After a Tenfold Stock Surge, Circle’s First Earnings Report Highlights Strong Growth and Key Risks

Written By FTD, CryptoDavid

On August 12, Circle, the issuer of the stablecoin USDC, released its Q2 earnings report.

As the company's first financial disclosure since its IPO, the data provides the market with a crucial basis for evaluating the true value of the "first stablecoin stock." By delving into key financial metrics, we can gain a clearer understanding of Circle's growth momentum and the challenges it may face moving forward.

USDC's Aggressive Expansion and Revenue Structure Challenges

The earnings report highlights several key metrics.

1. Core Business Metrics: USDC's Robust Expansion

Among the most notable figures are USDC’s circulating supply and its market share growth. By the end of Q2, USDC’s circulating supply had reached $61.3 billion, representing a 90% year-over-year increase and a 49% year-to-date rise. By August 10, the supply climbed further to $65.2 billion, reflecting sustained growth momentum. USDC has also cemented its position as the second-largest stablecoin, accounting for roughly 28% of the market.

USDC’s transaction activity has also seen explosive growth.

Its on-chain transaction volume reached $5.9 trillion, a staggering 540% year-over-year increase. This surge reflects not only the rapid expansion of USDC use cases but also a broader trend: the stablecoin ecosystem is shifting from being primarily a store of value to serving as a payment and settlement medium.

2. Financial Performance: Strong Revenue Growth but Structural Imbalance

Circle reported Q2 total revenue of $658 million, marking a 53% year-over-year increase. Key revenue components were:

• Reserve Interest Income: $634 million (96.4% of total revenue), up 50% year-over-year

• Subscription and Service Revenue: $24 million (3.6% of total revenue), up 252% year-over-year

This revenue breakdown underscores Circle’s heavy reliance on interest income from reserves. Although subscription and service revenue grew an impressive 252% year-over-year, its absolute contribution remains small.

Circle’s dependence on the Federal Reserve’s high-interest-rate environment presents a notable operational risk. If the Fed enters a rate-cutting cycle, the company’s profitability could be materially affected.

Another often-overlooked factor is the effect of IPO-related costs on operating results.

Circle reported a net loss of $482 million for Q2, largely driven by non-operational expenses:

• Non-cash IPO-related expenses: $591 million

• Stock-based compensation: $424 million

• Convertible debt fair value adjustments: $167 million

Adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) stood at $126 million, reflecting a year-over-year growth of 52%.

In other words, excluding IPO-related expenses, Circle’s underlying operating performance remains strong. These adjusted profitability figures suggest that the company’s core business continues to expand, which helps explain why its stock price rose rather than fell following the earnings release.

3. Cash-Out Pressure Amid High Valuation

On the same day the earnings report was released, Circle announced a secondary offering of 10 million shares.

At the closing price of $163.21 per share, the offering is expected to raise $1.63 billion. Compared with the IPO price of $31, early investors have realized returns exceeding 426%, cashing out more than $1 billion in total.

Circle CEO Jeremy Allaire has sold 357,800 shares but still retains 23.9% of the company’s voting rights.

The financial figures underscore USDC’s accelerating network effects. However, Circle continues to face major challenges. Its revenue model is heavily dependent on the interest rate environment, competitors such as PayPal’s PYUSD are emerging, and regulatory uncertainties remain.

While the Q2 report offers a reference point for assessing Circle’s valuation, a definitive judgment will depend on the company’s performance in upcoming quarters, particularly its ability to navigate changes in the interest rate environment.

Strategic Transformation: Circle's Path to Diversification

In its Q2 earnings report and the following conference call, Circle outlined strategic initiatives that illustrate the company’s transition from a stablecoin issuer to a full-scale financial infrastructure provider.

These initiatives appear to directly address the reliance on a single revenue stream identified in the earnings report.

Circle also announced plans to launch its self-developed blockchain, Arc, in the second half of 2025, a move that quickly drew attention in the market. Arc will be an open public blockchain tailored for stablecoin finance, with USDC serving as its native gas fee token. The blockchain is expected to support applications such as payments and foreign exchange.

Interestingly, major stablecoin issuers appear to be following a similar strategy.

Tether, the issuer of USDT, is developing Stable, while payment giant Stripe has partnered with top VC firm Paradigm to launch Tempo. The race to build stablecoin payment chains is already underway. Additionally, OKX announced that it is upgrading X Layer to enter the payment chain sector.

Circle’s advantages in this competition are clear.

• Regulatory Compliance: Unlike Tether, which faces regulatory pressure, Circle benefits from a favorable compliance environment. The GENIUS Act, advanced during the Trump administration, has removed policy obstacles for the company.

• Network Effects: Compared with Stripe, which has extensive payment experience, Circle leverages the network effects of USDC’s 24% market share and a trust base of over 1,800 institutional clients.

The strategic rationale behind Arc is to address Circle’s primary vulnerability, which is its heavy reliance on interest income.

Currently, 96% of Circle’s revenue comes from interest on USDC reserve funds held in U.S. Treasury bonds. This reliance could become a critical weakness if interest rates decline. By owning its blockchain infrastructure, Circle can generate revenue from on-chain transaction fees and create new income streams, including staking. It can also reduce dependence on third-party blockchains and manage rising distribution costs more effectively.

Beyond launching its self-developed blockchain, Circle discussed plans to deepen collaborations with Binance, FIS, and Corpay during its Q2 earnings call.

Key partnerships announced by Circle include:

• With Binance: Promoting Circle’s wallet technology and using tokenized market funds (USYC) in Binance’s institutional trading products as yields and OTC collateral.

• With Corpay: Integrating global foreign exchange with USDC to provide enterprises worldwide with round-the-clock settlement services.

• With FIS: Allowing U.S. financial institutions to offer domestic and cross-border USDC payments through FIS’s Money Movement Hub, combining Circle’s blockchain-native infrastructure with FIS’s real-time payment solutions to enable faster and lower-cost compliant digital dollar transactions.

Beyond these three companies, Circle also indicated potential collaborations with mainstream exchange OKX and fintech firm Fiserv in its earnings report.

Circle’s Q2 earnings report portrays a company at a pivotal point in its transformation. It is both a leader in the stablecoin sector, benefiting from the growth driven by USDC’s network effects, and a fintech company facing structural challenges that require reshaping its business model before a potential interest rate decline.

As one of the stock market’s standout companies this year, Circle deserves recognition. However, beneath the halo of being the “first stablecoin stock,” investors must remain vigilant about the challenges ahead.

The journey from a single stablecoin issuer to a global digital financial infrastructure provider is full of uncertainty. Whether Circle can sustain its post-IPO tenfold stock surge remains to be seen.