Dissecting Circle Q1 Financial Report: After the Decline of Interest Rate Benefits, USDC Prepares for the Next Big Move

Original | Odaily Planet Daily (@OdailyChina)

Author | Azuma (@azuma_eth)

Before the US stock market opened on May 11, stablecoin issuer Circle officially announced its Q1 2026 financial report.

According to the financial report, Circle’s total revenue and reserve income for the first quarter were $694 million, slightly below the market expectation of $715 million; EPS was $0.21, higher than the market expectation of $0.18; adjusted EBITDA was $151 million, up 24% year-over-year; net profit was $55 million, down 15% year-over-year.

As a result of the earnings release, CRCL saw significant pre-market fluctuations, with nearly a 6% pre-market gain gradually being wiped out amid the trading volatility. As of 22:00, after the US stock market opened, CRCL continued to drop sharply at one point, but then quickly flipped from decline to rise, temporarily at $115.74, up 2.52% for the day.

Key Data Interpretation

As shown in the financial report, this quarter Circle’s total revenue and reserve income (Total Revenue and Reserve Income) was $694 million. Although it still grew 20% year-over-year, it interrupted the growth trend that had continued for several consecutive previous quarters ($579 million ➡️ $658 million ➡️ $740 million ➡️ $770 million ➡️ $694 million), and it also fell short of market expectations.

Circle attributed the slowdown in revenue growth to the decline in the Reserve Return Rate. On December 10, 2025, the Federal Reserve lowered the target range for the federal funds rate by 25 basis points to 3.5%-3.75%, thereby compressing the yield on Circle’s reserve assets, which are mainly invested in US Treasuries.

However, even with relatively weaker revenue, this earnings report still reveals some optimistic local data.

First, Circle’s other revenue (Other Revenue), excluding reserve income (Reserve Income), hit a new high of $42 million, showing a continuous growth trend over multiple quarters ($21 million ➡️ $24 million ➡️ $29 million ➡️ $37 million ➡️ $42 million).

As we discussed this afternoon in the article “Financial Reports, Bills, the Federal Reserve… Circle Faces Three Big Tests This Week,” this implies that Circle’s revenue sources are becoming more diversified: its platform services, API tools, and payment products are generating tangible commercial revenue, while reliance on interest income is decreasing.

Another data point worth paying attention to is RLDC Margin, i.e., the profit margin after subtracting distribution costs from revenue. It reflects the profitability level of Circle’s core business after deducting distribution expenses, and is widely viewed as Circle’s most critical profit indicator. In this quarter, Circle’s RLDC Margin reached 41%, achieving growth for four consecutive quarters (36% ➡️ 39% ➡️ 40% ➡️ 41%). This suggests that Circle’s control of distribution costs is becoming more efficient.

Now let’s look at expenses. Distribution and transaction costs (Distribution and Transaction Costs) remain Circle’s largest expense item, totaling $405 million this quarter, up 17% year-over-year. This portion of spending is mainly tied to the USDC distribution agreement with Coinbase, which is set to expire in August this year. How to renew it (mainly whether the revenue share ratio will be adjusted) will greatly affect Circle’s future expense and profit situation.

Excluding distribution costs, total operating expenses (Total Operating Expenses) also surged from $138 million last year to $242 million, a year-over-year increase of 76%. Among them, the biggest driver came from compensation expenses (Compensation expenses), rising from $75.62 million to $138 million—nearly doubling. Circle explained that this was mainly due to stock-based compensation expenses after its IPO and related taxes.

Due to the surge in expenses, Circle’s operating profit this quarter fell from $92.94 million in the same period last year to $45 million. Net profit attributable to common shareholders dropped from $64.79 million to $55.25 million. Earnings per share (EPS) was $0.23, and diluted EPS was $0.21.

Other Operational Highlights

Beyond the core financial figures, Circle also disclosed multiple operational highlights in its Q1 earnings report.

Among them, the most critical figure is that the circulating supply of USDC at the end of the first quarter reached 77 billion tokens, up 28% year-over-year. Meanwhile, however, USDC’s on-chain transaction volume in Q1 reached an astonishing $21.5 trillion, up 263%. Visa Onchain Analytics data analysis also shows that in Q1, USDC’s share of total stablecoin trading volume across the network reached 63%.

The growth rate of transaction volume far outpaces the growth rate of circulating supply. This means that each USDC token is being passed on and used on-chain at a much higher frequency—USDC is not simply sitting static in wallets; it is being used in real, high-frequency payment, DeFi, cross-border settlement, and other scenarios.

Another focus is that Circle also disclosed that its payment network, Arc Network, has completed a $222 million pre-sale of ARC tokens, with a valuation as high as $3 billion. Investors include a16z, BlackRock, Intercontinental Exchange, Standard Chartered, SBI, and other well-known institutions. The ARC token white paper disclosed today shows that 60% of tokens will be allocated to the ecosystem (token sales, developer funding, and network growth); 25% will be allocated to Circle (protocol development, staking, and governance); and 15% will be allocated to long-term reserves (strategic flexibility and economic stability).

During the subsequent earnings call, when asked how the ARK tokens attributable to Circle would be accounted for, Jeremy Allaire, co-founder and CEO of Circle, said: “When ARC tokens are created, these tokens will be recorded on Circle’s balance sheet at cost, and the cost basis is zero. Then, after Circle fulfills its obligations under the token pre-sale agreement, we will recognize the value of these tokens as ‘Other Income,’ and that value will be directly reflected in RLDC and adjusted EBITDA.”

This also implies that in some future quarter, Circle’s earnings report revenue numbers could look “especially good” due to the valuation accounting of ARC tokens.

In addition, Circle’s institutional payment service, Circle Payments Network (CPN), is also estimated to have reached an annual transaction volume of $8.3 billion (based on reverse calculation from 30-day data as of March 31). In April, Circle launched the “Managed Payments” product to expand its payment offerings. This product allows financial institutions to start stablecoin payment business without having to manage digital assets themselves.

To meet the future business driven by AI Agents, Circle also announced the launch of Agent Stack—a suite of infrastructure services and tools for the AI Agent economy—aimed at providing fast, low-cost financial service capabilities for autonomous AI Agents. Jeremy Allaire’s outlook is: “With the pre-sale of ARC tokens, the accumulation of Arc Network momentum, and the launch of Agent Stack, we are building trustworthy infrastructure for AI-native economic activities and a more programmable internet finance system.”

Circle’s New Game Plan

In the macro backdrop of high-yield dividend tailwinds fading (with the new Fed leadership likely to push a “rate cuts + balance sheet reduction” strategy), Circle clearly does not want to be fully constrained by the Federal Reserve’s rate policy. Its focus has quietly shifted toward diversified expansion beyond interest income.

From the details disclosed in this quarter’s report, after continuously rolling out services such as CPN, Managed Payments, Agent Stack, and Arc Network, Circle’s goal is no longer just to be a “stablecoin issuer.” Instead, it is trying to turn USDC into the underlying dollar network of the internet era. Under this new vision, Circle’s target audience is no longer limited to exchanges or crypto-native users; it is extending across cross-border payments, enterprise settlement, and even the AI Agent economy in a comprehensive way.

Circle’s ambition is already very clear: to completely transform USDC from a “static reserve asset” into “circulating economic blood.” Perhaps this is the big chess move Circle truly wants to make.

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