Working for Coinbase: Stablecoin Leader Circle's Profit Dilemma
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Working for Coinbase: Stablecoin Leader Circle's Profit Dilemma
For every additional USDC dollar minted, Coinbase receives it first.
Navigating Web3 tides with focused insightsBy: Cathy
In May 2026, the total market cap of stablecoins broke through $320 billion. USDC circulation surged to $78.1 billion, reaching a new level compared to pre-IPO.
Logically, Circle's shareholders should be popping champagne. But the reality is: while earnings per share in Q1 2026 exceeded expectations, revenue failed to meet Wall Street's passing mark, and the stock price retraced significantly from its peak.
Scale hit a new high, yet the market voted with its feet.
It's not that USDC isn't good; it's that USDC is too good. So good that for every additional token issued, the money Circle gets to keep becomes thinner.
To understand this, you only need to answer one question: Who ultimately pockets the interest generated by $1 worth of USDC in a year?
01 How the Interest on One Dollar Is Distributed
First, let's talk about how Circle makes money. From 2022 to 2024, 95% to 99% of its revenue came from one thing: buying USDC reserves into short-term U.S. Treasuries and reverse repos to earn interest.
Simply put, this is a money market fund, only the share certificate is called USDC.
Now assume you deposit $1 and mint 1 USDC. In a high-interest environment of 5%, this $1 can generate 5 cents in interest per year.
The problem is, Circle doesn't get to enjoy these 5 cents alone. For users, 1 USDC and 1 USDT have exactly the same purchasing power and can be swapped at zero cost. Whoever holds the trading pairs, fiat on/off ramps, and wallet entrances holds the pricing power.
Thus, the queue of people lining up to share the money arrives.
The first is BlackRock. About 80% to 90% of Circle's reserves are placed in government money market funds managed by BlackRock, with management fees estimated by the market at around 8 to 10 basis points.
The second is Circle itself. But it only dares to take a small "issuer reserve" first, estimated by the industry at around 12 to 15 basis points, used to cover compliance, audit, and cross-chain facility expenses. Relative to the nearly 5% gross yield, this minimum guarantee is almost negligible.
The real bulk comes later. According to the "Collaboration Agreement" between Circle and Coinbase, for any USDC held on the Coinbase platform, all corresponding remaining interest belongs to Coinbase.
In Q1 2026, an average of about $19 billion worth of USDC sat on the Coinbase platform, accounting for more than a quarter of the total circulation. With this cut, over 25% of the reserve yield disappears directly.
Binance also needs to be taken care of. Circle once paid Binance a $60.25 million advance payment, and as long as Binance holds more than $1.5 billion in USDC, it must pay incentives monthly.
For the remaining USDC circulating in DeFi and other channels, surely it can enjoy the interest alone? No. This part must also be split 50-50 with Coinbase.
Peeling it down layer by layer, the interest journey of $1 is like this: BlackRock first deducts management fees, Circle keeps a dozen basis points as a minimum, Coinbase takes all of the custodial portion, Binance collects the incentives, and the remaining scraps are split in half.
The financial report gives the endgame: In fiscal year 2024, Circle's total revenue was $1.661 billion, with revenue share paid to Coinbase reaching as high as $908 million, accounting for 54.2%.
By fiscal year 2025, Circle's profit margin after deducting distribution costs was only 39%. For every $100 of interest collected, over $60 was paid to channels.
02 Regulations Welded the Toll Booth Shut for Coinbase
You might ask: Print more USDC, make the pie bigger, won't that make up for it?
Circle indeed did this. USDC circulation reached $75.3 billion by the end of 2025 and continued to rise thereafter. But rate cuts simultaneously withdrew the foundation: in Q4 of fiscal year 2025, average circulation doubled year-over-year, yet reserve yield decreased by 68 basis points year-over-year, leaving only 3.8%.
What's more troublesome is that much of the additional circulation was pulled in by Coinbase using 3.5% to 4% holding rewards, and by Binance using liquidity incentives.
These funds settle in channel addresses, and the newly generated interest flows back to the channels according to the agreement. Circle bears all compliance and operating costs, yet gets only the residual value.
Compensating price with volume, the volume belongs to others, and the price belongs to others as well.
Coinbase's obsession with this money is not hard to understand. In a cycle where trading volume shrinks, USDC interest once accounted for nearly a quarter of Coinbase's net income, being the most stable cash cow in its financial report.
To lock in this risk-free yield, the agreement is written very strictly: as long as Coinbase continues to fulfill promotion and market-making obligations, Circle can hardly exit unilaterally. High channel costs are thus solidified into a permanent burden on the balance sheet.
Moreover, Coinbase's appetite is still growing. Its Base chain handled 62% of global on-chain stablecoin trading volume in Q1 2026, exceeding the sum of all other chains. The more on-chain liquidity gathers on Base, the more interest is cut away from Circle.
The GENIUS Act, effective July 2025, should have been the home ground for compliance leader Circle. Instead, it gave the channels the fiercest assist.
The Act prohibits stablecoin issuers from paying any interest to holding users. In other words, the path for Circle to bypass exchanges and directly rebate users to grab traffic is blocked by law.
But Coinbase is not bound by this rule. It packages the interest shared from Circle into its own user rewards and distributes them to holding users legally and compliantly. Regulation cut off the issuer's path to reach users, but left a door open for channels.
Circle's last bargaining chip in hand was confiscated by regulators.
The only variable lies with the OCC. This regulatory agency proposed supporting rules in early 2026; if it ultimately determines that channels using revenue share to distribute rewards to users constitutes disguised interest payment and stops it, it will severely hurt USDC holding willingness in the short term.
But looking further ahead, this might instead give Circle an opportunity to overturn the 50-50 agreement on the grounds of compliance. Rise due to regulation, fall due to regulation.
03 Tether Swallows All, PayPal Subsidizes, Circle Works
Both issuing stablecoins, yet the days can be completely different.
With a team of about 300 people and relying on about $118 billion in reserves, Tether netted $5.2 billion in the first half of 2024, and reportedly broke through $10 billion for the full year. It almost monopolizes all interest, not giving a penny to channels.
Why? Because in places like Latin America and Africa suffering from hyperinflation, users want the purchasing power of the US dollar itself; no one cares about that 4% interest.
Rigid demand gives Tether absolute pricing power; it even charges a 0.1% fee on minting and redemption.
PayPal does the opposite. PYUSD circulation peaked at $4 billion; PayPal pays out of its own pocket to distribute about 4% rewards to holding users, with money coming from its own marketing expenses.
It doesn't expect to make money from stablecoins at all, only using them as lubricant for the cross-border payment network: remittance friction in 70 international markets is reduced, merchant settlement shrinks from days to minutes, and users are locked into its own wallet.
Tether doesn't need channels, PayPal is the channel itself. What about Circle? It has neither Tether's monopoly power in emerging markets nor PayPal's consumer-facing user entrance, and can only spend money to buy traffic from exchanges.
A water seller, yet the water source and pipes are in others' hands.
04 Summary
So, do not value Circle as a high-gross-margin, infinitely expandable Fintech giant anymore. It is more like a channel-type money market fund with revenue sharing: revenue follows the Federal Reserve, profit follows Coinbase's negotiation table.
For investors watching CRCL, what is more worth watching than USDC market cap is the profit margin after deducting distribution costs in the financial report. In fiscal year 2025 it stayed at 39%; once it falls below 35%, it is a red alert for intensified channel squeezing.
Another signal is the competitors' moves. Tether is reportedly preparing the compliant stablecoin USAT for the U.S. market; if it chooses to concede profits to channels, Circle's distribution costs will only be pushed higher.
USDC will most likely continue to grow, becoming the US dollar utilities of the on-chain world. But the profit of utilities never belongs to the power generator, only to the electricity fee collector.
For every additional dollar of USDC minted, Coinbase gets paid first.
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