By Nancy, PANews
After years of unsuccessful IPO preparations, Circle—the issuer of the USDC stablecoin—recently filed with the SEC to list on the New York Stock Exchange. However, challenges like a nearly halved valuation, heavy reliance on U.S. Treasury bonds for revenue, and high stock losses raise questions about Circle’s business prospects.
Valuation Drops Nearly 50% as Shares Sold to Coinbase for Full USDC Issuance Rights
One day before the U.S. House planned to vote on the GENIUS Act stablecoin regulation bill, SEC filings revealed Circle submitted an S-1 form to initiate its IPO under the ticker "CRCL." JPMorgan Chase and Citibank were hired to assist, both having advised Coinbase’s IPO.
Circle didn’t disclose share quantity or target price ranges in its prospectus. Its valuation fluctuated from $4.5 billion (2021 SPAC merger) to $9 billion (2022 amended deal), settling at ~$5 billion in 2024’s secondary market. *Forbes* reports Circle’s target IPO valuation is now $4–$5 billion—nearly half its peak.
Previously, Circle acquired Coinbase’s 50% stake in Centre Consortium (USDC’s issuer) for 8.4 million shares ($209.9 million). Post-acquisition, Centre dissolved, transferring assets to a Circle subsidiary. Coinbase disclosed it received Circle shares—not cash—meaning the deal didn’t impact Circle’s cash flow.
Circle initially pursued a 2021 SPAC merger with Concord Acquisition but abandoned it due to SEC delays. In January 2024, Circle confidentially refiled for an IPO, awaiting SEC review.
Market Shifts Favor Stablecoins, But Competition Intensifies
Today’s stablecoin market has matured, with global adoption expanding. U.S. regulators now favor compliant stablecoins, prompting giants like JPMorgan, PayPal, and Visa to launch their own. Meanwhile, crypto firms (Kraken, Gemini, etc.) seek IPOs under clearer U.S. policies.
Revenue Relies Heavily on U.S. Treasuries; Coinbase Fees Slash Profits
Circle’s IPO faces skepticism over its core business model:
Treasury-Dependent Revenue:
- Circle’s 2024 revenue hit $1.676 billion, with 99% from reserve income (interest on USDC-backed U.S. Treasuries).
- This model is vulnerable to Fed rate cuts, akin to a "Treasury arbitrage game."
Skyrocketing Distribution Costs:
- 2024 net profit: $155.67 million (down 41.8% YoY).
- Distribution/transaction costs surged to $1.01 billion (60.7% of revenue), driven by Coinbase’s fees.
- Coinbase earned $225.9 million from USDC in Q4 2024 (~$900 million annually), consuming Circle’s profits.
Coinbase’s 50% revenue share from USDC reserves ties directly to its platform holdings—up from 5% (2022) to 20% (2024).
Matthew Sigel (VanEck) noted rising costs eroded Circle’s EBITDA, while Omar Kanji (Dragonfly Capital) critiqued the $5B valuation as "ludicrous," citing peaked revenue and $250M+ annual compensation costs.
👉 Explore how stablecoins like USDC reshape global finance
Diversification Efforts and Long-Term Challenges
Circle partnered with Grab, Nubank, and Mercado Libre to reduce Coinbase reliance. However, Wyatt Lonergan (VanEck Ventures) highlighted enduring B2B revenue-sharing models and narrowing profit margins as stablecoin adoption grows.
FAQs
Q: Why did Circle’s valuation drop?
A: Market conditions and high distribution costs (e.g., Coinbase fees) slashed its value from $9B (2022) to $4–$5B.
Q: How does Circle generate revenue?
A: Primarily via interest from U.S. Treasuries backing USDC—99% of its 2024 income.
Q: What risks does Circle face?
A: Fed rate cuts could undermine Treasury yields, while competition (e.g., PayPal’s stablecoin) pressures market share.
Conclusion
While improved U.S. crypto policies and stablecoin demand aid Circle’s IPO, its profitability hinges on navigating Fed policies and escalating promotion costs. Success demands diversified revenue and reduced fee dependencies.