After years of failed IPO attempts, Circle—the issuer of USDC stablecoin—has resubmitted its application to the SEC for a New York Stock Exchange listing. However, a nearly halved valuation, heavy reliance on U.S. Treasury yields, and profit erosion from high distribution costs have cast doubt on its commercial viability.
Valuation Plummets as Circle Secures Full USDC Control
Circle recently filed an S-1 form with the SEC, aiming for an IPO under the ticker "CRCL." While specific share numbers and target pricing remain undisclosed, Circle's valuation has fluctuated dramatically—from $4.5 billion in 2021 to $9 billion in 2022, now hovering around $5 billion in secondary markets. Forbes reports its target IPO valuation at $4–5 billion, marking a near 50% drop from its peak.
Notably, Circle has consolidated USDC’s issuance rights by acquiring Coinbase’s 50% stake in Centre Consortium (their joint venture for USDC issuance) for $210 million in Circle stock. This strategic move eliminated cash outflow but granted Circle full control over USDC’s ecosystem.
👉 How stablecoin issuers like Circle navigate regulatory hurdles
Revenue Reliance on U.S. Treasuries and Coinbase’s Costly Cut
Circle’s revenue model faces scrutiny:
- Interest-Driven Income: 99% of its $1.676 billion 2024 revenue came from U.S. Treasury reserves, making it vulnerable to Fed rate cuts.
- Profit Squeeze: Net profits fell 41.8% YoY to $155.67 million, with distribution costs (largely tied to Coinbase) surging 40.4% to $1.0108 billion—60.7% of total revenue.
Coinbase’s share of USDC reserves’ residual income rose to 20% in 2024, up from 5% in 2022, per SEC filings. This partnership’s volatility led Circle to warn investors about "uncontrollable" distribution costs.
Expansion Efforts and Market Skepticism
To diversify, Circle partnered with global platforms like Grab and Mercado Libre. Yet, critics like Dragonfly Capital’s Omar Kanji label the IPO a "desperate cash grab" amid rising competition from giants like PayPal and JPMorgan Chase.
VanEck’s Wyatt Lonergan notes:
"Stablecoin issuers must diversify beyond interest margins. Circle’s valuation hinges on USDC’s adoption scale—but shrinking margins and regulatory uncertainties loom large."
Key Challenges Ahead
- Interest Rate Risks: Fed’s potential rate cuts threaten Circle’s core revenue.
- Cost Management: Balancing partner payouts while scaling USDC’s utility.
- Regulatory Clarity: Pending U.S. stablecoin legislation could reshape the landscape.
FAQs
1. Why did Circle’s valuation drop before its IPO?
Market conditions and higher distribution costs (notably Coinbase’s 50% cut of reserve income) slashed its peak $9B valuation by half.
2. How does Circle generate revenue?
Primarily through interest earned from U.S. Treasury reserves backing USDC—a model sensitive to Fed rate changes.
3. What’s the biggest threat to Circle’s profitability?
Rising partner payouts and potential interest rate declines could further compress margins.
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Conclusion
Circle’s IPO rides the wave of stablecoin adoption but faces headwinds from profit pressures and competitive tides. Whether it can leverage this listing to fortify its market position remains uncertain—especially as crypto heavyweights enter the fray.