Circle IPO Analysis: The Growth Potential Behind Low Intrerest Rate

Circle's choice to go public during an industry acceleration phase reveals a seemingly contradictory yet imaginative story: net profit margins continue to decline, yet immense growth potential remains. On one hand, the company has high transparency, strong regulatory compliance, and stable reserve income; on the other hand, its profitability appears relatively moderate, with a net profit margin of only 9.3% in 2024. This apparent "inefficiency" is not due to a failure in the business model, but rather reveals a deeper growth logic: against the backdrop of gradually diminishing high interest rate dividends and a complex distribution cost structure, Circle is building a highly scalable, compliance-first stablecoin infrastructure, with profits strategically "reinvested" into increasing market share and regulatory leverage.

1. A Seven-Year Journey to the Public Market: An Evolutionary History of Cryptocurrency Regulation

1.1 Paradigm Shift of Three Capitalization Attempts (2018-2025)

Circle's journey to going public reflects the dynamic interplay between cryptocurrency firms and regulatory frameworks. The first IPO attempt in 2018 coincided with a period of ambiguity regarding the regulatory classification of cryptocurrencies, but valuation plummeted due to compliance concerns and the impact of the bear market. The SPAC attempt in 2021 highlighted the limitations of regulatory arbitrage thinking but propelled the company to complete a critical transformation and established the "stablecoin-as-a-service" strategy. The IPO choice in 2025 marks the maturation of the capitalization path for cryptocurrency firms, with the first detailed disclosure of reserve management mechanisms, constructing a regulatory framework equivalent to traditional money market funds.

1.2 Cooperation with a certain trading platform: from ecological co-construction to subtle relationships

Early market entry was achieved quickly through alliance cooperation. The current revenue-sharing agreement consists of dynamic game terms, where the revenue is distributed proportionally based on USDC reserve income, and the sharing ratio is related to the amount of USDC supplied by the platform. The platform secures approximately 55% of the reserve income with a 20% supply share, which poses a hidden risk for Circle: as USDC expands outside of this platform's ecosystem, the marginal cost will rise non-linearly.

2. USDC Reserve Management and Equity and Shareholding Structure

2.1 Reserve Requirement Tiered Management

USDC reserves exhibit characteristics of "liquidity layering":

• Cash (15%): Deposited in systemically important financial institutions to respond to sudden redemptions.
• Reserve Fund (85%): Configured through the Circle Reserve Fund managed by an asset management company.

2.2 Equity Classification and Hierarchical Governance

After going public, a three-tier equity structure will be adopted:

• Class A shares: common stock, one vote per share
• Class B shares: held by the founders, with five votes per share, total voting rights capped at 30%.
• Class C shares: no voting rights, convertible under certain conditions.

2.3 Distribution of Executive and Institutional Shareholding

The executive team holds a large number of shares, with several well-known venture capital and institutional investors holding more than 5% of the equity, collectively owning over 130 million shares.

3. Profit Model and Revenue Breakdown

3.1 Revenue Model and Operational Indicators

• Source of revenue: Reserve income is core, accounting for 99% of total revenue in 2024.
• Revenue sharing with partners: a certain trading platform receives 50% of reserve income based on the amount of USDC held.
• Other income: enterprise services, USDC Mint business, cross-chain transaction fees, etc., with a small contribution.

3.2 The Paradox of Income Rise and Profit Contraction (2022-2024)

• Convergence from multi-core to single-core: Reserve income ratio rises from 95.3% to 99.1%
• Distribution expenses surge compressing gross profit margin: Gross profit margin drops from 62.8% to 39.7%
• Profitability turned from loss to profit but marginally slowed down: net profit margin declined from 18.45% to 9.28%
• Cost rigidity: General administrative expenses have risen for three consecutive years, mainly for compliance.

3.3 low Intrerest Rate behind the rise potential

• The continuous increase in circulation drives a stable rise in reserve income.
• Structural optimization of distribution costs
• The conservative valuation does not price in market scarcity.
• The market value trend of stablecoins shows resilience compared to Bitcoin.

4. Risks - Dramatic Changes in the Stablecoin Market

4.1 Institutional relationships are no longer a solid moat.

• Interest rate binding double-edged sword: asymmetric profit sharing leads to high distribution costs
• Ecological Locking Risk: Leading exchanges may require renegotiation of terms.

4.2 The bidirectional impact of the stablecoin bill progress

• Localization pressure on reserve assets: potential one-time fund migration costs of hundreds of millions of dollars.

5. Reflection Summary - The Strategic Window of the Game Changer

5.1 Core Advantages: Market Positioning in the Compliance Era

• Dual Compliance Network: Covers the regulatory matrix of the United States, Europe, and Japan
• Cross-border payment alternative wave: Launch of USDC instant settlement service in collaboration with a payment company.
• B2B Financial Infrastructure: The proportion of USDC settlements in a certain payment system has risen.

5.2 Growth Flywheel: Interest Rate Cycle and Economies of Scale Game

• Emerging Market Currency Substitution
• Offshore Dollar Repatriation Channel
• RWA asset tokenization
• Interest Rate Buffer Period
• Regulatory gap
• Enterprise Service Suite Deepening

Beneath Circle's low net interest rate facade lies its active choice of a "scale for profit" strategy during its strategic expansion phase. When the circulation of USDC surpasses 80 billion USD, and the scale of RWA asset management and cross-border payment penetration achieves breakthroughs, its valuation logic will undergo a qualitative transformation—from a "stablecoin issuer" to a "digital dollar infrastructure operator." This requires investors to re-evaluate the monopoly premium brought by its network effects from a 3-5 year perspective. At the historical intersection of traditional finance and the crypto economy, Circle's IPO is not only a milestone in its own development but also a litmus test for the value reassessment of the entire industry.