Author: Leo Z

1. What is Circle

Circle is the issuer of USDC. USDC is the second largest stablecoin in the world, with a circulation of about $77 billion, backed by an equivalent amount of dollar assets (mainly short-term U.S. Treasury bonds) as reserves.

Circle's revenue source is straightforward: it invests these reserves into U.S. Treasuries to earn the interest spread. Total revenue for FY2025 is projected to be $2.75 billion, 95% of which comes from reserve interest. The company plans to go public in June 2025, with a current market value of around $15-20 billion.

The market's pricing of Circle is roughly equal to "USDC circulation × interest rate × conservative multiplier." This means: if you believe Circle is just a company that earns interest, the current pricing is somewhat reasonable. If you think it is evolving into a fee-based digital dollar infrastructure network, the current price does not reflect that part of the value.

This article aims to answer: Is transformation happening? What evidence is there? How much is it worth?

2. Core Question: Is USDC being "held" or "used"?

Before discussing valuation, we need to address a more crucial question than any financial model.

With $77 billion in USDC, if it is merely being held by institutions to earn interest spreads, then Circle is a rate-sensitive financial company, valued at 10-15x. If it is frequently used for payments, settlements, cross-border transfers, and by developers, then Circle is growing into a fee-based infrastructure network, valued at 25-30x.

Two key data points can help you make this judgment:

First, the on-chain transaction volume of USDC is growing much faster than its circulation. For FY2025, USDC's circulation is expected to grow by 72%, while the on-chain transaction volume is projected to grow by 247%. This indicates that each dollar of USDC is being used more frequently. This is not just "growing stock," but rather "increasing velocity."

Second, USDC has already surpassed USDT to become the largest settlement asset. Visa Onchain Analytics eliminates about 85% of on-chain noise (bots, internal exchange transfers, high-frequency arbitrage). After adjustments, USDC accounts for 64% of the actual economic settlement volume (Mizuho, February 2026), while USDT only accounts for about 28%—even though USDT's circulation is 2.4 times that of USDC.

This gap itself is the strongest signal: USDC is shifting from "an asset people hold" to "a network people use." However, this transformation is not yet complete—conditions needed for confirmation will be discussed later.

3. Three-Tier Revenue Structure

Circle's revenue is divided into three tiers. The market is currently pricing primarily the first tier.

First Tier: USDC Interest Income—How Circle Makes Money Today

USDC is the starting point for Circle and is also the source of 95% of its current revenue. By the end of 2025, USDC circulation is expected to be $75.3 billion, a year-on-year increase of 72%, far exceeding Circle's own annual growth target of 40%.

The revenue logic is simple: about 80% of USDC reserves are invested in short-term U.S. Treasuries (managed through BlackRock's USDXX fund) to earn interest spreads.

Interest income ≈ Average USDC circulation × Reserve yield

The reserve yield for Q4 2025 is projected to be 3.81%, down 68 basis points from the previous quarter. This reveals the core contradiction: circulation is rapidly growing, but interest rates are declining; the two are offsetting each other. If the Fed's target interest rate falls to 3%, Circle will need USDC to grow to over $150 billion to maintain its current income level.

A structural issue: Coinbase takes most of the revenue. According to a revenue-sharing agreement signed in 2023, 100% of the interest on USDC on the Coinbase platform goes to Coinbase, while 50% of interest outside the platform goes to Coinbase. For FY2025, for every $1 of interest Circle earns, about $0.60 goes to distribution partners.

The good news is that margins are improving. The RLDC (Revenue Less Distribution Costs) margin expanded from 30.0% in Q4 2024 to 40.1% in Q4 2025. The net income margin is 1.2-1.8%, after deducting Coinbase's share and operating costs.

Second Tier: Payment and Transaction Income—A Growing New Business

This is key to whether Circle can shed the "interest company" label.

The CPN (Circle Payments Network) launched in May 2025, providing 24/7 cross-border settlement based on USDC for banks, payment companies, and enterprises. As of February 2026, annualized TPV reached $5.7 billion, growing about 100 times since launch. 55 institutions have connected, 74 are under review, and over 500 are in the pipeline. It covers 14 markets including Brazil, Canada, Hong Kong, India, Mexico, Nigeria, and the U.S.

However, $5.7 billion compared to the $16 trillion global cross-border payment market is still less than one-fourth of one percent. The value of CPN is not in its current scale, but in whether growth can be sustained. If it can capture 1% of the cross-border market, that equates to an annual transaction volume of $160 billion—potentially generating fees close to or exceeding interest income, and unaffected by interest rates.

The CCTP (Cross-Chain Transfer Protocol) enables the native cross-chain transfer of USDC through "burn-mint." In Q4 2025, it processed $41.3 billion, a year-on-year increase of 3.7 times. USDC's cross-chain market share rose from 25% at the end of 2024 to 62% in January 2026, covering 30 chains. CCTP V2 introduced Fast Transfer fees—a new source of income.

Other Revenue (non-interest income) is the most direct "transformation evidence." FY2025 saw it explode from $3 million per quarter to $37 million per quarter, including subscription services at $24.7 million, transaction income at $12.2 million, and Canton Network validating node income at $7 million. Management guides that it will reach $150-170 million in 2026.

This income is unaffected by interest rates and does not require sharing with Coinbase. When it exceeds 10% of total revenue, the market may begin to view Circle with a different valuation methodology. Currently, it is about 4%.

Third Tier: Settlement Platform—Long-Term Potential

Arc is the institutional-grade settlement chain that Circle plans to launch in 2026, with USDC as the native gas token. The testnet has already processed over 166 million transactions, confirming in 0.5 seconds, with over 100 institutions participating (including Goldman Sachs and Mastercard).

The roadmap for Arc is divided into four phases:

M1 Public Test Network (completed) → M2 Real Funds on Chain (2026) → M3 Margin/Collateral/Settlement Scenarios Go Live (2027-28) → M4 Writing to Institutional Standard Operating Procedures (2029-30)

Before M2, Arc's value is zero. However, if it ultimately becomes an institutional-grade settlement standard, Circle's value will no longer be as a "fee company," but as a "platform company." This is a necessary condition for over 10x returns.

4. Judging Whether Transformation is Occurring: Seven Dimensions

Relying on any single indicator can lead to misjudgment. The key is to observe whether multiple dimensions are improving simultaneously—when scale, activity, margins, new revenue, and user growth all point in the same direction, transformation is happening.

5. Three Most Important Tracking Indicators

① USDC Circulation (daily observation)

The base of Circle's revenue. Circulation × Reserve Yield = Interest Income. "Quarterly average circulation" should be tracked rather than end-of-period snapshots. Currently around $77 billion.

Data source: defillama.com/stablecoin/usd-coin (updated daily), circle.com/transparency (weekly reserve proof)

② USDC's Share in Visa’s Adjusted Transaction Volume (weekly observation)

Answers the core question: Is USDC being used or held? Supply accounts for only 25%, but the adjusted transaction volume is 64%—each dollar of USDC is doing 2-3 times more work than USDT.

Data source: visaonchainanalytics.com → filter by Stablecoin → click "Show % of Total" → read the USDC line

③ Other Revenue (non-interest income) (quarterly observation)

The only indicator that can directly prove Circle is making money outside of interest. It is unaffected by interest rates and does not require sharing with Coinbase. Currently $37 million/quarter, guiding $150-170 million (2026). When it breaks 10% of total revenue, the valuation methodology will change.

Data source: circle.com/pressroom (quarterly financial reports), SEC EDGAR search for Circle Internet Group

6. Recent Catalysts

Coinbase Revenue Sharing Agreement Expiring (August 2026)

This is the largest single catalyst within 24 months. Currently, Circle gives approximately 60% of its revenue to partners. If renegotiations raise the RLDC margin from 40% to 50-55%, it would be equivalent to an instant increase of 25-35% in profits. However, Coinbase has no incentive to make significant concessions—USDC distribution on the Coinbase platform remains Circle's largest growth engine. The outcome is uncertain, but the likelihood of a better direction than the current situation is higher.

OCC National Trust Bank License

Conditional approval is expected in December 2025. Full approval means: it can open a main account directly with the Federal Reserve (earning IORB rates, eliminating counterparty risk), sidestepping commercial banks in processing an annual flow of $483 billion in minting/redemption for adopting USDC by enterprises and governments, establishing an insurmountable trust barrier. No other stablecoin issuer has this.

x402 Foundation (established April 2026)

Coinbase will contribute the x402 payment protocol to the Linux Foundation. x402 activates the HTTP 402 status code as an internet-native payment layer, allowing AI agents, APIs, and applications to settle directly within HTTP interactions—defaulting to USDC.

Participants include: Google, AWS, Stripe, Visa, Mastercard, Amex, Shopify, Microsoft, Cloudflare, Circle. If x402 becomes the standard for AI agent payments, every machine-to-machine microtransaction will increase the use of USDC (velocity) without needing to increase holding (supply).

Note: x402 is led by Coinbase, not Circle. Impact on CRCL: mildly bullish, expanding the use cases for USDC, but not changing the magnitude of the fundamentals.

7. Conditions for 5-10 Times Returns

3-5x (high confidence)—purely relying on USDC growth

USDC could reach approximately $200-300 billion by 2028 with a 40% CAGR. Even if interest rates fall to 3%, $250 billion × 1.5% net interest spread = $3.75 billion net income. At 20x, that would give a market value of $75 billion. From the current $15-20 billion to $75 billion, that is about 4x. No need for CPN or Arc to contribute anything.

10x (requires multiple conditions to materialize simultaneously)

Must simultaneously happen for growth from $15-20 billion to $150-200 billion:

1. CPN TPV breaks $100 billion in 2-3 years, with at least one major corridor going live

2. Improvement in Coinbase revenue sharing agreement, RLDC margin reaching 50%+

3. Other Revenue exceeding 10% of total revenue, proving there is scalable non-interest income

4. Arc achieving at least M2 phase (real funds on chain), beginning to be priced by the market

Currently, only the second condition (margin) is clearly improving. 10x is a position you "earn," not one you "bet" on.

8. Major Risks

Fast Decline in Interest Rates Exceeding USDC Growth

Q4 2025 has already shown this signal: interest rates declined by 68bps, partially offsetting 100% of the circulation increase. If the Fed lowers the rates to 2.5-3% in 2026-2027, there may be a window of 1-2 quarters where profits fall below expectations.

Tether's Compliance

USDC's biggest differentiating advantage is compliance. But Tether earned $10 billion in the first three quarters of 2025 and is negotiating a full audit with the Big Four accounting firms. If Tether achieves compliance status in 2-3 years, USDC's differentiation advantage will be significantly weakened. USDT currently has over 60% market share and a market value of $183 billion—it has sufficient resources.

Competition from Yield-Based New Stablecoins & Payment Giants like Stripe

New stablecoins like Ethena (USDe), Sky, are capturing market share by directly providing yields to holders. Circle, restricted by regulatory compliance positioning, currently cannot pay interest directly to USDC holders.

Stripe is a founding member of the x402 Foundation and is also building its own stablecoin payment system. Stripe's strategy is to integrate all possibly winning standards—its participation does not imply exclusive support for USDC, nor does it exclude the possibility of Stripe launching its own stablecoin or deeply integrating USDT in the future.

9. Conclusion

Circle is not a company "certain to become a trillion-dollar firm." However, it may be one of the few fintech companies currently with the structural conditions to reach that ceiling.
The current pricing reflects almost entirely USDC interest income. The market is asking: Is Circle a rate-driven financial company or a fee-based digital dollar infrastructure? The answer is still uncertain—but the data is leaning towards the latter.

The core tracking centers on three things: Is USDC circulation increasing? Is every dollar of USDC being used more frequently? Is non-interest income growing? When all three improve simultaneously, transformation is occurring.

Data sources: Circle IR, SEC EDGAR, DefiLlama, Visa Onchain Analytics, Artemis Terminal, CoinDesk, Mizuho Research

Disclaimer: This article does not constitute investment advice. All data is as of April 2026.

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