Dissecting Circle's Financial Report: Decline in Interest Rate Benefits, USDC Prepares for the Next Big Move

Revenue did not meet expectations, but these details release optimistic signals.

Author: Azuma, Odaily Planet Daily

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

The financial report shows that Circle’s total revenue and reserve income for the first quarter was $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.

Following the release of the earnings report, CRCL experienced significant pre-market volatility, with nearly 6% gains being gradually erased amid fluctuations. By 10:00 PM, CRCL stocks initially continued to fall sharply but then quickly rebounded, currently at $115.74, up 2.52% for the day.

Key Data Analysis

As shown in the financial report, Circle’s total revenue and reserve income for this quarter was $694 million, representing a 20% year-over-year increase, but breaking the growth streak of several previous quarters ($579 million ➡, $658 million ➡, $740 million ➡, $770 million ➡, $694 million), and also failing to meet market expectations.

Circle attributes the slowdown in revenue growth to a decline in the Reserve Return Rate. On December 10, 2025, the Federal Reserve lowered the federal funds rate target range by 25 basis points to 3.5%-3.75%, which compressed the yield on Circle’s mainly U.S. Treasury-backed reserve assets.

However, despite relatively weak revenue, this earnings report still reveals some optimistic partial data.

First, Circle’s other income (Other Revenue), excluding 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).

This indicates that Circle’s revenue sources are becoming more diversified, with platform services, API tools, and payment products generating substantial commercial revenue, reducing reliance on interest income.

Another noteworthy figure is the RLDC Margin, which is the profit margin after deducting distribution costs from revenue. It reflects the core business profitability after distribution expenses and is widely regarded as Circle’s most critical profit indicator. This quarter, Circle’s RLDC Margin reached 41%, marking four consecutive quarters of growth (36% ➡, 39% ➡, 40% ➡, 41%), indicating more efficient control over distribution costs.

Next, let’s look at expenses. Distribution and transaction costs remain Circle’s largest expenditure, totaling $405 million this quarter, up 17% year-over-year. This expense is mainly linked to the USDC distribution contract with Coinbase, which will expire in August this year. How the renewal (mainly whether the revenue share will be adjusted) is handled will greatly impact Circle’s future expenses and profitability.

Excluding distribution costs, total operating expenses surged from $138 million last year to $242 million, a 76% increase. The main driver of this increase is compensation expenses, which rose from $75.62 million to $138 million, nearly doubling — Circle explains this is mainly due to stock-based compensation and related taxes after the IPO.

Affected by the surge in expenses, Circle’s operating profit this quarter declined from $92.94 million last year to $45 million; net profit attributable to common shareholders decreased from $64.79 million to $55.25 million; EPS was $0.23, diluted to $0.21.

Other Operational Highlights

Besides key financial data, Circle also disclosed several operational highlights in its Q1 report.

The most critical data point is that the circulating supply of USDC at the end of Q1 reached 77 billion tokens, a 28% year-over-year increase, but at the same time, the on-chain trading volume of USDC in Q1 hit an astonishing $21.5 trillion, up 263%. Visa Onchain Analytics also shows that USDC accounted for 63% of the total stablecoin trading volume across the network in Q1.

The growth rate of trading volume far exceeds the growth of circulating supply, indicating that each USDC on the chain is being transferred and used at a significantly higher frequency — USDC is not static sitting in wallets but is actively and frequently used in payments, DeFi, cross-border settlements, and other scenarios.

Another key point is that Circle also disclosed that its payment network Arc Network completed a pre-sale of 222 million ARC tokens, with a valuation of up to $3 billion, backed by prominent institutions including a16z, BlackRock, Intercontinental Exchange, Standard Chartered, SBI, and others. The ARC token white paper released today shows that 60% of the tokens will be allocated to the ecosystem (token sales, developer funding, network growth); 25% will be allocated to Circle (protocol development, staking, governance); 15% will be reserved for long-term reserves (strategic flexibility and economic stability).

Additionally, Circle’s institutional payment service Circle Payments Network (CPN) is estimated to have an annual transaction volume of $8.3 billion (based on 30-day data up to March 31); in April, Circle launched “Managed Payments,” a product to expand its payment offerings, allowing financial institutions to initiate stablecoin payment services without managing digital assets themselves.

To prepare for an AI Agent-driven business future, Circle also announced the launch of Agent Stack, a set of infrastructure services and tools designed for the AI Agent economy, aiming to provide fast, low-cost financial services for autonomous AI Agents. Co-founder and CEO Jeremy Allaire expressed his outlook: “With the pre-sale of ARC tokens, the momentum of Arc Network, and the launch of Agent Stack, we are building a trustworthy infrastructure for AI-native economic activities and a more programmable internet finance system.”

Circle’s New Strategy

In the macro environment of declining high-yield dividends (with Powell advocating “rate cuts + balance sheet reduction” after taking over the Fed), Circle clearly does not want to be entirely dependent on the Fed’s interest rate policy. Its strategic focus has quietly shifted toward diversification and expansion beyond interest income.

From the details disclosed in this quarter’s report, after launching services like CPN, Managed Payments, Agent Stack, and Arc Network, Circle’s goal is no longer just to be a “stablecoin issuer,” but to build USDC into the underlying dollar network of the internet era. Under this new vision, Circle’s target users are no longer limited to exchanges or crypto-native users but extend to cross-border payments, enterprise settlements, and even the AI Agent economy.

Circle’s ambition is very clear: to transform USDC from a “static reserve asset” into “a flowing economic bloodstream.” This may well be the big move Circle is truly aiming for.