Why is Coinbase the biggest winner behind USDC?

Author | insights4vc

Compiled by | Deep Tide TechFlow

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Introduction: Circle has gone public on the New York Stock Exchange, with stock code CRCL. But what exactly kind of business is this company engaged in? This article, based on its FY2025 annual report, dissects Circle’s revenue structure, reserve fund model, revenue sharing arrangement with Coinbase, and the growth status of USDC, EURC.

The core judgment reached by the author: Essentially, Circle is a rate-sensitive financial infrastructure company that earns interest on reserves, rather than subscription or trading fees from a software platform. This judgment directly impacts its valuation logic.

The full text is as follows:

Understanding Circle should first be positioned as a “reserve income company,” rather than a scaled software or payment fee platform. Its profit model heavily depends on stablecoin balances, short-term interest rates, and the portion of reserve income actually retained after paying substantial revenue shares.

FY2025 data clearly illustrates this point: total revenue plus reserve income amounts to $2.75B, of which reserve income contributes $2.64B, and other income is only $110 million. Therefore, Circle’s recent financial performance mainly depends on three variables: the average circulation of USDC, the actual yield on reserves, and the economic structure of partner revenue sharing (especially the contract with Coinbase).

FY2025 total revenue and reserve income grew from FY2024’s $1.68B to $2.75B, a strong increase. Reserve income rose from $1.66B to $2.64B, and other income increased from $15 million to $110 million. Even so, Circle’s net loss attributable to common shareholders in FY2025 still reached $70 million, with operating expenses also soaring, including a payroll expense of $845 million.

Figure: Key financial indicators of Circle FY2025

The core controversy in 2026 is not whether Circle is expanding its footprint, but whether this expansion can truly be reflected in financial data. The key variables remain: whether USDC circulation can continue to grow, how reserve yields evolve in a declining interest rate environment, whether distribution costs will remain high long-term, and whether the scaling speed of new revenue streams like CCTP, CPN, USYC can keep pace with the growth of the reserve base.

At this stage, Circle’s strategic boundaries are clearly expanding, but the core investment framework remains unchanged: it is still a financial infrastructure company whose profits are dominated by reserve income, not a diversified platform driven by monetization of multiple revenue streams. It is highly sensitive to interest rates and balance scale.

Circle Business Overview

Circle is a fintech company listed on the NYSE, with stock code CRCL. The company filed its FY2025 annual report (Form 10-K) on March 9, 2026, covering the period ending December 31, 2025. The FY2025 balance sheet shows “stablecoin holder deposits” of $74.9 billion, directly indicating that the company’s core economic activity remains the management of reserve-backed stablecoins, rather than traditional pure software models.

From an analytical framework, Circle can be divided into four layers:

1. Stablecoin issuer, with main products USDC and EURC, liabilities corresponding to circulating stablecoins, and assets being segregated reserves held for users.
2. Reserve income business, monetizing reserves through interest and dividends.
3. Developer, payment, and infrastructure layer, focused on expanding stablecoin use cases and transaction density.
4. Building a macro strategic layout around “Internet financial systems,” including Arc, Circle Payment Network (CPN), and tokenized asset infrastructure.

However, disclosed data indicates that the actual financial impact still primarily comes from the reserve income model, rather than scaled software or trading fee businesses. FY2025 total revenue plus reserve income totals $2.75B, with reserve income contributing $2.6368 billion, and the non-reserve portion being relatively limited.

This distinction is crucial for valuation. Circle’s strategic narrative is broadening, but its revenue structure does not support a “software platform re-rating” story. Previously disclosed data shows that in 2024, “other product” revenue accounted for only 1% of total revenue, though management also pointed out that other income accelerated in 2025, with Q4 2025 other income reaching $37 million, a year-over-year increase of $34 million. This is a positive signal but still insufficient to challenge the core profitability driven by reserve balances, reserve yields, and partner economic structures.

Another strategic pillar is regulatory positioning. Circle disclosed that in December 2025, it obtained conditional approval from the OCC to establish a national trust bank, named First National Digital Currency Bank, N.A. Management characterized this as an important step to strengthen USDC infrastructure and potentially expand regulated custody and reserve management capabilities. This could enhance regulatory sustainability and institutional confidence in reserve governance, but currently it is not a disclosed profit driver.

Business Model and Economic Structure

Circle’s business model is determined by two variables: the scale of circulating stablecoins and the yield on reserves. The company explicitly defines reserve income as a function of reserve balances and reserve returns.

FY2025 reserve income was $2.6368 billion, up from $1.6611 billion in FY2024. In comparison, FY2025 other income was only $109.8 million (FY2024: $15.2 million), with subscription and service income of $84.8 million being the largest non-reserve item. This confirms that Circle’s profit structure is highly sensitive to interest rates and balance growth, even as auxiliary income starts from a low base.

Reserve management is conservative. Circle disclosed that as of June 30, 2025, about 87% of USDC reserves were held in Circle Reserve Fund—a government money market fund compliant with 2a-7 rules, managed by BlackRock and custodied by BNY Mellon. The remaining portion is held as cash in accounts serving USDC holders, mainly in globally systemically important banks. The reserve-building logic prioritizes liquidity, capital preservation, transparency, and compliance, rather than maximizing yield.

Circle’s economic structure is also deeply influenced by distribution arrangements, especially the agreement with Coinbase. Reserve income is recorded gross, but the company makes extensive downstream payments through distribution and trading costs. This means a significant portion of gross reserve earnings is paid out via distribution layers before reaching operational expenses.

Data shows that after deducting distribution costs, FY2025 revenue (RLDC) was $1.08B, while total revenue plus reserve income was $2.75B. The difference indicates that most gross monetization is paid out through the distribution layer.

This is critical for modeling. Circle is not a pure beneficiary of rising interest rates or USDC balance growth—growth in reserve monetization cannot be directly converted into retained profitability. According to Circle’s earlier sensitivity disclosures, with an average reserve yield of 4.26% as of June 30, 2025, a 100 basis point change would affect reserve income by approximately $618 million, but distribution and trading costs would also change by about $315 million. This means a large part of the upside in reserves is shared with partners, leaving only the residual portion flowing into RLDC before operating expenses. For institutional analysis, RLDC is a more useful intermediate profit measure than simple reserve income.

The reported profitability quality in FY2025 is also significantly affected by non-core and non-cash items. Circle disclosed a net loss from continuing operations of $70 million, but adjusted EBITDA of $582 million. The gap mainly results from high equity incentive expenses related to IPO vesting conditions—specifically, $423.8 million of equity incentive costs recorded when NYSE trading triggered performance conditions. At the time of the FY2025 report, Circle explained that this was significantly impacted by $424 million of IPO-related equity incentives, with RSU performance conditions met upon NYSE trading start, triggering the expense. Therefore, GAAP net profit is not the best metric for evaluating the fundamental economics or profitability.

The most important reason is the arrangement with Coinbase, which is the most significant and easily underestimated aspect of its business model.

When USDC was launched in 2018, Circle and Coinbase jointly formed a consortium to govern the stablecoin. This structure was dissolved in 2023, with Circle taking sole issuance rights. However, Coinbase retained a highly favorable revenue sharing agreement.

Figure: USDC reserve share structure between Circle and Coinbase

Under the agreement, all reserve income generated on USDC held on Coinbase’s platform goes 100% to Coinbase; reserve income from other channels is split 50/50. In 2024, out of $1.01 billion in total distribution costs, $908 million was paid to Coinbase. In other words, about $0.54 of every dollar earned by Circle flows to a company that neither issues USDC nor manages its reserves. By early 2025, Coinbase held 22% of USDC’s total supply, up from 5% in 2022. As USDC becomes more concentrated in Coinbase, Circle’s payment burden also increases.

In summary, at this stage, Circle should be viewed as a rate-sensitive financial infrastructure company driven by stablecoin reserve income, rather than a software platform primarily monetizing subscription or trading revenue. The platform’s option value is becoming clearer, especially with the expansion of Arc, CPN, and non-reserve revenue streams. But the disclosed FY2025 revenue structure still supports an analytical framework centered on reserve balances, reserve yields, and distribution sharing mechanisms. Until non-reserve income becomes a significant proportion, reserve income remains the main driver of Circle’s profitability sensitivity and valuation debate.

Deep Dive into USDC and EURC

USDC

USDC is the core economic engine for Circle entering 2026. Circle disclosed in FY2025 report that as of December 31, 2025, USDC circulation was $75.27B. The Circle USDC product page later showed that as of March 16, 2026, circulation was $79.2 billion. From year-end to mid-March, USDC circulation increased by about $3.9 billion, roughly 5.2%. Not explosive growth, but it indicates that on the basis of a strong foundation in 2025, net expansion continues.

Figure: USDC stablecoin supply (Source: Allium)

Circle’s FY2025 disclosures point to a strong growth year for USDC. In Q4 2025, USDC circulation grew 72% YoY to $75.3 billion, and on-chain trading volume increased 247% YoY to $11.9 trillion. The average USDC circulation for the year was $64.87 billion, higher than FY2024’s $33.34 billion, but FY2025 reserve yield was 4.1%, lower than FY2024’s 5.0%. The key inference: revenue expansion in 2025 relied on balance growth, not yield improvements, as reserve yields declined YoY.

Circle also disclosed operational metrics indicating USDC is a high-turnover monetary tool rather than static collateral. In FY2025, USDC minting was $257.5 billion, redemptions $226.1 billion; stablecoin market share at year-end was 28% (based on third-party market cap data); and the number of active wallets at year-end was 6.8 million (per Circle’s own definition). The large minting and redemption volumes relative to the end-of-period stock suggest high transaction turnover, likely from exchange settlements, liquidity routing, collateral management, and DeFi flows, rather than simple buy-and-hold reserve logic. Circle has not publicly provided a clear breakdown of these use cases.

The narrative of USDC as a payment tool is becoming more credible, but still in early stages compared to the reserve income model. Visa has officially launched USDC settlement with select card and acquirer partners in the US, supporting settlement of some Visa obligations on specific blockchains, even outside traditional banking hours. Circle views this as proof that USDC can serve as a continuous settlement asset rather than just a native crypto trading instrument. Although the scale is still small relative to Visa’s overall network, the significance is not to be underestimated: it is one of the clearest signals that USDC is being positioned as part of real-world backend payment infrastructure.

Partnerships for consumer and SME ecosystems are also expanding. On December 18, 2025, Circle announced a partnership with Intuit to integrate USDC into TurboTax, QuickBooks, and Credit Karma. Strategically, this reinforces the argument that Circle is pushing USDC beyond trading venues and crypto-native users into mainstream financial workflows. But monetization pathways remain opaque—Circle has not disclosed pricing, commission rates, or revenue sharing for these integrations, so progress at the distribution layer should not be mistaken for proof of high-margin payment revenue.

On the market structure front, Circle and Polymarket announced on February 5, 2026, that Polymarket will migrate from bridging USDC (USDC.e) on Polygon to native USDC over the coming months. This indicates Circle is actively promoting reduced reliance on bridged liquidity and increasing native USDC issuance across chains. Native issuance can improve redemption transparency, reduce cross-chain bridge complexity, and better align with regulatory priorities. At the same time, this migration also reveals structural challenges for stablecoins: fragmentation of cross-chain liquidity remains a friction point, not just a technical footnote.

Overall, USDC is a hybrid tool: primarily a settlement asset for exchanges and venues; a high-speed on-chain dollar used for collateral, liquidity routing, and infrastructure; and emerging as a new institutional settlement track through specific integrations. The growth of payment use cases is improving, especially with Visa settlement, Intuit integration, and broader infrastructure development. But the main economic driver disclosed remains reserve-based reserve income, not explicit transaction fee monetization from payment activities.

EURC

EURC is strategically important, though its direct economic contribution remains limited. The European regulatory context is particularly relevant here. The MiCA regulation (EU 2023/1114), effective from 2023, applies to asset-referenced tokens and electronic money tokens from June 30, 2024, with broader implementation from December 30, 2024. This timeline means euro-pegged stablecoins are among the first to gain “regulatory compliant and rating-ready” status compared to many adjacent crypto assets, boosting confidence among regulated issuers and exchanges to support compliant euro-stablecoin products.

Circle disclosed that as of December 31, 2025, EURC circulation was 309,608,590 tokens. By March 16, 2026, Circle’s EURC page showed circulation of €382.8 million. From year-end to mid-March, EURC grew by about €73 million, roughly 23.6%. Although the absolute volume remains small compared to USDC, the growth rate is meaningful, indicating EURC is gaining traction from a low base.

The overall euro-stablecoin market remains small. Reuters reported in September 2025, that the total euro-pegged stablecoin market was about $620 million, while global stablecoin issuance was around $300 billion. Even with subsequent growth, Circle’s reported circulation of €382.8 million as of March 2026 suggests EURC is among the top euro stablecoins by supply.

Circle positions EURC as compliant with MiCA, supporting Avalanche, Base, Ethereum, Solana, and Stellar, with monthly proof reports promised. Strategically, EURC’s value to Circle may exceed its current direct financial contribution: it helps establish a European regulatory foothold, supports on-chain euro-dollar workflows alongside USDC, and provides optionality as European digital currency policies evolve. Reuters’ late 2025 report also indicates increasing attention from European institutions and policymakers to alternatives to dollar-dominated stablecoin infrastructure, supporting the optionality argument.

Over the next 12–24 months, EURC is better viewed as an enabling layer rather than a standalone profit driver. Its scale is less than €119k, and Circle has not disclosed separate revenue data for EURC. To become financially meaningful, EURC likely needs three things: substantial growth in euro-pegged floating supply, adoption beyond crypto-native capital markets for payments and finance, and a distribution path that avoids heavy revenue sharing like USDC’s model. In other words, EURC is strategically important but not yet a core financial driver.

FY2025 Financial Analysis and Key Metrics

Circle’s FY2025 financial data again confirms that the company is primarily a reserve income business. Total revenue plus reserve income in FY2025 was $500M, higher than FY2024’s $2.75B. Reserve income was $1.68B (FY2024: $2.64B), and other income was $110 million (FY2024: $15 million). The YoY increase is almost entirely driven by reserve income expansion, not a broad shift toward software or trading fee revenue.

Figure: Circle FY2025 revenue structure

Figure: Breakdown of Circle FY2025 cost structure

Cost structure is also an important component of the underwriting framework. Distribution and trading costs in FY2025 were $1.66B, up from $1.66B in FY2024. Operating expenses rose from $492 million to $1.01B, with payroll expenses at $845 million (up from $263 million last year). This confirms that higher reserve income creates gross profitability, which is largely shared with partners and further absorbed by rising operating costs.

To measure operating leverage, RLDC (Revenue Less Distribution and Trading Costs) is more useful than top-line revenue. Circle disclosed FY2025 RLDC of $1.18B, up from $659 million in FY2024; the RLDC profit margin has been steady at 39% over two years. This stable margin indicates that distribution costs roughly scale with reserve income, and higher interest rates or larger balances do not structurally improve retained economics. In other words, Circle has achieved growth, but the core economic share retained after distribution has not materially improved.

A clearer signal of operating leverage appears in management’s adjusted metrics rather than GAAP. Circle disclosed FY2025 adjusted operating expenses of $508 million, and guidance for FY2026 of $570–585 million under the new definition. This suggests the company plans to continue investing in growth rather than shifting to a near-term harvesting mode.

Figure: Key items from Circle FY2025 balance sheet

The balance sheet also supports specific interpretations of the business model. As of December 31, 2025, Circle reported $1.08B in cash and cash equivalents held for stablecoin holders, and $570M in stablecoin holder deposits. This structure aligns with a reserve-backed issuance model built around segregated balances, rather than a traditional loan-based asset-liability profile.

From an analysis perspective, this makes Circle more akin to a narrow-interest business rather than a high-commission fintech, with the key condition that reserves are described as held for token holders and intended to be bankruptcy-remote under disclosed structures.

Q1 2026 Preview and FY2026 Bull, Base, Bear Scenarios

Entering Q1 2026, the interest rate environment is less favorable than the peak of the current cycle. As of March 16–17, 2026, the effective federal funds rate was 3.64%, and SOFR was 3.65%. Circle’s sensitivity framework uses a 3.64% average yield as a reference point. This implies that at the start of Q1 2026, the reserve return environment remains significantly below FY2024’s 5.0%, and closer to late 2025 levels. To sustain reserve income growth, balance growth must do more work.

The starting point for Q1 2026, at least in terms of balances, is constructive. Circle disclosed that as of March 16, 2026, USDC circulation was $79.2 billion, higher than the $75.07B at year-end; EURC increased from €309 million to €382.8 million. This suggests that average stablecoin balances in Q1 may have improved relative to Q4, partially offsetting the low-yield environment.

Management’s FY2026 guidance indicates continued diversification of revenue structure, but no fundamental change in the economic model. Specifically: other income of $150–170 million, RLDC profit margin of 38–40%, adjusted operating expenses of $570–585 million. The signals are twofold: first, management expects non-reserve income to grow; second, even according to their guidance, these revenues remain small relative to the reserve income engine.

Bull scenario: USDC circulation continues to expand in Q1 and Q2, benefiting from increased institutional settlement use, higher on-chain velocity, and incremental distribution progress. In this scenario, even if actual yields remain at late 2025/early 2026 levels, reserve income can stay resilient. Distribution costs will also rise, but the retained economic after distribution may still be sufficient to maintain or approach the guidance range, absorbing higher operating expenses. Essentially, this is a “floating balance growth offsetting interest rate compression” scenario. Current balance trends and expanding ecosystem support this, but it still depends on sustained transaction volume and adoption momentum.

Base scenario: As trading activity and DeFi usage normalize, USDC growth slows to low single-digit quarter-over-quarter increases. Reserve yields anchor around 3%, roughly aligned with EFFR and SOFR. In this case, reserve income stabilizes or slightly increases (depending on average balances), but distribution costs remain high due to partner sharing structures. RLDC profit margins stay within the 38–40% guidance range, with moderate top-line progress but limited structural profit margin expansion.

Bear scenario: USDC circulation stagnates or declines due to risk aversion, outflows from exchanges, or market share pressures, while interest rates further decline from already low levels. According to Circle’s sensitivity framework, lower yields reduce reserve income, and mechanically reduce some distribution costs, but overall RLDC weakens. This is more severe because Circle has already committed to higher expense plans entering FY2026, meaning a weakening balance and yield environment will expose the company to concentrated partner risks and rigid operating costs.

Strategic Positioning and Competitive Landscape

The most accurate qualitative description of Circle is: a regulated digital currency network operator, with two layers—a currently dominant issuer and reserve management core, and a strategically important but not yet economically dominant application, interoperability, and developer services layer. This distinction is crucial because, before non-reserve income becomes significantly larger, Circle’s valuation, profitability sensitivity, and risk profile remain tightly linked to monetary policy and stablecoin market structure.

The most important strategic option now is Circle Payment Network (CPN). Launched in April 2025, as of February 20, 2026, 55 financial institutions have registered, 74 are undergoing qualification, with an annualized transaction volume of $5.7 billion based on 30-day calculations. These are meaningful early signals of network formation and institutional interest. But without disclosures on fee rates, revenue contribution, or profit margins, CPN’s strategic value remains easier to demonstrate than to quantify financially.

Another credible non-reserve monetization path is interoperability tools. Circle disclosed that in March 2025, it launched CCTP V2, enabling fast transfers that can generate transaction fees when used by clients. This is a strong non-reserve monetization path because it prices specific technical capabilities rather than relying solely on usage volume to generate value. Still, FY2025 transaction revenue disclosures are very small, and their contribution relative to reserve income is negligible.

Circle’s USYC segment, acquired through the Hashnote purchase, is also strategically noteworthy. Circle describes USYC as representing on-chain money market fund shares, mainly used for collateral in digital asset markets, and discloses earning fees including performance fees.

This is a reasonable extension of USDC, as it serves the needs for yield-bearing collateral and margin that stablecoins alone cannot fully address. But the market currently lacks public disclosures of USYC assets, income, or profitability, so it functions more as a strategic building block than a standalone modeling driver.

In terms of competition, Circle’s most direct rival in the US dollar stablecoin space remains Tether. Reuters reported in February 2026 that USDT circulation was about $184 billion, giving Tether a significant scale advantage.

Circle’s differentiation remains clear: listed company disclosure standards, reserve asset constraints aligned with emerging regulations, and stronger positioning with regulated institutions and payment networks. In this sense, Circle’s competitive advantage is less about absolute size and more about institutional credibility and regulatory transparency.

Another competitor is PayPal’s PYUSD. On March 17, 2026, PayPal announced expanding PYUSD to 70 markets globally. PYUSD’s strategic relevance lies in its embedding within a global consumer and merchant payment distribution network, which is very different from Circle’s focus on exchanges and infrastructure.

Circle’s current advantage is deeper USDC liquidity, larger scale, and stronger integration with crypto markets; PYUSD’s differentiation is embedded native wallets and merchant distribution within mainstream payment platforms.

The European competitive landscape may become more challenging in the future. Reuters reported that several large European banks—including ING, UniCredit, BNP Paribas—formed a consortium to launch a euro-stablecoin in late 2026, and policymakers are openly discussing strengthening euro-denominated digital currency infrastructure to counter the dollar dominance. This poses a medium-term competitive threat to EURC, as bank-led euro-stablecoins could combine regulatory credibility with embedded enterprise and bank distribution. As of March 2026, this remains more a future risk than an immediate supply-side alternative.

Conclusion

Circle’s FY2025 data continues to support the view that it is primarily a reserve income business—profitability driven by stablecoin balances, reserve yields, and partner economic structures, with software or payment monetization contributions still insufficient to overturn this structure.

USDC and EURC continue to expand, and new initiatives like CCTP, CPN, and USYC improve strategic narrative, but these are still not significant enough financially compared to the reserve income base.

Therefore, the core underwriting framework remains focused on floating balance growth, interest rate sensitivity, and the structural weight of distribution costs—especially the portion linked to Coinbase.

Figure: Circle Internet Group Inc — Consolidated Income Statement

Figure: Circle Internet Group Inc — Consolidated Balance Sheet (Part 1)

Figure: Circle Internet Group Inc — Consolidated Balance Sheet (Part 2)