This article will analyze USDC's issuance mechanism, competitive advantages, and Circle's investment value in depth.
Author: Biteye core contributor dddd
Introduction
In the global digital currency market, stablecoins are playing an increasingly important role as a bridge connecting traditional finance and the cryptocurrency world. As the second-largest stablecoin by market share, USDC (USD Coin) and its issuer Circle have recently attracted significant market attention. Circle's stock price has soared from $31 at its IPO in early June to nearly $200 (peaking at $298.99). This astonishing stock price performance not only reflects the growth trajectory of the stablecoin industry but also reveals the opportunities and challenges faced by this emerging financial tool. This article will analyze USDC's issuance mechanism, profit model, competitive advantages, as well as Circle's financial status and investment value in depth.
USDC's issuance mechanism and profit model
Funding assurance system
USDC employs a stringent funding assurance mechanism. For every USDC purchased, investors need to pay $1 as reserve. To ensure the safety of investor funds, USDC implements a separation of ownership and control system. Legally, Circle, as the issuer, holds ownership of the USDC reserves and manages these assets in 'trust'. USDC holders, by holding the tokens, enjoy actual control over the reserves, and Circle can only operate the reserves according to user instructions.
In terms of custody, USDC reserves are held by Bank of New York Mellon in separate dedicated accounts, ensuring the safety and independence of funds. Investment management is handled by the globally renowned asset management company BlackRock, primarily investing in its managed money market funds, focusing on US treasuries to generate income through interest rate spreads.
Risks and limitations of the profit model
Although USDC's profit model is relatively stable, it also has obvious risks and limitations. First, reserve income is entirely determined by BlackRock's money market fund (primarily investing in short-term treasury bonds), and Circle lacks proactive control over this portion of income. According to Circle's 2024 financial report, the interest income from USDC reserves is $1.661 billion, with a total issuance of $60 billion, resulting in an actual annualized yield of 2.77%, while the US six-month treasury yield during the same period was 4.2%. This data shows that the yield of the money market fund managed by BlackRock is significantly lower than the returns from direct treasury bond investments, likely due to management fees, liquidity management needs (requiring some cash reserves), and portfolio risk diversification requirements.
Secondly, reserve income is extremely sensitive to fluctuations in treasury bond rates, increasing profits when rates rise and decreasing profits when rates fall. This passivity makes Circle's profitability highly dependent on macroeconomic conditions and changes in monetary policy. The current Fed rate hike cycle has provided Circle with a relatively favorable income environment, but once it enters a rate-cutting cycle, the company's profitability will face significant pressure.
More importantly, Circle cannot capture all the income from USDC. Due to historical cooperation, Circle must share USDC's investment income with Coinbase. The specific distribution mechanism is as follows: all USDC income within the Coinbase platform goes entirely to Coinbase, while USDC income outside the platform is split 50-50 between both parties. This arrangement results in Circle actually receiving only 38.5% of the total investment income from USDC, while 61.5% of the income from USDC belongs to Coinbase (as calculated based on 2024 financial data).
Market competition and channel expansion
To reduce reliance on Coinbase, Circle is actively exploring new distribution channels. The company has reached a partnership with Binance, paying $60.25 million and monthly trading rewards to gain Binance's support. This strategy has been significantly effective, with Binance becoming the largest USDC trading market globally, accounting for 49% of total trading volume, successfully reducing Coinbase's market share.
However, this competitive relationship also brings new challenges. Coinbase has designated USDC as the core settlement token on the Base chain, partnering with Stripe to support USDC on the Base chain, and offering users in the Coinbase Advance version of the derivatives market a yield of up to 12% on USDC to maintain its market position and distribution revenue.
Competitive analysis between USDC and USDT
Market share comparison
In the stablecoin market, USDT still holds a dominant position. As of May 31, 2025, USDT's market capitalization reached $153 billion, accounting for 61.2% of the market; while USDC's market cap was $61 billion, accounting for 24.4%. The issuance growth rate of USDT continues to exceed that of USDC, demonstrating its strong position in the market.
USDC's competitive advantages
Although lagging behind USDT in market share, USDC possesses significant advantages in several aspects.
Transparency and auditing advantages: USDC adopts a '100% transparent peg' model, with reserve assets comprising only cash (23%) and short-term US treasuries (77%), audited monthly by firms such as Grant Thornton and releasing public reports. The reserve scale reached $43 billion by the fourth quarter of 2024. This transparency has led institutions like BlackRock and Goldman Sachs to choose USDC as a cross-border settlement tool, with institutional holdings reaching 38% in 2024.
In contrast, USDT has faced investigation due to reserve transparency issues and was embroiled in controversy from 2017 to 2019, ultimately settling for $41 million. Although USDT has improved its reserve structure after 2024, its 'self-certification' model still suffers from transparency issues.
Regulatory compliance: USDC holds a New York BitLicense, EU MiCA license, and Japan FSA certification, becoming the first globally recognized stablecoin permitted to circulate in Japan. By participating in the US (GENIUS Act) legislation, USDC is expected to become an 'industry benchmark' under a regulatory framework, successfully attracting banks like JPMorgan and Citibank to join its payment network in 2024.
USDT adopts a 'gray area' strategy, with its headquarters in Hong Kong and registered in the British Virgin Islands, operating in a regulatory gray area. The EU MiCA legislation excludes USDT from the compliance list, causing its market share in the EU to plummet from 12% at the beginning of 2024 to 5%.
Investor trust: During the Silicon Valley Bank incident in 2023, USDC briefly fell to $0.87, but after Circle publicly proved its reserves the next day, the price rebounded to $0.99 within 48 hours, demonstrating the market's restoration capability of its compliance model. BlackRock only accepts USDC as collateral in its on-chain fund products, reflecting institutional trust.
Traditional finance penetration: USDC collaborates with SWIFT to develop a 'digital dollar payment gateway', aiming to connect 150 international banks by 2024, with the goal of becoming the 'blockchain version of SWIFT' for corporate cross-border settlements.
Impact of regulatory policies
The introduction of the (GENIUS Act) may reshape the stablecoin market landscape. As the first federal regulatory framework for stablecoins in the US, this act may make USDC the only globally compliant stablecoin, attracting more institutions to include it in their asset management products.
For USDT, if the legislation requires stablecoin issuers to be federally chartered banks, USDT may be banned from operating in the US due to its offshore registration, potentially losing 20% of its market share.
Circle company financial analysis
Profitability analysis
Circle's financial status presents some contradictory characteristics. In terms of profitability, the company's gross margin is 24.00%, significantly lower than the industry median of 50.18% (all 'industry' references are to the banking industry and financial technology companies like PayPal, Visa, Stripe, etc.). The primary reason is that revenue comes from money funds managed by BlackRock, with yields limited by US treasury rates, lacking pricing power, and requiring payment of channel fees.
However, Circle's EBITDA profit margin is 11.43%, slightly higher than the industry median of 10.43%, indicating good operational efficiency. More notably, the company's net profit margin reached 9.09%, far exceeding the industry median of 3.57%, reflecting high efficiency in managing operational costs.
Low asset utilization rate
Circle performs poorly in asset utilization. The company's asset turnover rate is only 0.05 times, far below the industry median of 0.59 times, meaning that for every dollar of assets, only $0.05 in revenue is generated. The return on total assets (ROA) is 0.28%, also significantly lower than the industry median of 2.05%.
The fundamental reason for this situation lies in Circle's substantial investments in treasury bonds, which yield stable but low returns, leading to low asset utilization efficiency. However, as long as Circle can retain more funds, the total profits generated will still be considerable.
Cash flow situation
Circle excels in cash flow management, with operating cash flow reaching $324 million, far exceeding the industry median of $113.92 million. This is primarily due to the regulatory requirements of the stablecoin business, necessitating high cash reserves.
Growth prospects and concerns
Circle's revenue growth is strong, with a growth rate of 15.57%, 2.6 times the industry median of 5.95%. However, the company has seen significant deterioration in profit growth. EBITDA growth is -31.75%, EBIT growth is -32.57%, and earnings per share growth is -61.90%, resulting in a situation of 'increasing revenue but declining profits'.
This situation is mainly due to the significant increase in costs during the company's expansion process. Distribution and trading costs have increased by 71.3% month-on-month, marketing expenses reached $3.9 million, and the company's salary expenses grew by 23.7% year-on-year.
Valuation analysis and investment viewpoint
Current valuation level
Circle's price-to-earnings ratio, price-to-sales ratio, price-to-cash flow ratio, and price-to-book ratio are all above the industry median, reflecting investors' high expectations for the company's future operational performance. To support these high expectations, Circle needs to achieve strong growth in profitability, sales, and disposable cash to digest its current high valuation. Notably, Circle's future growth momentum may primarily come from product diversification, especially the rapid expansion of EURC euro stablecoin in the European market and breakthroughs in RWA tokenization products USYC in the field of digital assets.
Equity structure analysis
Circle's equity structure is not healthy. Institutional investors hold only 10% of shares, while Coinbase's institutional investors hold 30%. The company's management holds 7.4% of shares, which is relatively low. Retail and other investors account for 37%, more than both institutional and management holdings. Morgan Stanley, Citigroup, and Goldman Sachs provided an IPO pricing range of $27-28, reflecting institutional confidence in Circle's inadequacy.
Investment logic analysis
Bullish logic:
Stablecoins address the inherent pain points of traditional fiat trading systems, and the market is in an expansion phase.
USDC has a significant compliance first-mover advantage in the stablecoin market
Gradually reducing reliance on Coinbase for distribution, potentially gaining a larger share of investment dividends in the future
The GENIUS Act may force major competitor USDT to exit the US market
Bearish logic:
Discrepancy between valuation and fundamentals, persistent profit decline creates significant contradiction with high valuation
Low asset return rate, difficult to support long-term value growth
Over 60% of USDC investment income belongs to Coinbase, and Circle cannot capture the full income (2024 financial data)
Low proportion of institutional investors, unhealthy equity structure
Conclusion and outlook
Circle presents characteristics of 'high market expectations, rapid growth, and high valuation'. On one hand, the company's stock price has increased by over 540% since its IPO, reflecting the market's recognition of its advantages in regulatory compliance and market share expansion. USDC, known for its highest transparency among stablecoins, enjoys a high reputation among institutional investors, establishing a solid competitive foundation for the company. On the other hand, the company faces challenges such as limited profitability, low asset utilization, and the need to digest high valuations.
In the short term, the significant rise in Circle's stock price has already fully reflected the market's optimistic expectations, and investors need to pay attention to the degree of alignment between valuation and fundamentals. In the long term, whether Circle can achieve breakthroughs through product diversification will be key. The expansion of the EURC euro stablecoin in the European market, innovative applications of the RWA tokenization product USYC, and a gradual reduction in reliance on Coinbase's revenue sharing are all expected to bring new growth momentum to the company.
With the advancement of regulatory policies such as the (GENIUS Act) and the continued development of the stablecoin market, USDC's compliance first-mover advantage may translate into a larger market share and profitability. Investors assessing Circle need to balance its innovative potential with its current valuation level, focusing on whether the company can prove that the high expectations granted by the market are reasonable through diversification strategies and operational efficiency improvements.