The first financial report released by Circle after its IPO shows that the company experienced a significant year-on-year increase in revenue in the second quarter, with a notable rise in USDC circulation, indicating a sustained demand for stablecoins in the context of compliance. However, the report also reveals structural issues, such as the company's profitability still relying on interest income and pressure on market share growth. Compared to Tether's massive scale and high profits, Circle still needs to find a more stable balance between compliance advantages and business diversification, reflecting a critical phase in the stablecoin industry as it transitions from rapid growth to a reshaped competitive landscape.
The financial report indicates that Circle's revenue in the second quarter rose from $430 million in the same period last year to $658.1 million, primarily driven by a substantial increase in USDC circulation. By the end of the second quarter, USDC circulation grew by 90% year-on-year, reaching $61.3 billion. USDC is the second-largest dollar-pegged stablecoin globally, with a market share of about 26%, second only to Tether, which holds approximately 67%.
However, the company reported a net loss of $482.1 million (equating to a loss of $4.48 per share) this quarter, compared to a profit of $32.9 million in the same period last year. The loss was mainly due to non-cash expenses related to the IPO, including $424 million in stock-based compensation and $167 million in fair value adjustments for convertible bonds.
Looking ahead, Circle expects to achieve $75 million to $85 million in other income for the remainder of 2025, with adjusted operating expenses projected to be between $475 million and $490 million. Additionally, the company anticipates a compound annual growth rate of 40% for USDC in the upcoming cycles.
In terms of product development, Circle announced the launch of its self-developed Arc blockchain for stablecoin payments, foreign exchange, and capital market applications. Arc will be fully integrated with the company's existing platforms and services, with developer testing planned to start this fall.
Circle CEO Jeremy Allaire stated in a media interview that Circle's growth and market sentiment reflect the deep integration of the internet and financial systems, with stablecoins and blockchain becoming essential components of future financial infrastructure.
He also pointed out that since the company's IPO and the passage of the first stablecoin legislation in the U.S., the "GENIUS Act," the demand for collaboration from various financial institutions, including banks, payment providers, and capital markets, has significantly increased, including some large institutions previously thought to be considering launching their own stablecoins.
After the quarterly financial report was released, Circle's stock price fell. Mizuho Securities analysts noted that Circle's stock performance was below expectations for three main reasons.
First, the gap between the "ideal" and "reality" of USDC is widening. Despite a resurgence of interest in the crypto market, the stablecoin's growth rate this quarter was only 6%, far below the company's long-term target of a 40% compound annual growth rate. Second, distribution costs have risen sharply, further squeezing profit margins. Analysts pointed out that the distribution cost as a percentage of Circle's reserve pool increased from 39% in 2022 to 61% in 2024, reaching as high as 64% in the second quarter of this year. Third, with the introduction of the "GENIUS Act," market competition has intensified. Several large financial institutions have expressed intentions to issue or introduce stablecoins, while Circle's biggest competitor, Tether, is also planning to re-enter the U.S. market.
Additionally, analysts noted that the cooling of the U.S. Consumer Price Index (CPI) is beneficial for the economy but unfavorable for Circle. The CPI rose 2.7% year-on-year in July, slightly below expectations, which increased market expectations for a Federal Reserve rate cut, while Circle benefits more in a high-interest-rate environment.
Mizuho Securities further stated that due to Circle's excessive reliance on interest rates as a single macro factor, coupled with the possibility that USDC circulation growth may fall short of expectations, its projected EBITDA for 2027 is below market consensus. Based on this, the company set a target price of $84 for Circle. Analysts believe that if USDC's annual compound growth rate is only 15%, its market value could reach $72 billion, and if interest rates decline, the stock price could drop to $40.
Notably, Bernstein analysts maintained a target price of $230 for Circle.
Circle completed its IPO in June this year, with its stock price soaring over 200% on the first trading day, surpassing $90. The latest data shows that as of Thursday (August 14), Circle's stock price was approximately $153, an increase of about 122% from the IPO price.
Analysts believe that against the backdrop of a U.S. policy environment shifting to be more supportive of crypto assets, Circle is entering a critical window for expanding its compliant stablecoin ecosystem, but it still faces competitive pressure from Tether in terms of market share and profitability.
Currently, Tether's USDT remains the market leader, with a circulation of approximately $164.5 billion in the first half of the year, accounting for nearly 70% of the global stablecoin market share. Recently, Tether announced it would reintroduce a "compliant version" of USDT in the U.S. market to meet the GENIUS Act's requirements for reserves, audits, and transparency. This move not only solidifies its position in a highly regulated market but also attracts some institutional investors with high compliance requirements. Last year, Tether also partnered with a European payment platform to enable USDT for direct cross-border payment settlements.
According to Web3 research firm Nansen's previous estimates, even if competitors like USDC grow faster, Tether's leading position is expected to be maintained.
The firm stated, "Tether's user base is nearly three times that of Uniswap, and its on-chain transaction volume is over 50% higher than that of the second-largest application, making it the largest on-chain active case currently. Although there is potential for decentralization in the stablecoin market, we believe this market structure fundamentally exhibits a 'winner-takes-all' characteristic."
Circle's first financial report after its IPO shows significant growth in revenue and USDC circulation, reflecting a sustained demand for stablecoins in the context of compliance. However, its profitability remains highly dependent on interest income, with rising distribution costs and slowing USDC growth posing potential concerns. Facing Tether's absolute advantage in market share and profitability, as well as competitive pressure from several large financial institutions entering the stablecoin market, Circle is at a critical window for expanding its compliant stablecoin ecosystem. In the future, Circle needs to find a balance between compliance advantages and business diversification while enhancing USDC's growth and profitability to solidify its market position.
Related: Ethereum (ETH) climbs to new highs, Standard Chartered raises its target price for the year to $7,500
Original article: “A Rational Look After the IPO Frenzy: Circle's Earnings Highlight Achievements and Challenges”
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