Summary Circle's stock has performed well since it was listed, driven by the crypto bull market, high interest rates, and favorable regulatory developments. Circle's business is highly dependent on interest income on reserves, which could drop significantly in the event of macro weakness. While Circle's expansion into areas like payments should create alternative revenue streams, this will take time. As a result, I believe Circle's stock is unattractive at almost any valuation until revenue is more diversified. Circle Internet Group's ( CRCL ) stock has thrived since the company listed earlier in the year, supported by an ongoing cryptocurrency bull market, elevated interest rates, and positive regulatory developments. While the company could have a bright future, its current business model entails enormous risk that is largely being ignored. In the event of a recession, short-term treasury rates are likely to return to near zero, and capital is likely to flee riskier assets, like cryptocurrencies. As a result, Circle could see its revenue evaporate in a short period of time. Alternative revenue sources will become more important over time, but Circle is likely to remain heavily dependent on interest income for the foreseeable future. In an uncertain macro environment, this makes the stock unappealing at almost any valuation. Market Traditional financial systems have struggled with fragmentation, opacity, and limited access. While fintech companies have made some improvements, they generally rely on the same systems and have instead chosen to focus on modernizing front-end interfaces. While blockchain technology has long promised to address some of these issues, it has so far failed to live up to expectations. The democratization of stablecoins and a more favorable regulatory environment mean that this could be about to change, though. A stablecoin is a type of cryptocurrency that is designed to maintain a stable value relative to a reference asset, like the US dollar. While stablecoins are largely used in support of cryptocurrency speculation at the moment, potential use cases include: Cross-border payments. Retail payments. AI agent payments. Capital markets. Tokenization of real-world assets. Savings It has been proposed that stablecoins could be used as a savings product, potentially taking share from bank deposits. Stablecoins would likely need to offer better economics than alternative savings products though, which would eat into the yield that stablecoin companies are able to keep. Consideration also needs to be given to the lack of consumer protections currently in place relative to bank deposits. Only around 4% of the US population is unbanked, and those that are face barriers that make adoption of digital assets unlikely. Dollar-saving products in countries with weak currencies are more compelling at the moment. While this potentially encompasses a large number of individuals, the dollar volumes involved may be more modest. Payments Stablecoins could see adoption in payments due to their speed and lower fees if an appropriate user experience is created. Credit card companies and banks provide consumers with a range of services, though (fraud protection, deferred payment options), which present a barrier to adoption. Network effects are also likely to ensure existing payment systems remain dominant in most developed economies for the foreseeable future. Remittances Crossborder payments is one of the more compelling use cases for stablecoins, due to the high cost of present systems ( transaction fees can total 5-7% ). While it has been suggested that stablecoins can dramatically reduce costs, most of these stem from on/off-ramps and regulatory/compliance, which aren't addressed by stablecoins. This is much less of an issue if users are able to remain within a stablecoin ecosystem, which is more viable in many developing economies. Tokenization Ownership of real-world assets (physical or digital assets) can also be represented by a token on a blockchain, which potentially represents the largest opportunity for companies like Circle. The market cap of tokenized assets is currently dominated by stablecoins, but there is growing interest in tokenizing assets like MMFs (Money Market Funds), equities, and gold. Tokenization should be particularly beneficial for illiquid assets and those that involve costly settlement processes, like real estate. Regulatory Tailwinds Much of the recent surge in interest in stablecoins has been created by a favorable regulatory environment in the US, which has helped to reduce uncertainty and could be supportive of adoption going forward. For example, the GENIUS Act has created the first federal regulatory system for stablecoins. It is hoped that this will help to improve confidence in stablecoins and drive adoption, although protection for end users remains fairly limited. The act requires: US stablecoin issuers to be supervised by either the FRB, FDIC, OCC, or a state banking agency. Reserves backing coins on at least a 1:1 basis . Reserves comprised of high-quality liquid assets (US currency, funds held as demand deposits at depository institutions, Treasury bills, MMFs, etc.). Monthly disclosure of reserves and annual third-party audits. Issuers to comply with the Bank Secrecy Act and AML, KYC, and sanctions requirements. Stablecoins can be issued by subsidiaries of banks, provided they obtain a license, while non-financial companies are restricted unless they meet certain requirements. Stablecoin issuers are prohibited from paying interest, although it is relatively easy for them to distribute income through an affiliate. As a result, banks are lobbying for tighter restrictions in order to prevent deposit flight risk. The Treasury Department recently estimated that stablecoins could cause a 6.6 trillion USD outflow from bank deposits, which could increase loan costs and reduce loans to businesses and consumers. The CLARITY Act is yet to be passed but would provide a regulatory framework for digital assets beyond stablecoins. It would give the CFTC a central role in regulating digital assets where value is tied to usage of the blockchain. There is also the Anti-CBDC Surveillance State Act, which aims to prevent the Federal Reserve from issuing a CBDC directly to individuals without explicit congressional authorization. Market Opportunity Circle believes that the market opportunity of its stablecoin network encompasses the global monetary supply . While this is probably overly optimistic, Scott Bessent has suggested that the US stablecoin market could reach 2 trillion USD by the end of 2028 , with the right legislative support. Payments and tokenization are particularly promising opportunities. For example, there are 1.4 billion unbanked people globally , and trillions of dollars in payments and cross-border remittances occur annually. Independent of size, it isn't clear how fragmented the stablecoin market will end up being, though. Tether and Coinbase have dominant positions in the market at the moment, but any company with sufficient distribution could conceivably be successful. A number of major companies are exploring launching their own stablecoins, including Walmart, Amazon, and some financial institutions. There is a good chance that many of these companies end up utilizing white-label solutions. Paxos is leading in this area with USDG (Global Dollar stablecoin). Its partners include Robinhood, Kraken, and PayPal. Circle Circle Internet Group is a fintech company whose primary business is the issuance of USDC, a US-dollar-denominated stablecoin. Circle launched USDC in 2018, which has positioned it to become one of the main protocols for dollars on the internet. In addition, Circle now offers the EURC stablecoin. The company promotes its stablecoins as a faster, cheaper, and safer alternative. Circle is also differentiated by its focus on compliance and engagement with regulators. Beyond its core stablecoin business, Circle offers infrastructure, cross-chain and on-ramp services, a payments network, and tokenized assets. USDC is now natively supported on 20 blockchains, and Circle plans on expanding this figure over time. This support is enhanced by Circle's CCTP (Cross-Chain Transfer Protocol), which enables the movement of USDC across blockchains, improving liquidity and the user experience. This extends beyond just payments to tokenized applications more broadly (stable swap protocols to tokenized equities, commodities, and real estate). Circle is also developing a layer-1 blockchain (Arc) that is tailored for stablecoins. Circle hopes that Arc will form a basis for the next era of stablecoin-native applications. The Arc blockchain network is expected to launch in testnet later in the year. Features include: USDC as native gas Built-in FX engine Deterministic sub-second settlement Opt-in privacy Circle is hoping that Arc finds adoption in areas like: Cross-border payments Stablecoin FX perpetuals Onchain credit with offchain trust Capital markets settlement and tokenized collateral Circle recently acquired Informal Systems' consensus engine in support of its Arc blockchain. The Malachite consensus engine is a Byzantine Fault Tolerant engine based on Tendermint. It enables high-speed block confirmation and high throughput (up to 50,000 transactions per second depending on setup). While stablecoins are primarily used to speculate on digital assets at the moment, there is a push to drive adoption in other areas. The Circle Payments Network is a stablecoin payments solution targeted at financial institutions that was launched in May 2025. It abstracts the complexity of the underlying blockchain system and enables fast, low-cost, and compliant global payments. Circle is also trying to capitalize on the opportunity created by the rising use of yield-bearing digital assets as collateral in margin trading. In support of this, Circle acquired Hashnote and now offers USYC, a tokenized money market fund that is intended to be used as collateral on digital asset trading platforms. USYC's yield comes primarily from reverse repurchase agreements on US government and government-backed securities and short-term Treasury securities. This product is currently only available to non-US persons, though. Circle believes that the ability to offer near-instantaneous redemption is a significant advantage, as it reduces counterparty risk and enhances capital efficiency. Circle also believes that it can improve interoperability by integrating tokenized MMFs with its infrastructure (frictionless movement between tokenized MMFs and stablecoins). Circle also offers APIs and SDKs, which enable developers to build payment solutions that inherit Circle’s advantages (compliance, transparency, near-instant processing). Products offered by Circle Developer Services include: Circle Wallets - More than 12,000 developers have deployed 19 million wallets onchain. Circle Contracts - easy-to-use smart contract platform. Circle Paymaster - a smart contract that enables users to pay fees in USDC rather than a blockchain’s native tokens. Circle Liquidity Services provides minting, reserving, redemption, and foreign exchange services for Circle stablecoins. Circle Mint enables institutional customers to shift between USD/EUR and USDC/EURC via issuance or redemption directly with Circle. Customers can also move stablecoins between Circle Mint accounts. In early 2025, there were over 1,800 Circle Mint customers with accounts. Integrating its solutions within companies and driving adoption among developers is an important part of Circle's strategy. In particular, Circle is targeting financial institutions that provide on/off ramps, payment enterprises, and consumer financial applications as focus areas to drive adoption. There are more than 500 partners building solutions with Circle, and over 400 smart contracts are transacting with USDC. One of Circle's most important partnerships is with Coinbase, the dominant cryptocurrency exchange in the US. Coinbase's platform is an important source of demand, with the companies incentivized to work together through shared economics. Coinbase also has an equity stake in Circle. USDC is also a part of Coinbase Payments and is used as collateral for Coinbase's perpetual futures platform. Shopify enables merchants to accept USDC through a solution that leverages Coinbase's Base network. Stripe also now enables USDC payments following its acquisition of Bridge. In addition, USDC is accepted as a payment method with the likes of Chipotle, Whole Foods, Overstock, and GameStop. Amazon and Walmart are also reportedly considering adoption. Use of USDC in traditional exchanges and clearinghouses is also growing. Circle entered into an MoU with ICE in early 2025, with the companies agreeing to collaborate on the adoption of Circle's products within ICE's business and the development of co-branded products. Deutsche Börse and Circle also have an MoU related to the use of stablecoins within Deutsche Börse’s financial market infrastructure. Nodal Clear is also using USDC as collateral in its futures markets. Financial Analysis Circle currently monetizes primarily through reserve income at a discount to short-term rates. The company is trying to transition towards fee-based revenues based on transactions and usage, though. This is important given that short-term rates could easily return to near zero, leaving the company with little revenue. Circle also has to share reserve income with its partners (upwards of 50%), limiting the value it is able to capture from this revenue stream. I believe the risk of Circle's current business model has been underestimated, due in part to the fact that the company has a history of consistent revenue growth. This came about from a unique confluence of events that is unlikely to be repeated, though. Figure 1: Circle Revenue (Source: Created by author using data from Circle) Demand for stablecoins tends to be closely correlated with cryptocurrency prices, meaning the market capitalization of USDC tends to decline during market downturns. Circle's revenue should therefore be expected to decline during periods of market weakness. A situation that would be exacerbated by lower interest rates in the event of economic weakness. The only time Circle has faced a soft market happened to correspond to a period of rapidly rising interest rates, though, allowing its revenue to continue increasing. Given the current combination of high rates and euphoric markets, economic weakness is likely to result in both declining demand for USDC and significantly lower rates. Figure 2: Short-Term US Treasury Yield and USDC Market Capitalization (Source: Created by author using data from The Federal Reserve) Circle's margins have improved significantly as the company has scaled, and it has generally been profitable and cash flow positive in recent years. The fact that a large portion of reserve income is distributed to partners makes Circle's partners look low, but the company clearly has a highly profitable business under current market conditions. A drop in revenue could easily see Circle return to large losses, particularly given the extent to which operating expenses have increased in recent years. This wouldn't be an immediate concern given the strength of Circle's balance sheet, but a severe recession followed by an extended period of near-zero rates could create problems. Figure 3: Circle Margins (Source: Created by author using data from Circle) Conclusion Growing adoption of stablecoins outside of cryptocurrency speculation and the potential rise of asset tokenization could mean that Circle has a bright future. The company needs to create revenue streams that are not dependent on reserves, though. This will likely be a slow process, and in the meantime, Circle is extremely vulnerable to both market and economic weakness. In the event of a severe recession, Circle would likely find itself with little revenue and large losses. It is difficult to know the extent to which long-term investors would be willing to look through what would likely be considered temporary weakness. If sentiment really soured, the stock could easily drop by more than 75%, though. Figure 4: Circle EV/S Ratio (Source: Seeking Alpha)
