Circle IPO: The "ChatGPT" Moment for Stablecoins and On-Chain Finance

Author: Paolo@Victory Securities Partner, Andy@VDX Senior Researcher

TL;DR

• Market Space: The stablecoin market relies on two core demand scenarios: trading and payments, with potential for tens of times growth in the future. Stablecoins are the first in the crypto space to be included in compliance and regulation, with compliance, institutionalization, and mainstream adoption being long-term trends. In the future, stablecoin users may even surpass BTC holders, becoming the largest Killer App in crypto.

• Circle's Advantages and Barriers: 1) Compliance first-mover and legitimacy: Benefiting from compliance dividends, it is expected to serve as the "institutional stablecoin" supporting the on-chain dollar expansion strategy; 2) Open infrastructure and ecological network: USDC supports multi-chain, cross-chain protocols, deeply integrated with various exchanges and DeFi, and collaborates with payment institutions to become the hub for cross-border payments and on-chain settlements; 3) Institutional-level trust and mainstream capital access: Asset security and transparency, regular audit reports, currently the only product widely accepted as an "institutional-grade stablecoin."

• Circle's Risks and Challenges: 1) Revenue structure highly dependent on U.S. Treasury interest, sensitive to interest rates and cyclical, with income growth under pressure during the dollar's interest rate cut cycle; 2) High channel dependency, with about 60% of current revenue shared with channels like Coinbase and Binance. Whether it can expand other revenue sources (such as trading commissions) and enhance channel bargaining power is key to its growth.

• Competitive Comparison: The competition between USDT and USDC is essentially a battle between black and white dollars in different markets and scenarios. Tether is a "money printer," while Circle is a "narrow bank." USDT relies on exchange liquidity, OTC trading, and gray payments, while USDC focuses on compliant cross-border payments, corporate settlements, DeFi, and RWA asset-backed currency. The two form a parallel symbiotic relationship in different scenarios.

• Investment Analysis: As the first compliant stablecoin leader to go public after the stablecoin bill was introduced, Circle's IPO benefits from high market sentiment. However, comparing its projected 2024 revenue of $1.7 billion and net profit of $160 million, the current market's nearly 50x PE valuation has already priced in a relatively optimistic outlook, necessitating caution against profit-taking under high valuations. In the long run, the stablecoin sector has enormous potential for growth, and Circle, with its compliance first-mover advantage, ecological network construction, and mainstream institutional capital access, is expected to further consolidate its leading position. It is recommended to pay attention to its long-term development.**

Introduction | From Gray Arbitrage to Institutional Takeover: Stablecoins Welcome a Watershed Moment

Circle's IPO marks the first time stablecoins have entered the global capital market's main stage. From being seen as "casino chips" with USDT to today’s representation of "compliant digital dollars" with USDC listing on the U.S. stock market, this is not only a commercial turning point but also a preliminary battle for the reconstruction of the financial order. Compliant stablecoins are no longer just circulation tools on the chain but strategic agents for the dollar's "de-banking and de-geographical" expansion globally.

By 2025, stablecoin regulations in countries like the U.S. and Hong Kong will gradually take effect, officially differentiating the "gray market dollar" represented by Tether and the "whitelist dollar" represented by Circle. Circle's IPO is not only a capitalization event for the crypto industry but also another structural upgrade for the globalization of the dollar, marking the starting point for compliant dollars to complete the on-chain financial sovereignty output.

Market Size | Stablecoins as a New Anchor for Global Liquidity

According to predictions from institutions like Citigroup, the total market value of global stablecoins will be between $1.6 trillion and $3.7 trillion by 2030, with growth primarily concentrated in three areas: cross-border payments, on-chain finance, and RWA.

• Cross-border payments will become the core driving scenario. The average settlement cost of stablecoins is over 90% lower than traditional SWIFT paths, and T+0 settlement efficiency is particularly attractive in high-friction regions like the Middle East, Latin America, and Southeast Asia.

• RWA connects on-chain and real-world assets. Stablecoins serve as the on-chain funding side, while RWA acts as the asset side, creating a symbiotic relationship that forms a growth flywheel. The USDC Treasury Fund launched in collaboration with BlackRock is a typical pilot: stablecoins serve as settlement and participation tokens while providing yield access and asset packaging.

• Native scenarios for virtual assets serve as a continuous base liquidity carrier. On-chain lending, derivatives, and structured yield protocols continuously absorb stablecoins as collateral, forming an underlying "dollar liquidity pool."

Stablecoins will no longer just be a transit channel for funds in the crypto space but will gradually become the "dollar liquidity core" in the Web3 native operating system.

Competitive Landscape | Circle is Experiencing a Dual Race with On-Chain Native Scenarios and New Compliant Players

Circle is currently facing a dual race: on one hand, it competes with on-chain native players like Tether in liquidity coverage and usage flexibility, and on the other hand, it competes with traditional financial giants like PayPal and JPMorgan in the output rights of stablecoin systems.

Circle's core competitive advantages:

• Compliance first-mover and legitimacy: Benefiting from compliance dividends, it is expected to serve as the "institutional stablecoin" supporting the on-chain dollar expansion strategy.
• Open infrastructure and ecological network: USDC supports multi-chain, cross-chain protocols, deeply integrated with various exchanges and DeFi, and collaborates with payment institutions to become the hub for cross-border payments and on-chain settlements.
• Institutional trust and mainstream capital access: Asset security and transparency, regular audit reports, currently the only product widely accepted as an "institutional-grade stablecoin."

Policy Implementation Raises Market Entry Barriers, Accelerating the Exit of Non-Compliant Players

In on-chain native usage scenarios, as global regulatory policies accelerate implementation, the operational thresholds and costs for non-compliant issuers continue to rise. Circle's institutional compliance and auditability gradually transform into competitive dividends, enhancing its ecological embedding capabilities in DeFi, wallets, payment protocols, and other scenarios.

Although Circle may struggle to surpass USDT in liquidity scale in the gray market, it is building irreplaceability from an institutional level and capturing USDT's compliant market share:

• If U.S. and European regulations accelerate, USDT's market share in compliant scenarios is expected to drop from 25% to 10%, releasing about $21.6 billion in market space;

• Circle is expected to capture about 60% of this, corresponding to an incremental $13 billion.

The likelihood of USDT becoming compliant is extremely low; it may continue to play a gray channel role, reaching an "informal agreement" with U.S. authorities to continue as a black tentacle for the global overflow of dollars.

Once market entry rules are clarified, banks and payment institutions will accelerate their entry, challenging USDC's compliance lead window.

• Circle's compliance license barrier advantage is relatively limited, with multiple players accelerating their pursuit (e.g., PayPal).

• The compliance transition from issuance to application still holds an advantage, as JPM, Fidelity, and others are still in closed internal systems for self-issued stablecoins.

• The capital market's flow dividends will also be diluted with the wave of compliant crypto companies going public, posing a risk of early ecological dominance being diluted.

Can Circle Maintain Its Compliant Payment Scenarios?

• The three major stablecoin giants each have their core advantages: USDT deeply penetrates gray and black scenarios, with a multi-level acceptance distribution network; USDC has compliant banks and institutional channels; DAI is censorship-resistant and cannot be frozen.

  Among them, USDC's compliance channel barrier is the most vulnerable to impact. Stablecoins issued by banks can leverage traditional bank account systems and compliant channels to deploy large-scale scenarios. Circle (e.g., USDC in specific scenarios acts as a derivative of USDT, where users genuinely use USDT in cross-border trade but the terminal on/off ramp switches from USDT to USDC leveraging its compliant fiat channel).

• Whether Circle's current cooperative channels can maintain strong binding relationships or will continue to rely on burning cash for subsidies remains uncertain.

Circle's Competition with Traditional Financial Institutions

• In the short term, Circle, leveraging its compliance first-mover advantage, on-chain native ecology, and open protocol capabilities, holds an overwhelming advantage in the "open global on-chain clearing network."

• In the medium to long term, if traditional financial players enter the market, their flow, user accounts, and deposit/withdrawal systems will pose the greatest threat, especially in retail payments and closed-system settlements (such as proprietary wallets), potentially forming local substitutes.

• The key to victory lies in: who can build the "compliant + composable + accessible" on-chain payment infrastructure faster and win institutional trust. Circle is ahead but must not be complacent.

• The core lies in network effects, being widely accessed by both sides.

• Bank stablecoins may form liquidity mutual recognition in B2B trade scenarios, but lack "neutrality" in the on-chain ecosystem, making broad utilization difficult; accessing the neutral layer USDC is more feasible.

Circle's long-term advantages:

1) Compliance + Open Ecology: Circle has become a leader in the compliant stablecoin field through early positioning and has broken through traditional financial giants' technological barriers with multi-chain and cross-chain payment platforms.

2) DeFi and RWA Integration: Circle's leading position in DeFi and RWA (asset tokenization) enables it to expand into high-growth areas not covered by traditional finance.

Traditional financial competitive advantages:

1) Traditional payment networks and merchant bases: Traditional financial giants can quickly promote stablecoin payments, especially in retail and B2B payment sectors, leveraging their vast payment infrastructure, merchant networks, and customer trust.

2) Fiat deposit/withdrawal and bank integration: Traditional financial stablecoins have clear competitive advantages in fiat exchange and integration with banking systems.

RWA Incremental Scenarios: USDC Must Complete the Upgrade from "Licensed Stablecoin" to "On-Chain System Coin"

BCG predicts that by 2030, the global RWA market will exceed $16 trillion. Stablecoins need "asset anchoring" to establish trust and expand scenarios, while RWA requires "on-chain funds" to obtain liquidity, together forming a value loop connecting the real world and the on-chain world.

Merely having compliance and transparent reserves is no longer a moat; for Circle to win the dominance in on-chain payments and transaction settlements, it must bind new asset categories of RWA incrementally. Otherwise, its application layer will continue to be eroded, and its valuation ceiling will be suppressed.

Business Model | Interest Rate Sensitive, Channel Dependent, Circle Needs to Move Towards a Diversified Growth Curve

Circle's Current Profit Structure is Singular and Highly Sensitive to Interest Rates

• Projected 2024 revenue of about $1.7 billion, net profit of $160 million, with 99% coming from reserve interest;

• Assuming the Federal Reserve cuts interest rates by 1% annually, based on the 2024 AUM scale, revenue may decrease by about 20%, significantly impacting its profits;

High Channel Dependency, Coinbase Monopolizes Monetization Efficiency

• Coinbase has exclusive rights to the USDC platform, and Circle heavily relies on Coinbase's promotional network;

• After 2023, Coinbase became the sole issuance partner for USDC, with interest income generated on its platform going to Coinbase;

• For non-Coinbase channels, Circle can only share profits 50/50, with about $1 billion in distribution expenses in 2024 almost entirely flowing to Coinbase, resulting in extremely low monetization efficiency for Circle's interest spread.

Core Transformation Direction: Composable Monetization of Stablecoin Infrastructure, Expanding Non-Interest Income

• Relying solely on interest cannot sustain long-term valuation expectations; in the future, it needs to expand revenue scenarios through on-chain payment APIs, stablecoin cross-chain channels, wallet accounts, and other modules to increase B2B profitability.

• CCTP (Cross-Chain Transfer Protocol) builds bridges for USDC across different chains, enabling it to become the foundation for an "on-chain payment layer."

• Circle Mint and API products have already connected with dozens of platforms. If an SDK-level calling loop can be formed, it will create a B2B business loop.

• On-chain clearing and settlement linked with RWA (e.g., collaborations with BlackRock, Securitize) are core scenarios for long-term valuation reconstruction.

Financials and Valuation | The Hedge Structure of Black and White Dollars, the Path to Compliance is Harder than Profitability

Financial Condition

• Circle's IPO valuation is approximately $8.1 billion, with a PE of about 50x and a PS of about 5x (calculated based on 2024 financial data), indicating a relatively optimistic pricing based solely on profit margins and cash flow structure.

• AUM has rebounded to $60 billion, surpassing the approximately $40 billion level before the SVB crisis.

• Current interest rates support profitability, with gross profit of about $660 million and relatively high operating expenses, including $260 million in employee costs.

Comparison with Tether is as follows:

• Tether's net profit exceeds $13 billion, 80 times that of Circle, with AuM only 2.5 times that of Circle.

• Net profit margin is extremely high: fully direct sales, no channel costs; only a little over a hundred employees, low compliance costs, making it the highest net profit per capita company globally.

• USDT's reserve asset structure is more aggressive (85% U.S. Treasury, 5% gold, 7% BTC), with high risk also bringing high returns.

Differences in Profit Structure: Tether is a Money Printer, Circle is a Narrow Bank

• Tether's operating costs are extremely low, with no compliance costs or channel profit-sharing, directly collecting all interest spreads; USDC is siphoned off at various stages.

Different application scenarios: gray market vs compliant

Tether has gone further in gray areas (bypassing KYC, engaging with sanctioned countries, etc.), achieving super strong profitability.

• Circle is highly compliant, with transparent financials.

• USDC must enforce blacklists, KYC, AML, and other systems.

• Refuses to enter certain high-risk/non-compliant markets.

• Profitability is suppressed by compliance costs (e.g., auditing, compliance expenditures).

Compliant Profit Margins Struggle to Compete with Non-Compliant

• However, compliance is necessary to attract mainstream and institutional capital.

• Under the trend of mainstream market compliance, the survival space for non-compliance is shrinking; however, in the context of global fragmentation, there is significant growth in genuine/regulatory external demand from the bottom up.

• Compliance is essential to create capital market value and capital premiums.

Investment Strategy | Short-Term Sentiment-Driven Valuation Has Achieved Relatively Optimistic Pricing, There Are Emotional Premium Trading Opportunities; Long-Term Bet on Systematic Valuation Reconstruction

• During the IPO phase, market sentiment is high and funds are crowded, with short-term market enthusiasm and recognition of the narrative of "compliant stablecoin leader" potentially leading to temporary trading opportunities.

• However, attention should be paid to potential fluctuations in valuation regression, with primary risks stemming from interest rate declines leading to interest spread compression, and the channel bargaining power not yet fully established, which may expose income sensitivity.

• In the medium to long term, the key lies in new business expansion, whether channel dependency decreases, and the ability to embed into global payment networks.

• Investors are currently buying the future pricing power of compliance licenses + on-chain payment networks, not current profits.

• Whether it will replicate Coinbase's "high-point listing" remains to be seen, with the focus on whether it can deliver progress in on-chain payment implementation and non-interest income increment data in the next two quarters.

Conclusion | The Stablecoin Bill Opens the Era of Compliance, Is the IPO Just the Prologue to a Vast Sea of Stars?

The stablecoin market is entering an unprecedented moment of impending explosion: the rigid demand for payments and transactions provides continuous growth fuel, while the trends of compliance, institutionalization, and mainstream adoption are shaping it into the most core infrastructure of on-chain finance.

Circle is at the core intersection of this trend.

• Compliance legitimacy brings institutional positioning advantages, making it a representative option for "institutional stablecoins";

• Open infrastructure capabilities provide it with a multi-chain, composable, and nestable technical architecture, allowing for neutral integration in scenarios such as payments, DeFi, cross-chain, and RWA;

• Institutional-level trust structure enables it to become the preferred clearing and settlement asset for traditional institutions to access the crypto world.

However, at the same time, Circle still faces structural challenges such as sensitivity of revenue structure to interest rates and high channel dependency. Whether it can break free from cyclical constraints in new business expansion and build a second growth curve will determine its valuation reconstruction path.

The competition between USDC and USDT is no longer a simple "market capitalization battle," but a full-stack competition representing the black and white dollar systems, different clearing and settlement paths, and regulatory compatibility.

Circle's IPO is not an endpoint but the starting point for global stablecoins to officially enter the institutionalized track.

What capital markets are truly betting on is not today's revenue, but whether it can play a key protocol layer role in the global on-chain dollar consensus system. When USDC becomes the universal circulation base layer of "on-chain dollars," Circle's story will truly begin.