After years of unsuccessful IPO preparations, Circle, the issuer of stablecoin USDC, recently submitted a new application to the U.S. SEC for a listing on the NYSE. However, concerns over its nearly halved valuation, heavy reliance on U.S. Treasury bonds, and profit erosion from high distribution costs have cast doubts on Circle's commercial viability.
Valuation Nearly Halved: Equity Swap with Coinbase Secures Full USDC Issuance Rights
One day before the U.S. House planned to revise and vote on the stablecoin regulation bill GENIUS Act, SEC filings revealed Circle's S-1 submission for an IPO under the ticker "CRCL." The company has enlisted J.P. Morgan and Citigroup as financial advisors—the same team behind Coinbase's IPO.
Notably, Circle's prospectus omitted specifics on share issuance and target price ranges. Its valuation has fluctuated dramatically: from $4.5 billion in its 2021 SPAC merger, revised to $9 billion in 2022, before settling at ~$5 billion in 2024 secondary market trading. Forbes reports Circle now targets a $4–5 billion IPO valuation—less than half its peak.
Circle solidified control over USDC issuance by acquiring Centre Consortium's remaining 50% stake from Coinbase in 2023 for $210 million in equity. Centre, the USDC-issuing joint venture founded by both firms in 2018, was dissolved post-acquisition, transferring assets to a Circle subsidiary. This equity-for-control deal avoided cash outflow while granting Circle full USDC authority.
This marks Circle's third IPO attempt since 2021, when its SPAC merger with Concord Acquisition collapsed due to SEC delays. The current application arrives amid transformative industry shifts: stablecoin adoption has surged globally, U.S. regulators increasingly embrace compliant stablecoins, and giants like JPMorgan, PayPal, and Visa are entering the space. Concurrently, crypto firms like Kraken and Gemini are pursuing IPOs under clearer U.S. regulations.
Revenue Reliance on U.S. Bonds and Coinbase's Profit-Draining Fees
Despite these tailwinds, Circle's business model faces intense scrutiny over sustainability and profitability.
- Interest Rate Dependency:
Circle's 2024 revenue reached $1.676 billion—over 99% derived from reserve interest income (primarily U.S. Treasuries). This "T-bond arbitrage" model grows precarious as Fed rate cuts loom. - Crippling Distribution Costs:
Net profit plummeted 41.8% YoY to $155.67 million in 2024, driven by a 40.4% spike in distribution/transaction costs ($1.0108 billion, 60.7% of revenue). Coinbase, USDC's main distributor, reportedly earned $225.9 million from USDC in Q4 2024 alone (~$900 million annually)—reflecting Circle's rising ecosystem maintenance costs unmatched by revenue growth.
Coinbase's 50% share of USDC reserve yields ties directly to its platform-held USDC volume, which ballooned from 5% (2022) to 20% (2024). Circle admits it cannot control Coinbase's policies, warning this partnership materially impacts profitability.
To diversify, Circle expanded partnerships with Grab, Nubank, and Mercado Libre. Yet critics like Dragonfly Capital's Omar Kanji argue the IPO reveals desperation: "With rates peaking, insane valuation, and $250M+ annual payroll, this feels like a cash grab before big players dominate."
Industry Perspectives: Growth vs. Margin Compression
VanEck's Wyatt Lonergan highlights key challenges:
- B2B revenue-sharing is permanent.
- Margins will shrink as stablecoin markets grow.
- Issuers must diversify beyond interest spreads.
While U.S. regulatory clarity and stablecoin hype provide a listing window, Circle's ability to compete post-IPO remains uncertain amid rate cuts and escalating distribution costs.
FAQs
Q1: Why did Circle's valuation drop by half?
A1: Market conditions, revised SPAC terms, and secondary trading pressures slashed its peak $9B valuation to ~$5B. The IPO targets just $4–5B.
Q2: How does Coinbase profit from USDC?
A2: Coinbase earns 50% of USDC reserve yields—$900M annually in 2024—while increasing Circle's distribution costs.
Q3: What risks does Circle's Treasury-dependent model face?
A3: Fed rate cuts could collapse its interest income, which constitutes 99% of revenue.
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Q4: How is Circle reducing reliance on Coinbase?
A4: Partnering with global fintechs like Nubank and Mercado Libre, though Coinbase still dominates USDC distribution.
Q5: What differentiates this IPO attempt?
A5: Stablecoin adoption has surged, and U.S. regulatory support has strengthened since prior failed SPAC efforts.
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Q6: Are other stablecoin issuers pursuing IPOs?
A6: While Circle leads, competitors like Ripple and institutional players (e.g., JPMorgan) may follow as the sector matures.