Tiger Research: An in-depth analysis of Circle's financial report, where will cryptocurrency head in the next phase?

This report is written by Tiger Research. Circle has released its Q1 2026 financial report. The interest income from USDC reserves still accounts for over 90% of total revenue. To break this highly concentrated structure, Circle is advancing several initiatives, including the Ark network. Where will the next phase lead?

Summary

• With Q1 2026 performance as a turning point, Circle is accelerating its paradigm shift—from a pure stablecoin issuer to a comprehensive infrastructure operator in the digital asset industry. Its forward-looking business strategy revolves around three core pillars.
• Maximizing USDC profit margins and circulation: Reserve interest accumulates on both external and proprietary platforms. This quarter, the use of USDC on Circle's proprietary channels (CPN) increased, driving RLDC profit margins to a historic high of 41.4%. To expand issuance scale, Circle has partnered with the DEX platform Hyperliquid.
• Launching its own L1 network "Arc" to diversify gas and transaction fee income: Currently, 94% of Circle's revenue comes from USDC reserve interest. Once Arc expands Circle's platform business and generates platform fee income, the structural issue of over-reliance on reserve interest will be fundamentally resolved.
• Seizing the AI payment entry through Agent Stack: Circle is vying for the standard discourse power of autonomous micropayments among AI agents. Based on the progress of infrastructure construction and the effective date of the GENIUS Act, the goal for full commercialization is set for 2028.

Overall, Circle will aggressively expand USDC issuance scale through anchor platforms like Hyperliquid as a recent focus while vertically integrating its financial stack around its own L1 (Arc), payment network (CPN), and AI nano payments (Agent Stack). The key is that the growth of USDC circulation and infrastructure diversification has formed a mutually reinforcing positive cycle.

Circle is evolving from a pure interest income business to a platform business driven by traffic and transaction fees.

Q1 2026 Review: Profit Margins Are Recovering

1. Revenue Growth and Profit Margin Improvement—Proprietary Platform Share Enhances Profit Quality

In Q1 2026, revenue reached $694 million (up 20% year-on-year), adjusted EBITDA was $151 million (up 24% year-on-year), and adjusted EBITDA margin was 53%, indicating improved profitability. Currently, 94% of Circle's total revenue relies on reserve interest income.

The reserve yield declined by 31 basis points quarter-on-quarter (from 3.81% to 3.50%), putting direct pressure on revenue. Nevertheless, RLDC profit margins have risen for the third consecutive quarter, reaching a historic high of 41.4%. Despite the pressure on interest-dependent income, Circle has still successfully improved core profit quality.

The key driver of margin improvement is the continuous increase in the share of USDC usage on Circle's proprietary platform. This quarter, the share within the platform surged from 6% to 17.2% (up 1,149 basis points year-on-year), while the share outside the platform narrowed to 55%.

This change reflects the success of Circle's proprietary payment network CPN (Circle Payments Network) in attracting institutional clients. The number of member financial institutions increased to 136 (up 36% quarter-on-quarter), and the annualized total payment volume (TPV) expanded to approximately $8.3 billion (up 17% quarter-on-quarter).

The phased launch of CPN's payment product line supports this trend.

• Fiat Payments (launched in Q2 2025): Cross-border payments covering over 50 countries, supporting local currency receipts and payments.
• Stablecoin Payments (launched in Q3 2025): Direct payments and settlements using compliant stablecoins (USDC, EURC) in over 180 countries.
• Custodial Payments (launched in Q2 2026, went live in April): Circle provides licensing, custody, compliance, and USDC liquidity through a single integrated API, allowing partners to handle only fiat currency without bearing the burden of digital asset custody, operations, and compliance.

This is crucial for long-term profit quality, as the income attribution methods for different deposit locations are vastly different. Balances held on external platforms like Coinbase must share reserve interest with the platform, while balances held on Circle Mint, CPN, and other proprietary platforms fully belong to Circle.

In other words, the higher the share within the platform, the lower the partner revenue-sharing costs, and the higher the RLDC profit margins. With the same revenue scale, Circle's actual profitability increases accordingly.

Of course, CPN's own usage fee income has yet to scale up. As CFO Jeremy Fox-Geen pointed out in the last quarter's earnings call, the current priority is to expand the network scale rather than quickly monetize. CPN currently serves more as a channel to bring funds into Circle's proprietary platform rather than a direct fee channel. As a transitional strategy to defend against external distribution costs, Q1 performance confirms that this path is effective.

2. Signals of Net Profit Decline Hidden Behind Growth

However, in stark contrast to revenue growth and margin improvement is the trend in net profit. Q1 net profit was approximately $55 million, down 15% year-on-year.

The main reason is the amortization of equity incentive expenses post-IPO and a significant increase in infrastructure and R&D expenditures before the launch of Arc. After excluding one-time and non-cash items, the adjusted data remains robust. However, the trend in net profit still warrants continuous attention.

Circle Moves Towards Comprehensive Vertical Integration

1. USDC: Strengthening Core, Expanding Issuance

In Q1 2026, reserve interest income reached $653 million, accounting for 94% of total revenue. Circle's core business is highly concentrated on reserve interest, and revenue growth hinges on the continuous expansion of USDC issuance scale.

The current circulation of USDC is approximately $77 billion. The core proposition of Circle's structural growth is how far this circulation cap can be pushed. The previous rapid expansion of USDT relied on early positioning in Binance trading pairs.

Circle plans to replicate this "seizing" strategy on the DEX platform Hyperliquid. Coinbase's recent acquisition of Hyperliquid's native stablecoin USDH is a typical case—Hyperliquid did not deploy USDH as a native trading pair on the platform but sold it and registered USDC as the official base trading pair.

The growth in deposits on Hyperliquid directly drives USDC issuance. Hyperliquid's TVL grew from $2 billion in Q1 2025 to $4 billion in Q1 2026, peaking at $6 billion. Since Hyperliquid uses USDC as the base deposit asset, platform growth directly translates into new USDC issuance. The circulation outlook based on this is as follows.

In this scenario, the incremental growth from just the Hyperliquid platform is expected to boost the total USDC circulation from $77 billion to $84 billion within three years. A single platform will contribute over 10% of the total circulation, becoming a significant issuance channel.

Giving up 90% of reserve interest income to the platform does compress recent profit margins. However, the return obtained is an irreplaceable scale—approximately 15 trillion KRW (about $11 billion) in daily trading volume and a 17% share of the DEX derivatives market. This trade is nearly acceptable.

If Hyperliquid's derivatives product line further materializes, the positive cycle structure will become even more solid. For Circle, which prioritizes circulation expansion over profit margins, even if it has to share profits, Hyperliquid is still a strategic stronghold worth seizing.

2. Arc: How Circle Breaks Free from Interest Rate Dependence

As mentioned earlier, Circle's revenue is highly concentrated on reserve interest, and its business structure is structurally fragile during a rate-cutting cycle. Arc is still in the testnet phase and has yet to generate visible income. With recent institutional financing of approximately $222 million, Arc has emerged as a core infrastructure to fundamentally sever interest rate dependence.

Arc's primary target market is global cross-border payments. According to the World Bank report (RPW No. 54), the global average remittance cost is 6.36%, with bank remittance costs as high as 14.99%. The cause of this high-cost structure lies in SWIFT's multi-level intermediaries, opaque foreign exchange spreads, and weekend settlement delays.

In response to these inefficiencies in traditional finance, Circle aims to build platform business income on Arc. The infrastructure fee income that reduces interest rate dependence is based on two major pillars.

Circle Payments Network (CPN): Connecting global institutions and enterprises to Arc for cross-border payments and settlements, charging processing fees from the traffic. The institutional onboarding in Q1 is laying the foundation for transaction income after Arc's mainnet officially launches.

On-chain Foreign Exchange Engine (StableFX): Supporting on-chain stablecoin exchanges, replacing the high intermediary spreads of traditional foreign exchange. During execution, smart contracts charge a preset fee from each transaction currency.

StableFX adopts an RFQ pricing model rather than SWIFT's fixed cost structure. Market makers bid in real-time, providing the best wholesale spreads. Large transfers can be settled 24/7, with no SWIFT fixed fees and no slippage.

The larger the CPN traffic and StableFX transaction volume on Arc, the more direct infrastructure and fee income generated. This forms a closed loop for non-interest income structure.

This transformation has been validated through the testnet and participating enterprises. According to Arcscan data, the public testnet has recorded approximately 430 million transactions since its opening, with about 3.26 million transactions in the last 24 hours. Over 100 global institutions have participated, including BlackRock, HSBC, Visa, and AWS.

In addition to traditional financial institutions, the blockchain prediction market Polymarket has also joined the ecosystem.

This is not just a pilot for products and platforms. Arc is attracting real enterprises and driving real transaction traffic. If Arc operates as expected, Circle's revenue structure will expand from USDC reserve interest to infrastructure operation income. Arc is the first step to untie from interest rate linkage.

According to the roadmap, the Arc mainnet is scheduled to launch this summer. Meaningful Arc revenue is expected to gradually materialize after the mainnet goes live.

3. Agent Stack: Blueprint for Autonomous AI Payments

The "agent economy," where AI agents replace humans to make decisions and autonomously complete transactions, is approaching. Global tech giants like Google and OpenAI have begun actively deploying such autonomous systems.

The bottleneck lies in payment infrastructure. The fees generated by AI agents calling APIs are priced at micro-levels (sub-cent), which traditional payment systems cannot handle. Routing such micropayments to credit card networks would result in fees exceeding the principal—each transaction would incur a loss. Agent payments cannot structurally adapt to existing card rails.

Circle aims to fill this gap by launching the "Circle Agent Stack," which uses USDC as the settlement asset and provides a toolkit for building supporting environments.

• Agent Wallets: AI autonomously holds and sends USDC within human-set rules (e.g., spending limits).
• Agent Marketplace: A store where AI procures API services and settles based on call frequency.
• Agent Nanopayments: Instant USDC settlements starting at approximately $0.000001, with zero gas fees.
• Circle CLI: A command-line tool for creating wallets and connecting agents.
• Circle Skills: Functional components that allow AI agents to directly call Circle financial product modules.

Currently, this portion of revenue has also not yet entered a visible stage. The market adoption and revenue recognition path is expected to progress according to the following phased roadmap.

2026 (Infrastructure Phase): Building a technical foundation for stable processing of large-scale nano payments. The Arc mainnet will be activated this summer, anchoring the integration of Circle CLI and financial modules with partners.

2027 (Regulatory Anchoring Phase): The GENIUS Act will officially take effect, providing institutional guarantees for corporate entry. The stablecoin securities exemption and 100% safe asset backing will be legally established, allowing even conservative corporate legal teams to trial the USDC payment system internally without risk.

2028 (Commercialization and Monetization Phase): The technical foundation and regulatory legitimacy will be fully aligned. The agent economy will be fully commercialized. Enterprises will grant AI agents real spending authority, leading to large-scale transactions, and the contributions of Agent Stack will officially reflect in financial report revenues.

Therefore, before the revenue driven by traffic fully materializes in 2028, Agent Stack will more likely be reflected in stock prices as an "expected premium"—this is the capital market's pricing of future market positioning value, rather than the realization of current income.