Original Title: "How will Circle make money next? CEO responds to profit model, bank competition, and Arc chain strategy"
Source: Dongcha
On the first earnings report night after going public, Circle delivered a complex answer of "book losses, operational growth": total revenue and reserve income for the second quarter reached $658 million, a year-on-year increase of 53%, with adjusted EBITDA of $126 million, up 52% year-on-year. Meanwhile, USDC continued to expand on the circulation side, with an outstanding circulation volume of $61.3 billion at the end of the period, capturing a stablecoin market share of 28%. However, due to two non-cash factors triggered by the IPO, including large stock-based compensation and changes in the fair value of convertible bonds totaling $591 million, the company recorded a net loss of $482 million.
Outside of the earnings report, the competitive landscape of the industry was rapidly rewritten this summer. The "GENIUS Act" was officially implemented, bringing the boundaries between "bank-issued stablecoins" and "licensed non-bank issuers" to the forefront. Circle's Chief Strategy Officer Dante Disparte stated in a recent interview that the real competition has just begun, and it remains uncertain whether banks will hastily issue coins.
Circle's partnership landscape is also expanding.
Management mentioned in the conference call the deepening cooperation with mainstream exchanges such as Binance and OKX, as well as integration with payment networks like Stripe, Visa, Mastercard, and banking infrastructure providers like Fiserv; at the same time, the increase in USDC balances on the Coinbase platform and new partner distribution agreements have also raised distribution-related costs this quarter. These structural tensions of "growth—sharing—cost" are shaping the business model and ecological distribution path of USDC.
Meanwhile, Circle announced its self-developed blockchain Arc aimed at stablecoin finance. It uses USDC as the native Gas, pursuing ultra-high settlement speed and low volatility rates, and introduces optional privacy and compliance-auditable disclosure mechanisms for institutional scenarios, seen as a key step in its transition from a "single issuer" to a "full-stack platform."
Last night, Circle CEO Jeremy Allaire answered several of the most pressing questions from the public during the earnings call and a live interview with The Information:
- Why is there a book loss despite high growth?
- The future competitive relationship between bank and non-bank stablecoins in the context of the "Genius Act";
- The "game-like cooperation" with exchanges and the layout of new partners;
- Is there consideration to apply for a license in Hong Kong?
- The strategic goals of the Arc chain and its industry ecological position.
Dongcha Beating has integrated the key questions and answers for readers to quickly and accurately understand Circle's management's views on the industry and the company's plans (for the full earnings call transcript, please refer to the section "Circle Q2 2025 Earnings Call Transcript" below):
Subscription fees, service fees, and transaction fees: management plans to increase revenue sources
1. In Q2 this year, Circle's revenue grew by 53% year-on-year, but reserve interest still accounts for a large portion. How does the company plan to reduce this reliance?
Jeremy Allaire: Our goal is to build the largest regulated stablecoin network globally, and we are still in the early stages. Whether the stablecoin market grows at a compound annual growth rate of 90% or 25% in the future, the inflow will be substantial, and we hope to continue expanding USDC's share.
In the past, the company primarily monetized the currency supply of USDC and relied on partners to drive distribution. However, since last year, we have launched new products at the protocol layer, blockchain infrastructure, developer tools (such as Circle Wallets), and application layer (such as Circle Payments Network, CPN), with related revenue growing by 250% year-on-year this quarter.
Next, we will introduce subscription fees, service fees, transaction fees, and other higher-margin models, and we have communicated on Wall Street that these revenues could be quite substantial in the coming years.
Adjusted EBITDA increased by 52% year-on-year, with a profit margin of 50%. This quarter, the RLDC profit margin improved by over 200 basis points year-on-year, a significant portion of which comes from new business growth. We are building a full-stack system from infrastructure, stablecoin layer to payment networks and developer tools, working in synergy to create multiple monetization channels, which is a necessary condition for advancing the internet financial system.
2. The circulation volume of USDC in Q2 was $61 billion. Where does the growth momentum come from? What are the future incremental opportunities?
Jeremy Allaire: Recent growth reflects the "green light" signal from the global market for stablecoins. This is not only due to the activity in the digital asset market but also indicates that stablecoins are now seen as usable digital cash tools. With a year-on-year growth rate of 90% and a 49% increase year-to-date, there is enormous growth potential ahead.
The growth of stablecoins is largely a result of economic activity. The digital asset market is the starting point, but interest in various segments of financial services is accelerating, with potential lasting for decades. Third-party forecasts range from 25% to 90% CAGR, and our internal model benchmark is 40%, which can still yield considerable returns in an uncertain environment.
3. How do you view the adoption of USDC in cross-border remittances?
Jeremy Allaire: The demand for cross-border remittances is growing, including both C2C (personal transfers) and B2B corporate capital flows. This quarter, we expanded our cooperation with Remitly, MoneyGram, ZEPS, etc., with CPN being a primary application scenario for cross-border remittances.
The advantage of USDC lies in the global liquidity network and the deposit/withdrawal system built over the years, covering key nodes such as banks and payment service providers, allowing funds to be settled at low cost between different fiat currencies, electronic currencies, and bank accounts. This network effect and delivery capability are difficult to replicate; simply "issuing a coin" cannot solve the terminal issues of cross-border settlement.
4. Where does the $5.9 trillion on-chain transaction volume reported in the earnings come from?
Jeremy Allaire: USDC on-chain transactions are spread globally, from Europe and America to emerging markets and developing countries, with P2P payments being widely used in financial super applications. These transactions include fund transfers between exchanges as well as various uses such as savings, investments, and payments.
Foxkeen (CFO): The on-chain transaction volume covers almost all financial service use cases, from C2B, B2B payments to cross-border settlements. Compared to traditional systems, this is the first universal internet architecture aimed at capital flow, so different scenarios are intertwined on-chain, making it difficult to precisely separate them.
5. To create a "winner-takes-all" market, will Circle accept higher distribution costs in exchange for growth?
Jeremy Allaire: We are willing to collaborate with institutions that drive network growth, and the cooperation structure varies by partner type; it is not simply a matter of ceding reserve income. The key is a win-win, growth-oriented approach that can produce tangible effects in transaction speed, market share, and USDC holdings.
Three long-term factors support RLDC profit margins: first, enhanced network effects will drive growth in both internal and external USDC holdings; second, increased USDC holdings on our own platform will give us a more flexible economic model; third, high-margin value-added services driven by new products will monetize the funds within the network. The combination of these three will steadily improve profit margins.
Actively connecting with "To Bank" partners, gradually reducing "exchange dependence"
1. Your revenue-sharing agreement with Coinbase is a focus of external attention. Will this proportion decrease in the future?
Jeremy Allaire: This quarter, USDC's stock on the Circle platform grew nearly tenfold year-on-year, accounting for about 10% of the total circulation, indicating that more and more companies are building their businesses directly based on our infrastructure (such as Circle Wallets, Circle Mint).
These collaborations on the platform give us greater flexibility in designing economic relationships and help reduce reliance on a single distribution partner. If most businesses operate on our own tech stack in the future, the revenue-sharing structure with platforms like Coinbase will gradually be reshaped.
Our goal is to expand the overall size of the stablecoin "cake" and attract more participants from different fields, including banks, payment companies, capital market institutions, and internet enterprises. Coinbase has played a significant role in promoting USDC, but the new compliance environment is now encouraging more traditional institutions to enter, and this diversification will significantly accelerate network growth.
2. How does the cooperation with OKX differ from other exchanges?
The digital asset market is crucial for us. Since the beginning of 2024, our trading volume on major exchanges' spot markets has increased tenfold. OKX has 60 million users, and this cooperation allows them to access Circle Wallet and Circle Mint core infrastructure, providing better USDC liquidity for institutional clients. OKX is already compliant in Europe and plans to enter the U.S. market, which will further expand USDC's coverage and usage.
3. Why is Circle expanding its cooperation with Binance to include USYC?
Jeremy Allaire: Binance has deeply integrated Circle Wallet technology to promote USDC usage. We see tremendous potential in combining yield-bearing collateral with USDC cash in USYC. Institutional clients and large trading firms want to use yield-generating collateral on exchanges while maintaining liquidity of trading funds.
The combination of USYC + USDC allows for seamless switching between cash and collateral assets 24/7, and we believe this is the future of financial markets. Being the first to implement this with the world's largest exchange will help promote this model to more exchanges and traditional clearinghouses.
4. Is the relationship between CPN and networks like Coinbase Commerce complementary or competitive?
Jeremy Allaire: USDC is a market-neutral infrastructure, with capital market companies, exchanges, new banks, traditional banks, payment service providers, and even Visa and Mastercard building on it. We adopt a "big tent" strategy, hoping that various types of networks can succeed together.
Shopify enabling USDC payments and using Coinbase products is a good example: regardless of whether users are on Binance, NewBank, or other wallets, they can directly spend at merchants, enhancing the usability and network value of USDC.
Recently, we have also partnered with companies like Fiserv, FIS, CorePay, and Matera, which provide core payment infrastructure for thousands of banks, to introduce USDC into a broader payment system. CPN is our key focus in building an on-chain payment network aimed at general scenarios, especially suitable for financial institutions and their clients.
After the "Genius Act," competition with major banks has just begun
1. Is the growth of USDC directly benefiting from the "Genius Act"?
Jeremy Allaire: It's difficult to directly tie the growth of the past month and a half to the legislation, but the global recognition of USDC has increased, and the alignment with the goals of the act has led more institutions to believe that now is the time to participate, build, and collaborate. The signals of regulatory easing in the U.S. have also boosted interest.
The combination of the IPO and legislation has significantly expanded our business opportunity set, and our focus is on creating suitable products for these opportunities and establishing win-win economic relationships. The "GENIUS Act" is an important catalytic event that has generated interest from large financial institutions. However, it takes time for top institutions to move from engagement to deployment, and the benefit is that this deep integration will bring long-term stickiness.
2. After the enactment of the "GENIUS Act," what is the management's biggest concern?
Jeremy Allaire: The passage of the legislation and the IPO have brought us a large number of collaboration intentions from leading financial institutions, internet companies, and large enterprises worldwide. The biggest challenge is how to prioritize and be capable of seizing these opportunities: Are we building suitable products for each market segment? Can we cover the demand without being diluted? This is a balance that my team and I must weigh.
3. After the enactment of the act, major banks seem willing to issue their own stablecoins. How do you view the competitive relationship with them?
Jeremy Allaire: We see banks as important potential partners and have collaborated with regional banks, globally systemically important banks, and community bank networks. This quarter, we also announced partnerships with core banking infrastructure providers like Fiserv, FIS, and Matera, which serve thousands of banks. Both large and small banks can benefit, and we are willing to promote collaboration.
4. Will Circle apply for a stablecoin license in Hong Kong?
Jeremy Allaire: Asia is a key market for us, and institutional-level direct liquidity for USDC is already available in Hong Kong, with collaboration with a globally systemically important bank. Hong Kong is one of the first corridors where CPN went live, and cross-border trade is important. We are familiar with the local regulatory framework and will consider it in our broader growth strategy.
Launching the Arc chain, Circle builds its own tech stack
1. Circle announced today the self-developed blockchain Arc. With many public chains already on the market, why create one yourself?
Jeremy Allaire: Circle is a market-neutral company, and the USDC protocol operates on 24 public chains, with CCTP enabling seamless cross-chain flow and developer tools supporting multi-chain applications. However, we found that mainstream institutions face barriers to adopting stablecoin finance.
Arc is an open blockchain designed specifically for stablecoin finance, focusing on scenarios such as payments, foreign exchange, and capital markets, rather than being a general-purpose platform.
All transactions and Gas fees on Arc are settled in USDC, and in the future, other stablecoins issued on Arc can also be used for payments. This predictable, cash-equivalent pricing for fees is more easily accepted by financial institutions and publicly traded companies. Arc also provides instant settlement finality, meeting banking regulatory requirements, and includes optional privacy features.
2. Will the Gas fees from Arc become a new source of income for USDC?
Jeremy Allaire: Yes. Arc aims to carry the core transaction flows of stablecoin finance, and Gas fees are one of the new revenue models.
We already have multiple sources of transaction fees, including transactions after the scaling of CPN, advanced features of Circle Mint, and yield-bearing tokens like USYC. The fee model of Arc will complement these revenues.
4. How will Arc maintain low fees and ensure validator distribution?
Jeremy Allaire: Arc adopts a new fee mechanism to ensure low and predictable transaction costs, paid in USDC. Validators will be operated by vetted professional nodes that meet security and compliance requirements, achieving global distribution among major institutions. We are developing market expansion plans, and preliminary designs are already included in the white paper.
5. What will be the future development relationship between Arc and CPN (Circle Payments Network)?
Jeremy Allaire: CPN is currently in the pilot phase, with cross-border payment corridors opened in Hong Kong, Brazil, Nigeria, and Mexico, and it will significantly expand to major developed markets and more emerging markets by the end of the year, enhancing liquidity guarantees.
Arc will become an important underlying support for CPN, incorporating foreign exchange engines, configurable privacy, and confidential transfers, directly serving inter-institutional capital flows. We expect that many financial institutions that have integrated CPN will use Arc as their payment and settlement infrastructure.
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