influential distribution channel, USDC would struggle to achieve its current scale and status.
1.3 The Future Growth Curve: The SaaS Dream Beyond Interest
Acutely aware of the risks of relying on interest rates and a single channel, Circle is actively developing its second growth curve: becoming a financial technology services (SaaS) provider. While this segment's revenue is currently small ($15.17 million in 2024), it represents the company's future.
Its key products include:
Circle Wallets: Enables developers to quickly integrate wallet functionality into their applications. Official data shows that the beta version has already attracted over 12,000 developers and deployed 19 million wallets, demonstrating strong traction.
Cross-Chain Transfer Protocol (CCTP): Facilitates seamless and secure transfers of USDC across different blockchains. As of March 2025, it had processed over $41 billion in transfers, proving its role as critical cross-chain infrastructure.
Circle Paymaster: Allows users to pay gas fees directly with USDC, eliminating the need to hold native chain tokens (like ETH) and greatly simplifying the user experience.
These services, monetized through API call fees and transaction fees, are poised to provide Circle with a more stable, higher-margin, and non-interest-rate-dependent revenue stream in the future. This is the core logic supporting its valuation as a "tech company" rather than just a "bank."
2: The Bull Case - Why Circle is Unique
Investing in Circle (NYSE: CRCL) is not merely an investment in a fintech company; it is an investment in the future of a regulated "digital dollar superhighway" that connects the traditional and digital financial worlds. We believe its core investment value is built upon four pillars: an unbreachable regulatory moat, a solid position as the "picks and shovels" provider of the digital economy, a trillion-dollar blue-ocean market, and its role as a bridge to the future of asset tokenization.
2.1 The Unbreachable Regulatory Moat
In the digital asset space, compliance is the sole criterion distinguishing the "irregulars" from the "regulars," and this is precisely where Circle's core competency lies.
A Fundamental Distinction from Competitors: Compared to USDT, Circle demonstrates superior regulatory compliance. The company publishes monthly reserve attestation reports from an accounting firm, ensuring that every circulating USDC is backed by an equivalent value of cash and short-term U.S. Treasuries.
Endorsement from Top-Tier Traditional Finance Institutions: Circle's reserves are managed by BlackRock, the world's largest asset manager, and custodied by BNY Mellon, one of the world's largest custodian banks. This deep integration with top-tier TradFi institutions provides it with unparalleled creditability and risk isolation.
A Leading Edge in Global Licensing: Circle holds key Money Transmitter Licenses (MTLs) in the U.S., including the coveted BitLicense from New York State, and has secured operational licenses in major financial hubs like the European Union, Singapore, and Japan. With the implementation of regulations like the EU's Markets in Crypto-Assets (MiCA) regulation, USDT faces the risk of being delisted from major exchanges, creating a significant market opportunity for the fully compliant USDC.
2.2 The "Picks and Shovels" Play of the Digital Economy
During the 19th-century gold rush, the most profitable individuals were not the gold prospectors but those who sold them picks and shovels. In today's digital economy wave, Circle plays this exact "picks and shovels" role.
A Universal Medium of Exchange: Whether it's Decentralized Finance (DeFi), NFT trading, Web3 gaming, or enterprise blockchain applications, nearly every scenario requires a stable, reliable, and programmable medium of value exchange. USDC is this universal "digital dollar," and its demand does not depend on the success of any single application or blockchain.
Powerful Network Effects: USDC is natively issued on over 20 major blockchains, including Ethereum, Solana, and Avalanche, making it one of the most interoperable stablecoins. This broad reach, combined with its powerful developer tools (like the CCTP cross-chain protocol), creates a strong network effect, attracting an ever-growing number of developers and applications to build within its ecosystem.
2.3 A Trillion-Dollar Blue-Ocean Market: Far Beyond Crypto Trading
To limit Circle's potential market to existing cryptocurrency trading would be incredibly shortsighted. USDC's true ambition is to disrupt the inefficient and costly traditional global payment system.
A Massive Total Addressable Market (TAM): The global cross-border payments market is a colossal market approaching $200 trillion. Within this, the B2B (business-to-business) non-wholesale payment segment alone exceeds $30 trillion. Traditional wire transfers often take days to settle and incur fees of 2-3% or even higher.
Disruptive Efficiency and Cost: In contrast, USDC transfers, built on blockchain, operate 24/7 and can settle in minutes or even seconds. The transaction cost (gas fee) is independent of the transfer amount and is typically far lower than in traditional systems. This holds a fatal attraction for scenarios like global trade, multinational corporate treasury management, and personal remittances.
2.4 The Bridge to the Future: Powering Real-World Asset (RWA) Tokenization
If cross-border payments are Circle's mid-term catalyst, then Real-World Asset (RWA) tokenization is its most exciting long-term vision.
Defining the Next Generation of Capital Markets: RWA refers to the process of issuing traditional assets—such as real estate, bonds, private equity, and art—as tokens on a blockchain to enable fractional ownership, efficient transfer, and global trading. This is an emerging market with a potential size in the tens of trillions of dollars.
The Indispensable Settlement Layer: In this future capital market, all tokenized assets will require a stable, compliant, and trustworthy digital currency as their unit of account and settlement. With its regulatory advantages and market position, USDC is the most formidable contender to become the "digital settlement dollar" of the RWA era. In a sense, investing in Circle is also investing in the foundational infrastructure of the next-generation global capital markets.
3: Risk Analysis (The Bear Case) - Challenges That Cannot Be Ignored
While the investment thesis for Circle is compelling, a prudent analysis requires a thorough examination of the potential risks. We believe investors should pay close attention to four core challenges: high sensitivity to macro interest rates, deep dependence on a single channel, intensifying competition in the same lane, and long-term regulatory uncertainty.
3.1 The "Sword of Damocles" of Macro Interest Rates
This is the most direct and significant risk to Circle's current business model. The company's profitability is highly tied to the macroeconomic interest rate environment.
Extreme Profit Sensitivity to Interest Rates: As previously mentioned, over 99% of Circle's revenue comes from interest generated on its reserves. Its profit formula can be simplified to: Net Income ≈ (Total Reserve Size × Market Interest Rate) - Coinbase Share - Operating Costs. This means a future rate-cutting cycle by the Federal Reserve will directly and significantly compress Circle's profit margins.
Profitability Cyclicality: The current high profitability was achieved during the most aggressive Fed hiking cycle in decades. Once interest rates enter a downward trend, its revenue and profit levels will face a severe test. This imbues Circle's stock with the nature of a financial cyclical, and its valuation could fluctuate dramatically based on market expectations of the future rate path.
3.2 Channel Dependence on Coinbase
The partnership with Coinbase is a double-edged sword, presenting risks as prominent as its benefits.
Significant Bargaining Power Disadvantage: Financial data shows that Coinbase took home approximately 55% of Circle's total revenue in 2024. This indicates that Coinbase holds immense bargaining power in the relationship. Any future changes to the agreement terms upon renewal or amendment that are unfavorable to Circle will directly erode its profits.
Strategic and Concentration Risk: USDC's success relies heavily on Coinbase as its most critical distribution channel. While their interests are currently highly aligned, the possibility that Coinbase might adjust its support for USDC due to its own strategic considerations (e.g., more aggressively promoting other assets or features within its ecosystem) cannot be ruled out in the long term. This high degree of reliance on a single partner constitutes a significant concentration risk.
3.3 Intensifying Competition in the "Compliance Lane"
Circle's leading position in the compliant stablecoin space is not unassailable. Competition is heating up.
Entry of Tech Giants: Payments giant PayPal has already launched its own U.S. dollar stablecoin, PYUSD. Although its current scale is small, PayPal's potential, with hundreds of millions of users and a vast merchant network globally, should not be underestimated. The entry of other tech or financial giants in the future cannot be ruled out.
Potential Competition from Traditional Finance: As regulatory frameworks become clearer, stablecoins issued by large banks or banking consortiums may also emerge. These institutions possess deep customer trust, massive balance sheets, and ready-made compliance infrastructure. Should they enter the market, they would become formidable competitors, directly vying for the core markets USDC is targeting, such as corporate payments and cross-border settlement.
3.4 Regulatory Uncertainty: The Other Edge of the Sword
While its current compliance advantage serves as a moat, the future direction of regulation remains the largest source of uncertainty.
Potential for Unfavorable Regulation: Global regulators are still exploring how to manage stablecoins. Future regulations could pose a fundamental challenge to Circle's business model. For example:
Imposing bank-like capital adequacy requirements, which would tie up significant company capital and drastically reduce return on equity.
The launch of Central Bank Digital Currencies (CBDCs), which could compete directly with private stablecoins in certain functions.
Continuously Increasing Compliance Costs: As global regulations tighten, the human, material, and financial resources required to meet the compliance demands of various jurisdictions will continue to increase, thereby eroding profit margins.
4: Financial and Valuation Analysis - Pricing the "Digital Dollar"
4.1 Key Valuation Drivers
We believe there are four core drivers that will determine Circle's future value:
USDC Circulation Growth: This is the cornerstone of the company's revenue scale, dependent on its market share expansion and penetration in new payment use cases.
Net Yield on Reserves: This is the core variable determining the company's profit margin, directly linked to the Federal Reserve's interest rate policy and the revenue-sharing terms with Coinbase.
SaaS & Services Revenue Growth: This is key to whether Circle can achieve a higher tech-stock valuation and depends on the adoption rate of its developer tools.
Operational Efficiency and Cost Control: As the company scales, its ability to control costs will directly impact its bottom-line profit.
4.2 Current Valuation and Peer Comparison
We will compare CIRCLE with its most direct peer in the industry, Coinbase (NASDAQ: COIN).
Circle (CRCL): Current PE at 242x, PS at 22x.
Coinbase (COIN): In comparison, Coinbase's current P/E ratio is approximately 67x, and its P/S ratio is approximately 14x.
Analysis:
Relatively speaking, CIRCLE's valuation is significantly higher than COINBASE's, and both exhibit a degree of cyclicality.
Although the current valuation is rich, if USDC's scale can expand rapidly, CIRCLE's short-term financial performance still has the potential for explosive growth.
Given its high valuation and acute sensitivity to macro interest rates, we view Circle as a high-risk, high-reward long-term investment.
In summary, Circle is an "expensive piece of gold." Its value is undeniable, but its current price demands that investors have extremely strong conviction in its future high-speed growth.
5: Key Risks & Challenges
Macroeconomic Risk: The company's profitability is highly correlated with the Federal Reserve's interest rate policy. A future rate-cutting cycle would directly pressure its interest income and profit margins.
Industry Competition Risk: The stablecoin and digital payments sector is highly competitive. The company faces threats not only from other stablecoin issuers but also from the potential entry of traditional financial giants (e.g., PayPal, banking consortiums) into the field.
Regulatory Policy Risk: The global regulatory landscape for digital assets remains uncertain. Any adverse regulatory changes, such as stricter requirements for reserve management or the launch of a Central Bank Digital Currency (CBDC), could materially and adversely impact the company's business model.
Market and Valuation Risk: The company's current stock price reflects a high valuation level, which has already priced in optimistic expectations for future growth. The stock price may face significant volatility risk if future financial performance fails to meet these expectations.
Disclaimer:
The Information presented above is for information purposes only, which shall not be intended as and does not constitute an offer to sell or solicitation for an offer to buy any securities or financial instrument or any advice or recommendation with respect to such securities or other financial instruments or investments. When making a decision about your investments, you should seek the advice of a professional financial adviser and carefully consider whether such investments are suitable for you in light of your own experience, financial position and investment objectives. The firm and its analysts do not have any material interest or conflict of interest with any stocks mentioned in this report.
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