Circle 3D Valuation Framework: Where is the Bottom, Where is the Top

Core Viewpoint

1. The Two Faces of the Financial Report

The financial report presents clear data, but it also shows two faces.

(1) One face is all about growth

Details are as follows:

| Indicator | Q1 2026 | Year-on-Year Change | |-----------|---------|---------------------| | USDC Circulation | $77 billion | +28% | | On-chain Quarterly Transaction Volume | $21.5 trillion | +263% | | USDC on Platform | $13.7 billion | +350% | | CPN Annualized Transaction Volume | $8.3 billion (approaching $10 billion as of 5/7) | Quarterly Growth +75% | | Total Revenue and Reserve Income | $694 million | +20% | | Adjusted EBITDA | $151 million | +24% |

Let’s discuss these three sets of numbers individually.

1. Huge On-chain Transaction Volume

The on-chain quarterly transaction volume for USDC is $21.5 trillion, which is nearly equivalent to the entire GDP of the United States for the year.

Comparing with giants:

Visa's total processing volume for fiscal year 2025 is approximately $17 trillion, exceeding 230 billion transactions, with an average transaction value of about $80.
SWIFT processes about $150 trillion annually, with around 11 billion messages.

The $21.5 trillion in a single quarter for USDC surpasses Visa's annual total, but these are not the same type of flow—Visa's $17 trillion comes from 230 billion small consumer transactions; USDC's $21.5 trillion is primarily composed of large, low-frequency on-chain fund transfers, circulating between DeFi protocols, market makers repricing, and institutional fund allocations, with average transaction sizes possibly in the thousands to tens of thousands of dollars. The amount is enormous, but the number of transactions is not in the same league as Visa.

However, the scale of $21.5 trillion and a growth rate of 263% roughly calculates to the $77 billion in circulation being moved about 28 times in a quarter, indicating it is a transaction currency genuinely being used on-chain, rather than just digital assets in cold wallets.

2. CPN Growth Rate is an Important Variable

In the previously mentioned $21.5 trillion in on-chain flow, Circle currently receives almost no revenue. Since USDC is an open protocol, there are no fees for on-chain transfers, and Circle can only earn interest on reserves, without taking a cut from the transactions themselves. CPN is a payment settlement network built by Circle with entry barriers, allowing financial institutions to join and make cross-border payments through CPN, which charges a network service fee based on basis points for each transaction (covering compliance, routing, and settlement infrastructure costs).

Currently, the annualized transaction volume for CPN has just surpassed $10 billion, with a penetration rate of less than 0.05% compared to the total on-chain volume. This gap itself represents potential, with CPN's quarterly growth rate of 75%. The fact that a newly launched payment network can achieve such acceleration indicates that the demand side is real.

If CPN succeeds, Circle will "earn money from the use of USDC," and this revenue will have a higher retention rate and better economic quality.

3. Rapid Growth of USDC on Platform

In the chart, there is a category called USDC on Platform, which refers to the USDC that is retained on Circle's own platform. This segment's growth rate surged from 5.7% to 17.2%, nearly tripling. Moreover, like CPN, this does not require revenue sharing with Coinbase; it primarily earns interest on reserves. The more revenue generated through Coinbase, the greater Circle's valuation potential.

(2) The Other Face is All About Constraints

Looking at the three sets of data, this should explain why the stock initially dropped after the financial report was released:

GAAP net profit is only $55 million, with a company managing $77 billion in reserves earning just $55 million in a quarter.
Reserve income yield is 3.5%, down 66 basis points from the same period last year, as interest rates are declining.
Operating expenses surged to $242 million, a 76% year-on-year increase, primarily due to rising equity incentive costs post-IPO.

Reserve income still accounts for 94% of total revenue, but the $694 million is lower than the previously consistent expectation of $715 million. Overall, it indicates: earnings are down, expenses are up, and profits are thin.
The market is divided into two camps:

One camp believes it is just an interest machine. A popular saying is "buying it is worse than buying Coinbase," as interest income is effectively halved, and contract changes are nowhere in sight. The reasons for this have been discussed in previous articles, primarily stemming from when Circle was on the brink of collapse, and Coinbase, as a white knight, saved it, but to some extent, also took advantage of the situation, leading Circle to sign a contract that binds it. The moral evaluation of this is meaningless, while the commercial terms have been signed, leaving the initiative for future changes in the hands of Coinbase.

The other camp believes this is the future of on-chain financial infrastructure, and there is no need to focus solely on reserve interest and revenue sharing; instead, one should look at CPN, ARC, and other financial operating systems in their infancy.
If viewed as an interest machine, $30 billion is overvalued; if seen as a financial operating system, $30 billion is currently quite reasonable.

However, I believe Circle's valuation must be evaluated from multiple dimensions, as its various business segments have distinctly different valuation logic. Therefore, this article will establish a three-dimensional valuation method for reference.

2. A Three-Dimensional Perspective on Circle

The capital market's pricing of a company essentially involves selecting a reference framework, which corresponds to different business models.

(1) Interest Business: Referencing Banks

The circulation of USDC is its deposits, the short-term interest rates in the U.S. are its interest spread, and the distribution agreements are its payment costs. In this reference framework, if one were to compare it to banks, it would generally be given a price-to-earnings ratio of 8-15 times, being sensitive to interest rates and competition. However, Circle is actually far better than banks, but comparing it to banks provides a stable safety margin, knowing that at this price, it is already quite low. This will be elaborated on later.

(2) Payment Settlement: Referencing VISA and Others

USDC is its clearing asset, CPN is its clearing network, and the fee rate (take rate) is its revenue. In this reference framework, for example, Visa and Mastercard are valued at 24-30 times forward price-to-earnings ratios, benefiting from the compounding growth of global payment volume.

(3) ARC Network: Referencing Infrastructure

Arc is its execution layer, ARC coordinates assets, and USDC is the gas currency. There is no standard valuation in this reference framework; one can only roughly reference the value of the Ethereum network, considering the network effect premium when Visa went public, and more akin to option pricing. The official white paper was released on May 11, containing many very important details, which we will discuss later.

These three dimensions correspond to different valuation systems, and in our investment practice, they also play different roles, as summarized in the table below.

| Dimension | Corresponding Business | Valuation Logic | Impact on Market Value | |-----------|------------------------|-----------------|-----------------------| | First Dimension | Reserve Income | Interest-sensitive net profit multiple | Determines the floor | | Second Dimension | Other Revenue (Other Revenue) and CPN Platform Revenue | Revenue multiple | Determines the turning point | | Third Dimension | Arc Network and ARC Token | Ecosystem option value | Determines the future |

Now, let's break them down one by one.

3. First Dimension: Reserve Interest and Revenue Sharing

Circle's most well-known way of making money is simple: users hold USDC, backed by real dollars in reserves. Circle buys these dollars as U.S. Treasury bills and repurchase agreements, earning the Treasury yield. In Q1 2026, this business generated $653 million in reserve income, annualized to about $2.6 billion.

The average circulation of USDC is $75.2 billion, which calculates to a reserve income yield of 3.47%. This is the "floor" for Circle's valuation; regardless of how Arc and CPN evolve, as long as USDC is still in circulation, this business is certain.

How much PE this business should get is subjective, but simply put, it is undervalued compared to banks and overvalued compared to SaaS. The following content can serve as a rough reference; vague correctness is better than precise errors.

(1) Circle is Neither a Bank Nor a SaaS

Circle does not have a traditional bank license (although it is applying for an OCC national trust bank), does not make loans, does not bear credit risk, does not have duration mismatches, and does not need to meet capital adequacy ratios. Its asset side consists only of U.S. Treasury bills, repurchase agreements, and money market funds, with "credit risk" being almost zero.

This makes it much cleaner than banks.

On the question of whether it is a bank, I believe the valuation thought process is straightforward: the worst-case scenario is to compare it to banks and give it a 10x PE. However, in reality, Circle's business model is much better than that of banks, even when it comes to "earning interest."

Banks are tough businesses, taking customer money to lend, with the risk of principal loss. For example, as a bank president, if you take customer money and lend it to a hot industry like Evergrande or Nezha Motors, you might quickly find that you can't get the money back—yet this tough business earns very little because you are taking on huge risks, resulting in only a small interest spread.

Circle, on the other hand, earns nearly all the interest with almost no risk to the principal.

However, Circle's model cannot be priced like a SaaS, which is often given high valuations due to stickiness, sustainability, and high certainty, along with pricing power. In contrast, Circle's reserve income yield is not set by it but by the Federal Reserve; moreover, a significant portion of USDC's "users" are not Circle's direct customers—they use USDC indirectly through Coinbase, DeFi protocols, third-party wallets, Base chain, etc.

Circle has the USDC network but does not always own the end customer relationship.

It cannot be priced like a SaaS, but is it worse than SaaS? This is subjective. From my personal perspective, I believe Circle's business model is one of the best in history: it is the first time the private sector can enjoy a portion of the "seigniorage."

A monkey comes to a tree, walks upright, transforming from a monkey into a human.

(2) The Competitive Barrier of Stablecoins

With such lucrative reserve income, can competitors eliminate it through interest rebates? This logic holds for ordinary financial products, but stablecoins are not ordinary financial products.

When you transfer USDC to someone, they are usually willing to accept it—because of wallet support, exchange support, on-chain protocol support, good liquidity, easy conversion, and high trust. But if you offer them a new stablecoin, they first need to confirm whether their wallet supports it, where it can be exchanged, whether it will depeg, and whether there is liquidity.

These frictions are USDC's moat.

The core competitiveness of stablecoins is not "who offers higher interest," but "when money flows from A to B, will B accept it without friction and be able to use it conveniently everywhere?" Safety, convertibility, liquidity, wallet and exchange support, corporate acceptance, regulatory compliance, and on-chain integration—all these ultimately become the moat.

Previously, I wrote an article explaining why PayPal, with so many users and subsidies, could not surpass Circle, which has been around for so long and is still at $3 billion. Because users on the platform may move over when they see interest being offered, but if no interest is offered, they will leave; during payments, they do not need to care about what is behind it. Additionally, there are cases like USD1, which relied on subsidies to grow but ultimately stagnated at a $4 billion market cap.

New stablecoins relying on subsidies will inevitably face the same fate: once the subsidies stop, growth returns to zero. The time window for new challengers will continue to narrow.

(3) Inevitable Interest Rate Cuts

In Q1, the reserve income yield was 3.5%, down from 4.16% in the same period last year by 66 basis points. The reason is no surprise: U.S. short-term interest rates have followed the Federal Reserve's cuts over the past 12 months.

As interest rates decline, the income from the same amount of USDC will also decrease, which is certain. However, there is another variable: the larger USDC grows, the more money Circle manages; the higher the interest rate, the more it earns per unit of money. The product of the two is the true profit.

In the financial report, the USDC circulation increased by 39% year-on-year during the same period, so reserve income still grew by 17%. Although the increment was halved due to the decline in interest rates, if the growth of USDC is maintained, then the interest rate factor is observable and controllable.

Thus, Circle is not a pure "central bank of on-chain dollars," as it only earns a portion of the "seigniorage," and unlike central banks, it relies on U.S. short-term interest rates for its income.
Circle is more like a good sailboat: it sails fast when the wind is strong, but the wind is not created by the captain.

(4) Coinbase's Revenue Sharing

1. Three Layers of Revenue Sharing

In the first quarter, Circle's total revenue was $694 million, and looking solely at the reserve income segment, the net reserve margin was only 38%, with a significant portion taken by Coinbase's revenue share and other costs. For every dollar of interest earned by Circle's "interest machine," only 38 cents is retained.

Specifically, Coinbase's revenue sharing occurs in three layers, in order:

First is the issuer's retention. Circle first charges a certain basis point fee based on USDC circulation as the issuer's retention. The prospectus disclosed a fee range from low double digits to high single digits in basis points (approximately 0.05%-0.15%), decreasing as circulation increases. Based on the current circulation of $77 billion, this amount is roughly in the tens of millions of dollars annually. It is not large, but it is the money Circle receives before any revenue sharing begins.

Second is the platform revenue share. For transactions on the Coinbase platform, all revenue goes to Coinbase; for Circle's own products (Circle Mint, Gateway, Wallets), the revenue belongs to Circle.

Third is the remaining distribution. For reserve income generated in third-party scenarios, such as DeFi, other exchanges, and third-party wallets, Coinbase also takes 50%.

Overall, this represents a huge and ongoing expense. The revenue sharing cooperation agreement was signed in August 2023, with an initial term of three years, expiring in August 2026. If both parties fulfill their obligations and no amendments are reached, it will automatically renew for another three years. Coinbase recently stated that this is a permanent, non-terminable contract. In practice, from a legal standpoint, any future contract changes would either require Coinbase to fail to fulfill its obligations or regulatory changes that provide Circle with leverage to renegotiate. In any case, this part is currently in a "no changes expected" position, and the next six months will be a critical window: the renegotiation period is approaching, and how the "Clarity Act" is implemented will determine how the two parties negotiate and what they negotiate about.

2. Revenue Sharing is Not Necessarily a Bad Thing

This revenue sharing also has its returns; Coinbase is not just the "bloodsucker" of the revenue share; it is also the most important distribution network for USDC, bringing liquidity, user entry points, transaction scenarios, Base ecosystem, institutional reach, and brand endorsement to USDC.

Without Coinbase's channels, USDC could not have grown from zero to a circulation of $77 billion. Coinbase benefits from the USDC economy but also helps USDC scale.

Newcomers to the stock market might find this revenue sharing distasteful and hard to accept, but in reality, businesses that grow large cannot rely on "eating alone." This is common in business models: taking Visa and Mastercard as familiar examples, Visa only earns about 10% of each revenue, while the majority, around 85%, is taken by banks, and various POS machines and networks take a cut as well.

Thus, Visa and Mastercard are subjected to much harsher revenue sharing than Circle, yet this does not prevent them from becoming companies with market values in the hundreds of billions.

Every app we download from the app store or every fee we recharge within an app has a 15-30% cut taken by Apple and Google; for example, Apple used to take 30% from most apps in China, which will drop to 25% by 2026. This does not hinder the proliferation of mobile app giants.

3. Growth Beyond Revenue Sharing

For Circle, rather than discussing when it can reduce payments to partners, it is more productive to focus on whether there are significant growth opportunities outside of Coinbase's revenue share.

Data already shows signs of this. The proportion of USDC on Platform is rising, with the daily weighted average increasing from 5.7% in the same period last year to 17.2%, indicating that the portion retained by Circle is accelerating in growth. The Q1 retention rate increased by 1.5 percentage points year-on-year and 1.3 percentage points quarter-on-quarter, reflecting this trend.

The current revenue structure's Other Revenue, CPN, Managed Payments, Agent Wallets, Agent Marketplace, and Arc fee capture will all become sources of revenue for Circle without revenue sharing.

(5) Regulation May Actually Protect Circle

Currently, two relevant bills are long-term protections and benefits for Circle.

1. The GENIUS Act has been enacted. Signed in July 2025, it is the first federal framework in the U.S. for payment stablecoins. Section 4(a)(11) explicitly prohibits: stablecoin issuers from paying any form of interest or yield to stablecoin holders (whether in cash, tokens, or other forms of consideration), as long as such payments are based on holding, using, or retaining the stablecoin itself. The law will take effect on January 18, 2027.

The current issue is that everyone is indirectly issuing interest, such as Circle partnering with Coinbase to let Coinbase issue it; USD1 is using the same logic.

Thus, the second bill aims to prohibit this indirect issuance.

2. The CLARITY Act is still under negotiation. It is a broader digital asset market structure bill, aiming to address the core legacy issue that the GENIUS Act does not explicitly prohibit "affiliated parties or third parties" from paying interest-like rewards to holders.

On March 24, CRCL dropped 20% in a single day, as the market interpreted the early draft of the CLARITY Act as extending the ban to affiliated parties and third parties. However, observing the evolution of the bill, the outcome may be much milder than the initial panic, and it is expected to be announced soon.

Another parallel regulatory line is also in progress. The GENIUS Act only prohibits issuers from directly paying interest to holders, but the proposed rules released by the OCC in February go further: if issuers distribute reserve income to affiliated parties, and those affiliated parties then transfer it to holders as "rewards," the OCC will initially presume you are in violation, and you must prove your innocence. This is precisely what Coinbase is currently doing, but since this rule is still in the proposal stage, the final rules are expected to be released in mid-2026, while the GENIUS Act will take effect no later than January 2027. If enacted, Coinbase's rewards will also have to be adjusted.

However, the legislative power of the CLARITY Act differs from the OCC rules; since the CLARITY Act is also discussing the issue of interest payments, once the CLARITY Act is defined, the OCC will directly follow suit.

Interestingly, Circle and Coinbase had different attitudes toward the relevant bills:

Circle's CEO and policy head publicly praised the OCC's rules. If Coinbase can no longer transfer revenue shares to users, there may be room for negotiation on the revenue share percentage Circle pays to Coinbase, weakening Coinbase's biggest selling point for attracting users to hold USDC.
Coinbase publicly opposed it and submitted objections to the OCC, arguing that such rules would harm consumers.

3. Impact on Circle's Reserve Business

Although the results are not yet out, the direction can already be preliminarily inferred: the passive holding method to earn interest will be compressed, regardless of the method, it is merely a matter of how much space is compressed.
I personally speculate that it will not be as the banks wish to completely block this path. Previously, I wrote three points about the essence of compliant dollar stablecoins:

Stablecoins are the second growth curve of the dollar and U.S. Treasuries.

They represent the first time a top business model can share part of the seigniorage.

The U.S. government is the biggest driving force behind compliant stablecoins.

Based on these three points, I am quite confident in judging that the regulations will not reverse course institutionally—additionally, it is worth mentioning that these two bills are among the few that have been jointly promoted by both parties in the U.S., and even if the administration changes in the future, this will remain the case.

The reason stablecoins can achieve growth is fundamentally aligned with maximizing the interests of the dollar.

However, regardless of how the regulations are implemented, whether stricter or more lenient, maintaining Circle's moat is beneficial. If stricter, competitors cannot rely on cash to seize market share (although currently, it seems that cash has not been effective), and competition will return to aspects that are harder to replicate—safety, compliance, exchange networks, wallet coverage, corporate access, on-chain integration, and liquidity depth.

Moreover, from the current perspective, these two bills essentially block the possibility of a comeback for USDT, as Circle's compliance advantages and infrastructure are all Tether's shortcomings.

4. New Hope in Three New Businesses

Reserve income is "money from interest," government money that needs to be distributed. In contrast, Other Revenue is money earned from Circle's own products and platform capabilities, which does not need to be shared.

In Q1 2026, Other Revenue was $42 million, doubling from $21 million in the same period last year. The company's FY2026 full-year guidance aims for $150-170 million, with a nearly 100% year-on-year growth rate. While the absolute value is still small, accounting for only 6% of total revenue, the significance of this line far exceeds its current size.

(1) High Ceiling for Other Revenue

The prospectus lists three components of Other Revenue:

Transaction services (processing stablecoin payments, making payments to sellers/suppliers/end users, ledger management, assisting digital asset transactions)
Integration services (implementation services for integrating stablecoins into public chains)
Other services (USYC management-related fees, stablecoin redemption fees, cross-chain transfer fees, developer services, etc.).

These three components generate income from Circle's own products and platform capabilities, which do not require revenue sharing, only deducting their own costs such as compliance. They differ from reserve income in several significant ways:

First, they do not depend on interest rates. Reserve income is closely related to interest rates, while the growth of Other Revenue is almost entirely driven by products and customers, allowing the business to grow even during a rate-cutting cycle, providing Circle with counter-cyclical profit quality.

Second, the ceiling is higher. Reserve income is an interest business, and while it is currently a pillar of income, there is an upper limit to how high interest rates can go, whereas payment networks, enterprise services, and AI proxy payments are all markets with open ceilings; Visa's market cap of about $590 billion is a result of the compounding effect of payment networks.

Third, it is closer to service fees. This part is similar to SaaS-type income, with a purer nature, more sustainable growth, and a higher ceiling.

For such high-growth services, P/E is generally not used for valuation; companies like Moutai, Apple, and Pinduoduo can still be evaluated using PE, looking at how much money the company has, how much profit it makes in a year, and what its market cap is, yielding a rough estimate. However, for Circle in this area, a price-to-sales ratio (PS) can be used; based on the FY2026 guidance of $150-170 million, if valued at a 10-20 times PS, it corresponds to a valuation of about $1.5-3.4 billion.

It is still small now, but it is the seed of a changing valuation logic.

(2) CPN: High Transaction Volume Does Not Equal High Revenue

CPN is Circle's payment network (Circle Payments Network), the company's global payment network. Its narrative is to challenge SWIFT and provide 24/7 on-chain dollar clearing.

Q1 data: annualized transaction volume of $8.3 billion (based on the last 30 days of March annualized), with a quarter-on-quarter growth of 17%. As of May 7, it was approaching $10 billion, with a quarterly growth rate of 75%. There are 136 financial institutions connected, with a quarter-on-quarter growth of 36%. In April, a managed payments product was launched, packaging the entire infrastructure for traditional banks and payment service providers.

$8.3 billion sounds significant. However, payment networks cannot be evaluated solely based on transaction volume. Corporate payments, cross-border settlements, and institutional fund transfers usually involve large amounts, but the fee rates may be very low. What truly matters for a payment network is transaction volume × fee rate = revenue.

| Annualized Transaction Volume | 5 Basis Points Revenue | 10 Basis Points Revenue | 20 Basis Points Revenue | |-------------------------------|------------------------|------------------------|------------------------| | $8.3 billion (current) | $420,000 | $830,000 | $1.66 million | | $50 billion | $2.5 million | $5 million | $10 million | | $100 billion | $5 million | $10 million | $20 million | | $500 billion | $25 million | $50 million | $100 million | | $1 trillion | $50 million | $100 million | $200 million |

Based on a fee rate range of 5-20 basis points, this is a common range for payment networks, with cross-border payments on the higher end and pure on-chain settlements on the lower end. The revenue contribution from CPN's current annualized transaction volume is estimated to be between $400,000 and $1.7 million.

At its current scale, CPN is not yet a profit driver.

However, it is a key validation metric for Circle's platformization. If CPN achieves an annualized transaction volume of $100 billion within three years, a 10 basis point fee would correspond to $10 million in revenue; if it reaches a trillion-dollar scale, it would correspond to $500 million to $2 billion in revenue. This is when CPN can truly change Circle's valuation structure. Of course, this also depends on how the fee rates are ultimately set; it is still early.

Based on the nearly $10 billion annualized volume as of May 7 and a quarterly growth rate of 75%, the probability of CPN reaching $20-30 billion within a year is quite high. By then, the market will have reason to redefine it from a "narrative project" to an "early monetizing payment network."

(3) AI Proxy Tool Stack: Waiting for an Entry Point into "AI Economic Activity"

Another underestimated release in the Q1 financial report is the AI Proxy Tool Stack (Agent Stack).

It includes command-line tools (Circle CLI), proxy wallets (Agent Wallets), proxy marketplaces (Agent Marketplace), and micropayments (Nanopayments). The minimum transaction amount supported for micropayments is $0.000001, which is one millionth of a dollar.

The existence of such payment amounts indicates that it is not meant for human use but for AI agents. AI agents call APIs, purchase services, and settle with each other; if this becomes the mainstream in the next decade, "stablecoin payments between machines" will be a brand new market. Stablecoins are naturally suited for this scenario: on-chain, low fees, programmable, 24/7, and cross-border.

Currently, the AI Proxy Tool Stack does not contribute quantifiable revenue; it is purely an option. However, it complements Arc, with Arc serving as the settlement layer and the AI Proxy Tool Stack as the application layer entry point. Viewing the two together completes the logic.

5. ARC and ARC Token—Letting Stablecoins Grow an Operating System

The ARC token presale raised $222 million, with a valuation of $3 billion (FDV), which was another significant announcement made on the same day as the May 11 financial report. I believe its informational value is comparable to that of the financial report itself.

Circle defines Arc as the "Economic Operating System of the Internet." This sounds abstract, but if you break down the stack, the logic becomes clear:

USDC is the currency layer
CPN is the payment network layer
Arc is the settlement and execution layer
ARC coordinates assets
The AI Proxy Tool Stack is the application layer entry point for AI economic activity

If USDC is the on-chain dollar, then Arc is the highway that allows these on-chain dollars to run. USDC is the money, Arc is the road, and ARC is the coordination mechanism for this road.

(1) What Arc Aims to Achieve

Arc is an EVM-compatible Layer 1 chain. Its core design choices point toward one goal: to make stablecoins the default foundation for institutional-level finance.

The positioning of this chain is very different from current L1s.

Ethereum prioritizes decentralization, with institutional friendliness as a secondary goal;
Solana prioritizes performance, with institutional services as a supplementary focus.
Arc prioritizes institutions, compliance, and stablecoin settlement, with decentralization as a gradual goal.

On this chain, USDC serves as the native gas (transaction fee) currency, meaning institutional clients do not need to hold volatile tokens like ETH or SOL to pay transaction fees; sub-second finality means transaction confirmation speeds are sufficient to support real-time settlements; optional privacy designs meet financial institutions' requirements for transaction detail confidentiality; and post-quantum signature schemes ensure that even with the maturity of quantum computing, the underlying security remains intact.

Arc's economic mechanism: priced in stablecoins, but protocol fees will ultimately be converted to ARC at the protocol layer, with a portion of the converted ARC allocated to validators and stakers (network characteristics require staking to ensure decentralization), and another portion burned to offset programmatic inflation. This "use → convert → partial burn" mechanism is similar to Ethereum's EIP-1559, meaning the more network activity, the greater the deflationary pressure on ARC.

The public testnet is set to launch in October 2025, and as of May 5, it has processed over 244 million transactions. More than 100 institutions are already participating, including BlackRock, Visa, Goldman Sachs, State Street, Deutsche Bank, AWS, and Anthropic.

The mainnet beta is expected in the second half of 2026.

2. The Luxurious List of ARC

Investor list: a16z crypto (leading with $75 million), Apollo, BlackRock, ARK Invest, Bullish, General Catalyst, Haun Ventures, Intercontinental Exchange (parent company of NYSE), IDG Capital, Janus Henderson, Marshall Wace, SBI Group, Standard Chartered Ventures.

This long list includes ICE, the parent company of the New York Stock Exchange, BlackRock managing $11 trillion in assets, and Apollo as a top global alternative asset management company. This unprecedented configuration of traditional asset management giants, global exchange operators, and Asian capital appearing in the same round of public chain token presale is remarkable.

If these institutions were merely optimistic about Circle as a company, they could have simply bought CRCL stock in the secondary market; choosing ARC indicates they see the value of the Arc network itself.

3. Value to Circle Shareholders

The total supply of ARC is 10 billion tokens. The distribution structure is:

Circle holds 25% (2.5 billion tokens)
Ecosystem participants hold 60% (6 billion tokens)
Long-term reserves hold 15% (1.5 billion tokens)

Based on a fully diluted valuation of $3 billion, Circle's portion has a nominal value of $750 million. It is important to note a few points here:

First, value does not equal cash. The ARC token currently has no public trading market, and the mainnet has not yet launched; presale investors will have their tokens locked for at least one year (after the PoS transition), possibly extending to four years. The unlocking path for Circle's own 2.5 billion tokens is similar. This nominal value will not translate into short-term profits—moreover, it can be reasonably estimated that Circle will not sell this portion of holdings; it is highly likely to participate in network governance and earn network income through staking and other means.

Second, value will be distributed among multiple parties. The disclaimer in the ARC white paper states: ARC does not represent anyone's equity, debt, dividend rights, income sharing rights, liquidation rights, or ownership interests, nor does it represent any claim to Circle's income, profits, or assets. This statement is extremely important for CRCL shareholders. Legally, there is no direct claim relationship between the value of the ARC token and the equity of CRCL shareholders. If the Arc network grows, the value will be distributed to CRCL shareholders (through Circle's 25% holding), ARC token holders, validators, stakers, ecosystem developers, and early investors; CRCL shareholders are just one of the beneficiaries.

Therefore, the valuation of this portion of the ARC network should consider a slight discount based on the two points above, while also factoring in future contributions to the network, treating this holding as a type of asset that will not be directly liquidated. This portion should be viewed not only in terms of the short-term market cap achieved under speculative conditions but also in terms of the value captured under the network's real development.

The market's ceiling for infrastructure providers like ARC is likely to be much higher than the valuation given to "interest-earning" businesses.

6. What is $30 Billion Betting on Today

Now we can conduct a simple SOTP (Sum of the Parts) valuation based on the three dimensions.

According to the current annualized metrics (Q1 data × 4):

First Dimension: Reserve Business. Valuation formula: annualized reserve income × post-distribution retention rate × after-tax coefficient × reasonable price-to-earnings ratio.

Annualized reserve income is $2.612 billion. Calculating the post-distribution retention based on a net retention rate of 38% yields $993 million; after deducting taxes and management fees, it is expected to be around $600 million. At a price-to-earnings ratio of 10-15 times, this corresponds to a valuation of $6-9 billion.

The valuation floor for this business is relatively thick, but the ceiling is limited—because it is sensitive to interest rates and distribution agreements.

Second Dimension: Other Revenue. The median of the FY26 guidance is $160 million, corresponding to a price-to-sales ratio of 10-20 times (a common range for early high-growth platform businesses), which yields a valuation of $1.6-3.2 billion.

Currently, CPN's annualized transaction volume is $8.3 billion, and as of May, it is approaching $10 billion, but it has not yet reached a scale that can contribute substantial profits, so it is temporarily not counted, though it can serve as a bonus point in mental calculations.

Third Dimension: Arc Network and ARC Token. Circle holds 25% of ARC, with a nominal value of $750 million. Everyone has different valuations for this part; some believe it cannot be sold and that there is little on-chain, warranting a discount, while others feel that when it is actually issued, it will be worth much more than its current value. I will not elaborate further here; everyone can determine their own acceptable range.

Summing the three dimensions, the current annualized valuation is approximately $10-15 billion. This value may seem low, but it is important to note that it does not consider dreams, FOMO, narratives, or chips, seeking a clear safety margin. The greatest significance of this value is that it gives us a "floor" in our minds.

CRCL's current market cap is around $30 billion, and the difference reflects the market's pricing of 3-5 years of forward growth, assuming a compound growth rate of about 27%, with USDC scaling to $200 billion, interest stabilizing at 3%, and other revenue increasing to 35%, among other factors, then priced at a slightly higher PE.

However, I have always believed that "holding a calculator" can only determine if something is cheap, and investing is absolutely not about calculating back and forth with a calculator; ultimately, it comes down to the business model.

If the business model is right, being a bit expensive or cheap does not make much difference in the long run; if the business model is wrong, even the cheapest calculations will still result in losses.

Duan Yongping bought Apple and then it dropped 50%, but this did not prevent him from becoming a legend; fundamentally, he understood "Apple's business model."

In a recent conversation between Duan Yongping and Wang Shi, Tian Pujun asked Duan: What do you think was the biggest takeaway from dining with Buffett?

Duan Yongping said: My biggest takeaway was when I asked him what he considers the most important thing about a company, he said the business model. That left a deep impression on me because we look at companies from all angles. I asked him what he looks at first, and he said the business model; if the business model is wrong, he won't look further. He has a filter; what he talks about is the right person and the right price. As for me, I don't even talk about the right price.

Join ChainCatcher Official

Telegram Feed: @chaincatcher

X (Twitter): @ChainCatcher_