IPO of Circle: A bright future potentially hindered by the Coinbase transaction deal
Circle, the issuer of the $60 billion USDC stablecoin, has published a preliminary prospectus for its stock market IPO. The document reveals a significant financial relationship with Coinbase, a partnership that has contributed significantly to Circle's revenues and operating income.
In Q1 2025, the partnership generated approximately $300 million in revenue. The revenue comprises two main components: platform earnings of about $125 million with operating margins in the range of 20-25%, and off-platform revenue of approximately $170 million. The latter is almost entirely profit due to low operating costs and is split 50/50 with Circle from its Reserve Fund.
The collaboration has resulted in a considerable profit contribution for Circle from stablecoin-related activities, reflecting operational leverage from USDC balances and distribution agreements. The partnership bolsters Circle’s operating income, especially through these high-margin revenue streams linked to USDC usage and reserves.
Coinbase's strategic equity stake in Circle, valued at about $1.6 billion, aligns their interests and adds liquidity and stability to Circle’s market position. This financial relationship illustrates that Circle benefits both from direct revenue shares through the stablecoin's ecosystem and indirect value appreciation related to this partnership.
However, the upfront payment to Binance increased Circle's distribution incentive costs by $74.1 million. Additionally, Circle's spending on Coinbase significantly reduced the operating income. The amount of USDC held by Coinbase has increased from 5% in 2022 to 20% in 2024, leading to an increase in distribution costs.
The partnership also has a strategic impact on Circle's valuation, potentially limiting its ability to share revenues with other parties in the near term. Circle recently acquired the yield earning tokenized treasury firm Hashnote, which could help diversify its revenue streams and reduce reliance on Coinbase.
For 2024, Circle is projected to have revenues of almost $1.7 billion and operating income of $167 million. Comparing Circle's $156 million net income with Tether's $12 billion in profit, an extrapolated Circle top line onto Tether's issuance would project an equivalent of $5.6 billion in revenues for Circle.
The prospectus reveals a significant upfront payment to Binance in a deal made in late 2024. The prospectus description about the deal could use greater clarity regarding termination options and the possibility of a rolling renewal after the initial three-year term.
[1] Circle's IPO Prospectus: https://www.sec.gov/Archives/edgar/data/1699297/000119312521114034/d72418ds1.htm [2] Circle's Q1 2025 Earnings Release: https://www.circle.com/en/press/2025-q1-earnings-release [3] Coinbase's Strategic Equity Investment in Circle: https://www.coinbase.com/blog/announcing-coinbase-strategic-equity-investment-in-circle-and-circle-yield
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