Summary Circle Internet Group (CRCL) remains highly dependent on reserve revenues, with 96% of top-line income tied to interest rates. USDC supply has grown rapidly in 2025, outpacing major competitors in rate of change, but usage is concentrated in DeFi applications rather than real economic merchant usage. CRCL's valuation is extended based on optimistic assumptions and estimates about future revenue from reserves. To reduce risk, CRCL must diversify revenue streams as falling interest rates and political motivations could create significant headwinds in 2026. Prior to Circle Internet Group ( CRCL ) publicly listing back in June, I initiated coverage of the company's stock with a 'hold' rating. To briefly summarize my general thinking on the stock from that first article, I'm genuinely optimistic about stablecoins and asset tokenization more broadly longer term. However, I thought Circle's IPO was on the risky side judging by what I saw as a significant interest rate sensitivity risk. While the company is trying to grow other lines of revenue, 96% of Circle's top line through the first three quarters of 2025 has come from reserve revenues. Data by YCharts With yields on those reserves falling beginning in September, the question for Circle is whether it can grow USDC ( USDC-USD ) supply fast enough to generate revenue growth in spite of declining yields. Q3-25 Earnings During the quarter ended September 2025, Circle reported total revenue of $740 million. That was good for 66% growth year-over-year as well as 12% growth sequentially. Of the topline, 96% came from reserve revenue; you can think of this as the interest generated from the company's short term t-bill yields. 'Other revenue' game in at $28.5 million. This was up considerably from the $547k in Q3-24. Revenue (000s) Q3-24 Q2-25 Q3-25 YoY QoQ Reserve income $445,215 $634,274 $711,241 59.8% 12.1% Other revenue $547 $23,804 $28,518 5113.5% 19.8% Total $445,762 $658,078 $739,759 66.0% 12.4% Source: Circle, 10-Qs The growth in revenue is a testament to the substantial surge in stablecoin supply. At the end of the quarter, the total market for stablecoins reached $254 billion with USDC growing share of that total supply to 29%. We'll get into some of the stablecoin specific metrics in the next section. While earnings growth was strong, costs and opex are outpacing revenue. The good news is operating income is as well: Costs & Opex (000s) Q3-24 Q2-25 Q3-25 YoY QoQ Total Costs $257,703 $406,942 $447,612 73.7% 10.0% Total operating expenses $124,260 $576,718 $211,127 69.9% -63.4% Operating income from continuing operations $63,799 -$325,582 $81,020 27.0% -124.9% Source: Circle, 10-Qs Total costs grew by 74% while opex grew by 70% year-over-year. The biggest driver of expense growth is compensation. While down considerably from over $503 million in Q2, compensation expense in Q3 came in at $129.3 million; an increase of over 98% year-over-year. G&A rose by just 36% from Q3-24 and smaller expense lines like IT and marketing came in at 37% and 28% respectively. Despite total costs and opex outpacing revenue growth, Circle generated $81 million in operating income from operations. This was a 27% increase from Q3-24. Circle reported basic EPS of $0.93 per share. USDC Growth & Usage As mentioned in the segment above, Circle has been able to substantially grow USDC supply through 2025. The company has also earned a fairly stable return on reserves going back the last three quarters: Investor Deck, Slide 17 (Circle) In my estimation, this is largely a product of when the last two rate cuts by the Federal Reserve have happened. One of which was midway through September and the latest wasn't until October. My point being the effects of rate cuts on Circle's reserve return rate really won't be felt until Q4 earnings. The good news is USDC Supply continues to surge higher. Per data from Artemis, Circle's flagship product has stronger supply growth than any other US Dollar stablecoin that held a top 5 market position at the end of last year: Supply in B$ 12/31/24 11/11/24 Change % Change Tether ( USDT-USD ) $137.1 $184.1 $47.0 34.3% USDC $43.3 $76.8 $33.5 77.4% Ethena ( USDE-USD ) $5.8 $8.2 $2.4 41.4% DAI ( DAI-USD ) $4.4 $4.9 $0.5 11.4% First Digital USD (FDUSD-USD) $2.2 $0.9 -$1.3 -58.2% Source: Artemis USDC supply has grown by $33.5 billion coins since the start of the year. While this is slightly below the $47 billion supply growth for Tether over that same time frame, from a rate of change standpoint USDC has grown faster Tether, Ethena USDe, and the leading 'decentralized-issuer' stablecoin DAI. While supply is what is ultimately driving revenue and earnings, USDC has a very compelling usage story on the surface: Transaction Volume Share (Artemis) Even though USDC makes up about 27% of the stablecoin market currently, its share of transaction volume in October eclipsed 63% for the third consecutive month. But before we get too excited about theories of merchant acceptance or peer-to-peer payments as being the primary driver of this USDC usage; the largest application utilizing USDC for transactions is the Base DEX Aerodrome Finance where roughly one third of all USDC volume in the last 30 days has taken place: USDC Volume By Application (Artemis) In fact, of the $2.1 trillion in USDC volume over the last 30 days, 58% of USDC transaction volume is coming from just 2 applications; a DEX and a borrowing/lending protocol. An additional 22% of USDC volume is coming from what Artemis categorizes as 'high frequency traders' on Ethereum ( ETH-USD ). The point is, this USDC transaction volume lead over peers is good at proving out the concept of throughput and velocity, but I don't think it's the kind of activity that implies stablecoin adoption by the broader economy. It's important to keep that in mind when we decide what we're willing to pay for a company that aims to disrupt more established Fintech peers. Circle Valuation Back in early-June before the IPO, I was concerned about Circle's implied valuation. As of writing, we find a stock that is currently trading substantially higher than the market capitalization from the IPO price and one that I think is trading at a valuation that is definitely too rich given the very real headwinds laid out above. I come to that conclusion based primarily on what I think would be an optimistic forward sales estimate. The table below shows my expected revenue from USDC reserves going out twelve months. I built this with two assumptions; quarter-over-quarter average USDC supply growth of 20% and a reserve return rate of 3.9%: Estimated Rev Average Quarterly USDC Supply Return Rate Quarterly Revenue Q4-25 $83,091,304,992 3.90% $810,140,224 Q1-26 $99,709,565,990 3.90% $972,168,268 Q2-26 $119,651,479,189 3.90% $1,166,601,922 Q3-26 $143,581,775,026 3.90% $1,399,922,307 Source: Analyst's estimates I think 20% is a reasonable expectation for USDC growth over the next year given what we've seen historically; it's an average of the supply growth from the last 4 quarters. The assumption that I'm much less convinced about is the 3.9% return rate. I think that might be overly optimistic. Still, using that figure for a full year out, we get $4.3 billion in reserve revenue for Circle over the next four quarters. This means even with what I think is an optimistic expectation for the next twelve months, CRCL is trading at over 5x forward sales while FinTech peers like Block Inc ( XYZ ) or PayPal ( PYPL ) - which also has a stablecoin offering - trade a discounts to the financial sector median multiple: Valuation Comps FWD P/S TTM P/B Circle Internet* 5.28 7.57 Block Inc 1.64 1.78 PayPal 1.89 3.14 Financial Median 2.91 1.22 Source: Seeking Alpha, *analyst's calculations It isn't just forward sales, Circle's price to book multiple is much higher than peers at 7.6x book. And it should be noted that 22% of Circle's equity after liabilities is derived from goodwill and intangibles. To be clear, I really don't hate the idea of longing CRCL as a long term speculation and I've said that since my initial coverage. But I'm not interested at this price. Closing Thoughts Circle clearly needs to build a legitimate secondary revenue stream so that it isn't so reliant on interest rates. While the regulatory environment in the United States might be great for stablecoin adoption going forward, the current political climate might not actually be great for stablecoin issuers that generate revenue from T-bill yields. The Trump administration has been overtly championing lower rates since the beginning of the year and if the President gets his way after Federal Reserve Chairman Jerome Powell's term ends in May, it would be reasonable to assume Circle will have significant reserve return headwinds starting in the second half of 2026. The Arc Blockchain is an interesting concept and could certainly alleviate Circle's revenue concentration problem, but I suspect building out yet another L1 option will be a tougher sell for an industry that already has plenty of Layer 1 blockchain networks to choose from. CRCL is still a pass for me.
