Breaking Down Circle's Hundredfold Valuation: Why Stablecoin Issuance Is Not a Good Business

In just 5 days, the market capitalization of USDC issuer Circle rose from over 6.9 billion to over 20 billion USD. The surge of Circle may have been unexpected for founder Jeremiah and the team. The impression from discussions with the Asian Dollar Fund is that Circle's uniqueness in the compliance stablecoin sector lies in its core of oversubscription.

Undoubtedly, Circle is a pioneer. As early as July 2024, Circle became the first compliant stablecoin company under the European MICA framework. Founder Jeremy shared at a closed-door event in Switzerland that MICA is just the first step towards compliance and legality, which I find very convincing. After Trump took office at the end of 2024, the market clearly began to accelerate. With the gradual implementation of the U.S. GENIUS ACT and Hong Kong stablecoin regulations in 2025, Circle has played the role of an evangelist and promoter. At the same time, Circle is the stablecoin company with the most inbound and outbound banking partners worldwide, including several systemically important banks (GSIB).

When the market rushes to buy Circle, the stock price of Coinbase, Circle's most important distribution channel, shows a flat trend that is inconsistent with Circle during the same period. This raises a core question: in the stablecoin sector, is the real value in the hands of the issuers or in the hands of the traffic channels? This article will delve into the business model of Circle.

The "exchange center" of the crypto world

If we imagine the crypto world as a group of offshore islands, Bitcoin is like the gold circulating on the island, its value rising and falling with the tides; while stablecoins are like a prepaid card that can be exchanged for USD at any time, allowing you to buy coconuts on the island and also swipe your card at supermarkets on the mainland.

The company Circle, which issues this "stored value card," plays the role of a currency exchange center: when you deposit 1 USD, it locks an equivalent amount of cash or short-term U.S. Treasury bonds in the vault, while simultaneously minting 1 USDC on the blockchain, thus ensuring that the channel between the digital island and the real banking system remains open.

The "Song Jiang's Surrender" Path of Stablecoins

Before discussing Circle, it is necessary to clarify a perception: the birth of crypto assets (such as Bitcoin) is often seen as a resistance to the excessive issuance of traditional currency. However, stablecoins—especially those pegged to the US dollar at a 1:1 ratio—have taken a completely different path.

If Bitcoin is like the "outlaws of Liangshan" trying to start anew outside the system, then compliant stablecoins are more like Song Jiang, who has "accepted the imperial decree." By investing most of their reserve assets into real-world assets such as short-term U.S. Treasury bonds, they create a reservoir for the U.S. Treasury in exchange for compliance and legitimacy.

This kind of "surrender" makes it a key bridge between the real world fiat currency and the crypto world, but its essence has also changed from a disruptive monetary innovation to a supplement and "subsidy" to the existing financial system.

Can stablecoins "save" U.S. Treasury bonds? An impossible triangle

During the advancement of the stablecoin legislation in the United States (GENIUS Act 2025), the narrative of "stablecoins saving U.S. debt" is a repeatedly mentioned "patriotic" discourse. However, this may not hold up in business logic.

I propose an "impossible triangle" for stablecoins, meaning that a stablecoin scheme is difficult to simultaneously meet the following three points:

• Good for issuers: Sustainable business model with substantial profits.
• Good for reserve assets: Can support certain types of assets (such as U.S. Treasury bonds) on a large scale and without risk.
• Good for users: Zero risk, high returns, low fees.

The so-called "stablecoin benefits US Treasury bonds" is predicated on the market having unlimited demand and confidence in US Treasury bonds. However, if US Treasury bonds themselves face a repayment or trust crisis, the 1:1 pegged stablecoins will inevitably be impacted, and the trust chain will instantly break. This is similar to a trust company using funds from clients rated as low-risk to invest in high-risk real estate projects. Once the underlying assets collapse, the upper-level financial products will also be unable to escape. In the context of the stablecoin bill requiring monthly audit disclosures, the inherent risks of US Treasury bonds are difficult to hide.

The mystery of Circle's business model and valuation

Circle's core profit model mainly has two points:

1. Net Interest Margin: USDC holders do not earn interest; Circle invests reserve assets in short-term US Treasuries and earns interest, with the entire margin belonging to itself.

2. Payment and settlement fees: Wholesale USDC through its enterprise platform Circle Mint. If corporate clients need to exchange USDC back to USD on the same day (T+0), Circle will charge a channel fee of 0.1% – 0.4%. This can be understood as a combination service of "cross-border payment wallet + 7×24 hour settlement."

However, this business also faces the "regulatory shackles." Whether it's the U.S. "GENIUS Act 2025" or Hong Kong's "Stablecoin Regulation (Draft)," both prohibit issuers from engaging in "short money long investment" (using short-term liabilities to purchase long-term assets) or leveraging. This means that Circle cannot create profits using the money multiplier effect like traditional banks. On the contrary, both the U.S. and Hong Kong proposals allow traditional banks to issue stablecoins.

A business-restricted "quasi-bank" with a price-to-earnings ratio (PE) that once reached 147 times (as of June 9, 2025), while traditional financial giant JPMorgan Chase has a PE of only 13 times. Are investors chasing safe interest spreads or the imaginative space under the Web3 narrative? The valuation logic behind this is worth pondering.

Core drivers: The world has long suffered from "SWIFT/VISA"

A friend of mine pointed out bluntly: "Stablecoins have one theme - the world has suffered from SWIFT/VISA for a long time."

Traditional cross-border remittance networks are like century-old railways, not only are the costs high (often $20-40), but the processes are opaque and can take 3-5 days. In contrast, blockchain-based dollar tokens are like newly built maglev trains: although they also require security checks (Compliance), ticket prices are transparent and speeds are measured in seconds. Not everyone cares about consensus algorithms, but nearly everyone feels the pain of high transaction fees. This simple demand for "cost reduction and speedup" is the fundamental driving force behind the rapid penetration of stablecoins like USDC.

Of course, the fees for transferring between crypto wallets are extremely low, but once you want to convert digital assets into fiat currency in a bank account, you still cannot avoid the compliance friction of the traditional system. For example, remitting 200 USD from Singapore to the United States incurs a fee of 40 SGD from the sending bank, and the receiving bank deducts another 10 USD, leaving only about 150 USD after all fees. This fee is nominally a SWIFT fee, but the bulk of it is actually the compliance costs incurred by banks in anti-money laundering (AML) and anti-fraud efforts.

Therefore, from cryptocurrency wallets to bank accounts, compliance costs are inevitably present, and the key lies in who will bear them.

The reality of Circle's strategy and channels

Circle closed its fiat exchange services for retail customers at the end of 2023, which precisely illustrates the high costs of compliance and anti-money laundering on the retail side, a common pain point for all fintech companies.

Its response strategy is to launch the recently introduced Circle Payment Network, which no longer directly serves retail investors, but instead connects institutional and corporate clients into a distribution network, with the partner banks of these institutions and enterprises responsible for the final deposits and withdrawals. This is an innovation to the traditional SWIFT model, eliminating the intermediary bank model and transferring the costs of compliance and anti-money laundering to the network participants.

But the more realistic issue is the channels. Although Circle is labeled as a "crypto concept stock," its profit statement shows that as much as 58% of its revenue needs to be allocated as "distribution and transaction costs" to channel partners, with Coinbase being the largest beneficiary. Just like the story of the mobile internet era: whoever controls the traffic and scenarios takes the biggest piece of the value chain.

Since its listing, the stock price trends of Coinbase and Circle have diverged (commonly known as the "scissors difference"), further confirming that the channel providers earn real profits, while the issuers are responsible for telling grand narratives.

The issuance of stablecoins is a business that "seems simple, but has high barriers": regulatory costs are increasingly similar to those of commercial banks, yet it lacks the monetary multiplier that banks rely on for survival. Interest income is entirely subject to the Federal Reserve's interest rate policy, making it difficult to stabilize expectations. If channel traffic is choked by platforms like Coinbase, the issuer can only rely on high commission rates to gain market share.

Therefore, for most enterprises and institutions, relying solely on "coin issuance" for revenue is not a wise move. The real opportunity lies in leveraging stablecoins as an efficient financial tool to empower their own business scenarios.