Circle IPO Insights: Growth Potential Behind Low Net Margins
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Circle IPO Insights: Growth Potential Behind Low Net Margins
This article will take Circle's seven-year journey to上市 as a线索, conducting an in-depth analysis of its growth potential and capitalization logic "behind the low net margin," from corporate governance, business structure to profitability model.
Navigating Web3 tides with focused insightsAuthor: @BlazingKevin_, Researcher at TechFlow
At a time when the industry is undergoing accelerated consolidation, Circle’s decision to go public reveals a seemingly contradictory yet highly imaginative story—declining net margins coexisting with immense growth potential. On one hand, it boasts high transparency, strong regulatory compliance, and stable reserve income; on the other, its profitability appears surprisingly “modest”—a mere 9.3% net margin in 2024. This apparent “inefficiency” does not stem from a flawed business model but instead uncovers a deeper growth logic: amid fading high-interest tailwinds and complex distribution cost structures, Circle is building a highly scalable, compliance-first stablecoin infrastructure, strategically reinvesting profits into market share expansion and regulatory positioning. This article traces Circle’s seven-year journey to IPO, analyzing from corporate governance and business structure to profit models, the hidden growth potential and capitalization logic behind its “low net margins.”
1 The Seven-Year IPO Marathon: A History of Crypto Regulatory Evolution
1.1 Paradigm Shifts Across Three Capitalization Attempts (2018–2025)
Circle’s path to going public serves as a living case study of the dynamic interplay between crypto enterprises and evolving regulatory frameworks. Its first IPO attempt in 2018 coincided with a period of regulatory ambiguity at the U.S. Securities and Exchange Commission (SEC) regarding the classification of cryptocurrencies. At that time, Circle pursued a “payments + trading” dual-engine model by acquiring the Poloniex exchange and secured $110 million in funding from institutions including Bitmain, IDG Capital, and Breyer Capital. However, regulatory scrutiny over exchange compliance, compounded by an unexpected bear market, caused its valuation to plummet 75% from $3 billion to $750 million—exposing the fragility of early-stage crypto business models.
The 2021 SPAC attempt reflected the limits of regulatory arbitrage. Although merging with Concord Acquisition Corp could bypass the stringent review process of a traditional IPO, the SEC’s questioning of USDC’s accounting treatment struck at the core—demanding proof that USDC should not be classified as a security. This regulatory hurdle led to the deal’s collapse, but paradoxically catalyzed a pivotal transformation: Circle divested non-core assets (selling Poloniex for $150 million to an investment group) and firmly established its strategic focus on “stablecoin-as-a-service.” From that point forward, Circle fully committed to strengthening USDC’s compliance framework and actively pursued regulatory licenses across multiple jurisdictions globally.
The 2025 IPO marks the maturation of capitalization pathways for crypto firms. Listing on the New York Stock Exchange requires full compliance with Regulation S-K disclosure rules and internal control audits under the Sarbanes-Oxley Act. Notably, the S-1 filing provided unprecedented transparency into reserve management: of approximately $32 billion in assets, 85% are allocated via BlackRock’s Circle Reserve Fund into overnight reverse repurchase agreements, while 15% are held at systemically important financial institutions such as BNY Mellon. This transparent approach effectively aligns Circle’s operations with the regulatory standards of traditional money market funds.
1.2 The Relationship with Coinbase: From Ecosystem Partnership to Strategic Tension
In the early days of USDC’s launch, Circle and Coinbase collaborated through the Centre Consortium. When Centre was founded in 2018, Coinbase held 50% equity, leveraging a “technology-for-distribution” model to rapidly gain market access. According to Circle’s 2023 IPO filing, it acquired the remaining 50% stake in the Centre Consortium from Coinbase for $210 million in stock, revising the revenue-sharing agreement for USDC.
The current revenue-sharing mechanism reflects a dynamic negotiation. As disclosed in the S-1, both parties split reserve income based on a formula tied to the volume of USDC supplied by Coinbase. Public data shows Coinbase held about 20% of total USDC supply in 2024. Yet, it captured approximately 55% of the reserve income—a disproportionate return that poses risks for Circle: as USDC expands beyond Coinbase’s ecosystem, marginal distribution costs will rise nonlinearly.
2 USDC Reserve Management, Equity Structure, and Shareholding Framework
2.1 Tiered Reserve Management
USDC’s reserve management exhibits clear “liquidity layering”:
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Cash (15%): Held at GSIBs like BNY Mellon to meet unexpected redemptions
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Reserve Fund (85%): Allocated through BlackRock-managed Circle Reserve Fund
Since 2023, USDC reserves have been restricted to cash balances in bank accounts and shares in the Circle Reserve Fund. The fund’s portfolio primarily consists of U.S. Treasury securities with maturities no longer than three months and overnight Treasury repo agreements. The dollar-weighted average maturity of the portfolio is under 60 days, with a weighted average duration under 120 days.
2.2 Share Class Structure and Tiered Governance
According to the S-1 filing submitted to the SEC, Circle will adopt a three-class share structure post-IPO:
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Class A shares: Ordinary shares issued during the IPO, each carrying one vote;
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Class B shares: Held by co-founders Jeremy Allaire and Patrick Sean Neville, each share carrying five votes, but capped at a maximum of 30% total voting power—ensuring the founding team retains strategic control even after going public;
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Class C shares: Non-voting shares, convertible under specific conditions, ensuring compliance with NYSE listing requirements.
This structure balances the need for public market fundraising with long-term strategic stability, preserving executive control over key decisions.
2.3 Executive and Institutional Ownership Distribution
The S-1 reveals significant insider ownership, with executives holding substantial stakes. Major venture capital and institutional investors—including General Catalyst, IDG Capital, Breyer Capital, Accel, Oak Investment Partners, and Fidelity—each hold more than 5% of equity, collectively owning over 130 million shares. A $5 billion IPO valuation would deliver substantial returns for these early backers.
3 Profit Model and Revenue Breakdown
3.1 Revenue Streams and Operational Metrics
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Revenue Source: Reserve income is Circle’s primary revenue stream. Each USDC token is backed 1:1 by U.S. dollars, and reserve assets—primarily short-term U.S. Treasuries and repo agreements—generate interest income, especially during high-rate cycles. Per S-1 data, total revenue reached $1.68 billion in 2024, with 99% ($1.661 billion) derived from reserve income.
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Partner Revenue Sharing: The agreement with Coinbase entitles it to roughly 50% of reserve income based on its USDC holdings, significantly reducing the portion retained by Circle and depressing net profit figures. While this sharing arrangement dampens profitability, it has been essential for ecosystem development and widespread USDC adoption.
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Other Revenue: Additional income comes from enterprise services, USDC minting fees, and cross-chain transaction charges, contributing only $15.16 million—relatively minor compared to reserve income.
3.2 The Paradox of Revenue Growth vs. Profit Contraction (2022–2024)
Beneath the surface contradiction lie structural drivers:
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Concentration from Diversified to Core Business: From 2022 to 2024, Circle’s total revenue grew from $772 million to $1.676 billion, representing a 47.5% CAGR. Reserve income has become the dominant source, increasing from 95.3% of total revenue in 2022 to 99.1% in 2024. This shift confirms the success of its “stablecoin-as-a-service” strategy, but also heightens sensitivity to macro interest rate fluctuations.
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Soaring Distribution Costs Compress Gross Margins: Distribution and transaction expenses surged from $287 million in 2022 to $1.01 billion in 2024—an increase of 253%. These costs cover USDC issuance, redemption, and payment settlement systems, rising rigidly with circulation volume. Unable to be meaningfully reduced, they drove Circle’s gross margin down from 62.8% in 2022 to 39.7% in 2024—revealing systemic vulnerability in its B2B stablecoin model during declining interest rate cycles.
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Profitability Achieved But Momentum Slowing: Circle turned profitable in 2023, reporting $268 million in net income (18.45% net margin). In 2024, despite continued profitability, operating and tax expenses left only $101.25 million in disposable income. Adding $54.42 million in non-operating income, net profit reached $155 million—but net margin had declined to 9.28%, nearly halving year-on-year.
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Cost Rigidity: Notably, general and administrative (G&A) expenses rose 37.1% year-on-year in 2024 to $137 million—the third consecutive year of increases. As detailed in the S-1, this spending supports global licensing applications, audits, and legal compliance team expansion, confirming the structural cost burden of its “compliance-first” strategy.
Overall, Circle decisively exited the “exchange narrative” in 2022, achieved a profitability inflection point in 2023, and maintained earnings in 2024 albeit with slowing momentum—its financial profile increasingly resembling that of a traditional financial institution.
However, its heavy reliance on Treasury yield spreads and transaction scale means any downturn in interest rates or deceleration in USDC growth will directly pressure profits. For sustainable future profitability, Circle must achieve a more balanced approach between “cost reduction” and “growth expansion.”
A deeper structural challenge lies in its business model: as USDC strengthens its role as a “cross-chain asset” (with $20 trillion in on-chain transaction volume in 2024), its monetary multiplier effect paradoxically weakens issuer profitability—a dilemma analogous to traditional banking.
3.3 Growth Potential Behind Low Net Margins
Despite persistent pressure on net margins due to high distribution and compliance costs (9.3% in 2024, down 42% YoY), Circle’s business and financials conceal multiple sources of growth momentum.
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Continued Circulation Growth Drives Stable Reserve Income:
According to CryptoQuant, USDC’s market cap surpassed $60 billion by early April 2025, second only to USDT’s $144.4 billion. By end-2024, USDC’s market share had risen to 26%. Momentum remains strong into 2025, with market cap already up $16 billion year-to-date. Given that USDC’s market cap was under $1 billion in 2020, its CAGR from 2020 to April 2025 stands at 89.7%. Even if growth slows over the next eight months, USDC’s market cap could reach $90 billion by year-end, pushing the CAGR to 160.5%. While reserve income is rate-sensitive, lower rates may stimulate demand for USDC, and robust scale expansion can partially offset downward rate pressures. -
Structural Optimization of Distribution Costs: Despite high payouts to Coinbase in 2024, these costs scale nonlinearly with circulation. For example, Circle’s partnership with Binance required only a one-time $60.25 million fee to increase platform USDC supply from $1 billion to $4 billion—resulting in a much lower customer acquisition cost per unit than via Coinbase. Based on plans disclosed in the S-1, Circle is poised to grow market cap at significantly lower cost.
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Conservative Valuation Ignores Market Scarcity: Circle’s IPO valuation range of $4–5 billion implies a P/E of 20–25x based on adjusted net profit of $200 million—comparable to legacy payment firms like PayPal (19x) and Square (22x). This suggests the market views Circle as a “low-growth, stable-profit” entity. Yet, this fails to price in its unique status as the only pure-play stablecoin company listed on U.S. exchanges. Such niche market leaders typically command valuation premiums, which are currently unaccounted for. Moreover, if stablecoin legislation passes, offshore issuers will face costly reserve restructuring, while Circle’s existing compliant framework can seamlessly adapt—creating a “regulatory arbitrage wind-down dividend.” Policy shifts could thus significantly boost USDC’s market share.
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Stablecoin Resilience Relative to Bitcoin: Stablecoin market caps remain relatively stable during sharp Bitcoin price drops, highlighting their unique role in volatile crypto markets. During bear markets, investors seek safe-haven assets, and the stability of stablecoin demand positions Circle as a potential “safe harbor.” Unlike Coinbase or MicroStrategy, whose revenues are highly correlated with crypto price movements, Circle’s earnings depend more on transaction volume and reserve interest—making it less sensitive to asset price swings. Thus, Circle demonstrates stronger downside resilience and higher earnings stability in downturns, potentially serving as a hedge within investor portfolios, especially during periods of market turbulence.
4 Risks—Upheaval in the Stablecoin Market
4.1 Institutional Networks No Longer an Unassailable Moat
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Double-Edged Incentive Alignment: Although Coinbase captures 55% of reserve income, it holds only 20% of USDC supply. This asymmetric split stems from legacy terms in the 2018 Centre Consortium agreement, effectively forcing Circle to pay $0.55 in cost for every $1 of new revenue—significantly above industry norms.
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Ecosystem Lock-In Risk: Prepaid agreements with exchanges like Binance expose imbalance in channel control. If major exchanges collectively demand renegotiation, a “spiral of rising distribution costs” could ensue.
4.2 Two-Way Impact of Stablecoin Legislation Progress
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Pressure for Localized Reserve Assets: Proposed legislation mandates 100% reserves (cash and cash equivalents) and prioritizes U.S. federally or state-chartered depository institutions as custodians. Currently, only 15% of Circle’s cash is held domestically at institutions like BNY Mellon. Compliance adjustments could incur hundreds of millions in one-time capital migration costs.
5 Conclusion—The Breakout Player’s Strategic Window
5.1 Core Advantage: Market Positioning in the Compliance Era
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Dual Compliance Network: Circle has built a regulatory matrix spanning the U.S., Europe, and Japan—a form of institutional capital difficult for traditional players like PayPal to replicate. Once the “Payment Stablecoin Act” passes, its compliance cost-to-revenue ratio is expected to drop significantly, creating a structural advantage.
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Wave of Cross-Border Payment Disruption: The “instant USDC settlement” service launched with Wise has drastically cut enterprise cross-border payment costs. Capturing even a fraction of SWIFT’s annual settlement volume could generate massive new circulation, fully offsetting interest rate declines.
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B2B Financial Infrastructure: Within Stripe’s e-commerce payment system, USDC settlement share has risen notably. Its automated fiat conversion protocol helps businesses save significantly on foreign exchange hedging—expanding into “embedded finance” use cases. This evolution moves USDC beyond a mere transaction medium toward a store-of-value function.
5.2 Growth Flywheel: Balancing Interest Rate Cycles and Economies of Scale
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Emerging Market Currency Substitution: In high-inflation regions, USDC is already capturing a share of dollar forex transactions. If Fed rate cuts accelerate local currency depreciation, this “digital dollarization” trend could drive significant circulation growth.
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Offshore Dollar Repatriation Channel: Through collaboration with BlackRock on tokenized asset projects, Circle is converting portions of offshore USD deposits into on-chain assets. This “capital conduit” value remains unpriced in its current valuation.
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RWA Tokenization: After acquiring relevant technology firms, Circle has launched tokenized asset services achieving meaningful AUM, generating substantial annual management fees.
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Interest Rate Buffer Period: With the federal funds rate still elevated, Circle must accelerate international expansion before rate-cut expectations fully materialize—pushing circulation past critical thresholds so scale effects can absorb downward rate pressure.
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Regulatory Grace Period: Before the final passage of the “Payment Stablecoin Act,” Circle can leverage its existing compliance edge to capture institutional clients, signing exclusive settlement agreements with top-tier hedge funds to build exit barriers.
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Deepening Enterprise Service Suite: Bundling compliance APIs and on-chain audit tools into a “Web3 Financial Services Cloud” offered via SaaS subscriptions to traditional banks opens a second, non-reserve revenue stream.
Beneath Circle’s low net margin facade lies a deliberate “profit-for-scale” strategy during its phase of strategic expansion. When USDC circulation surpasses $80 billion, and RWA AUM along with cross-border payment penetration achieves breakthroughs, its valuation logic will undergo a fundamental shift—from “stablecoin issuer” to “digital dollar infrastructure operator.” This transition demands investors adopt a 3–5 year horizon to reassess the monopoly premium generated by its network effects. At the historic convergence of traditional finance and the crypto economy, Circle’s IPO is not just a milestone for the company—it is a litmus test for the entire industry’s revaluation.
References: https://www.sec.gov/Archives/edgar/data/1876042/000119312525070481/d737521ds1.htm#rom737521_10https://www.bloomberg.com/opinion/newsletters/2025-04-02/stablecoins-are-growing-up?embedded-checkout=true
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