Circle's highly anticipated IPO filing has just been released, offering rare insights into the financial operations behind USDC, the world’s second-largest stablecoin.
While Circle is undeniably a revenue powerhouse—generating $1.7 billion in interest income from its stablecoin reserves in 2024—the data also reveals a business model built on significant trade-offs. After distributing billions in partnership payouts, incentives, and compliance costs, Circle’s profitability pales in comparison to competitor Tether’s reported earnings.
1. The Money Machine
Circle, the issuer of USD-backed stablecoin USDC, holds over $60 billion in bank deposits and short-term U.S. Treasuries. Key financial highlights:
- Revenue: $1.7 billion (2024)
- Distribution Costs: $1 billion (primarily to partners like Coinbase, which earned $908 million)
- Operating Expenses: $263 million in employee compensation, $137 million in compliance/administrative costs
- Net Profit: $155 million (vs. Tether’s reported $13 billion in 2024)
2. Interest Rate Sensitivity
Circle’s income is tightly linked to Federal Reserve policy:
- A 1% drop in short-term rates could reduce profits by $207 million (assuming stable USDC supply).
- Lower rates may partially offset by reduced distribution costs.
3. BlackRock Partnership
A renewed 4-year agreement (2025) grants BlackRock management of 90% of Circle’s reserves, with exclusivity clauses:
- BlackRock earns ~$100 million annually in advisory fees.
- Barred from launching competing payment stablecoins.
4. Crypto Holdings
Circle’s $31 million digital asset portfolio includes:
- SUI: 33% of holdings (notable for crypto enthusiasts).
- Mark-to-market accounting allows quarterly valuation adjustments.
5. Binance Collaboration
A December 2024 deal designates Binance as a "Stablecoin Ecosystem Partner":
- Requires Binance to hold $3 billion in USDC.
- Includes $60.25 million upfront payment + 2 years of monthly incentives.
Investment Outlook
- Valuation: $4.5–$5 billion (up to 32x 2024 earnings).
- Growth: USDC circulation doubled YoY, but upcoming bank-issued stablecoins may intensify competition.
- Advantage: Early mover status + strategic alliances (e.g., BlackRock, Coinbase).
FAQs
Q: How does Circle make money?
A: Primarily through interest earned on USDC reserves (cash/Treasuries), minus distribution fees and operating costs.
Q: Why is Circle’s profit lower than Tether’s?
A: High partner payouts (e.g., Coinbase takes 50% of residual income) and regulatory compliance expenses.
Q: What risks does Circle face?
A: Interest rate volatility, competition from bank-issued stablecoins, and reliance on key partners.
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