Circle IPO Prospectus Analysis: Financial Condition, Business Model, and Strategic Planning

On April 1, 2025, Circle Internet Financial submitted its S-1 registration statement to the U.S. Securities and Exchange Commission, planning to list on the NYSE under the ticker "CRCL". As the issuer of the USDC stablecoin, Circle had previously attempted to go public via SPAC in 2022 without success, and now returns to the capital markets with more transparent financial data and clear strategic goals. This article will delve into Circle's prospectus, exploring its financial performance, business model, listing motivations, and potential impacts on the cryptocurrency industry.

1. Circle's Financial Status

1.1 The contradiction between revenue growth and profit decline

Circle's financial data shows a scenario of both growth and pressure. In 2024, the company's total revenue and reserve income reached $1.676 billion, an increase of 16% compared to $1.450 billion in 2023. However, net income dropped from $268 million to $156 million, a decrease of 42%. What are the underlying reasons behind the contradiction of revenue growth while profits decline?

Data shows that income growth primarily comes from the increase in reserve income, reaching $1.661 billion in 2024, accounting for 99% of total revenue. This is attributed to a significant increase in the circulation of USDC—by March 2025, the circulation had reached $32 billion, a year-on-year growth of 36%. However, pressure on the cost side cannot be ignored. Distribution and trading costs climbed from $720 million to $1.011 billion, an increase of 40%; operating expenses also rose from $453 million to $492 million, with general administrative expenses increasing from $100 million to $137 million. This indicates that although Circle has performed well in terms of revenue, profit pressures are also continuously increasing.

The Secrets of Reserve Income 1.2

Reserve income is Circle's core source of revenue, reaching up to $1.661 billion in 2024, accounting for 99% of total revenue. This portion of revenue comes from the interest generated by managing USDC reserve assets. USDC is a stablecoin pegged to the US dollar at a 1:1 ratio, with each USDC issued backed by one dollar. As of March 2025, the circulation of $32 billion USDC implies an equivalent amount of reserve assets, which are primarily invested in low-risk instruments, including U.S. Treasury bonds (85% managed by a certain asset management company's CircleReserveFund) and cash (10-20% held in globally systemically important banks).

For example, in 2024, assuming an average reserve size of $31 billion and a government bond yield calculated at 5.35%, the annual interest would be approximately $1.659 billion, which is basically in line with the actual $1.661 billion. However, one notable detail is that Circle needs to share this income with a certain trading platform. This means that Circle can only retain half of the reserve income, which also explains why the net income is relatively low. Furthermore, the stability of reserve income also depends on the circulation of USDC and market interest rates. In the future, if the Federal Reserve lowers interest rates or there are fluctuations in USDC demand, it may impact the income.

1.3 Asset and Liquidity Overview

Circle's asset structure emphasizes liquidity and transparency. 85% of USDC reserves are invested in government bonds, with 10-20% in cash held at top banks, and a monthly reserve report is published to enhance trust. However, the company's own cash and short-term investment interest income was negative, amounting to -$34.712 million in 2024, potentially impacted by management fees. Although the prospectus did not fully disclose total asset and liability data, the robustness of reserve management indicates that Circle's financial foundation is relatively solid, but potential risks from changes in the external environment should still be monitored.

2. Analysis of Circle's Business Model

2.1 the core position of USDC

The core business of Circle is USDC, which ranks second globally among stablecoins. According to statistics from a certain data platform, the circulation of USDC is $60.1 billion (there may be discrepancies with the $32 billion in the prospectus due to time differences), with a market share of approximately 26%, second only to a certain competitor. USDC is widely used in payments, cross-border transfers (with a market size of up to $150 trillion), and decentralized finance (DeFi), leveraging blockchain technology to achieve fast and low-cost transactions, which has significant advantages over the traditional SWIFT system.

The core competitiveness of USDC lies in its compliance and transparency. It meets the requirements of the EU MiCA regulations and obtained the French EMI license in July 2024. The reserve reports published monthly by Circle are verified by auditing firms, which stands in stark contrast to some unregulated stablecoins. In terms of revenue composition, 99% comes from reserve interest (1.661 billion USD), while transaction fees and other income amount to only 15.169 million USD, making up a small proportion. This revenue structure makes Circle more like a "reserve asset management" company rather than a traditional tech company that primarily relies on service fees.

2.2 Business Diversification Attempts

Aside from USDC, Circle is also developing a digital wallet, cross-chain bridges (used to connect different blockchain networks), and its own Layer 2 public chain, aimed at expanding the use cases of USDC and enhancing its scalability. Currently, the revenue contribution from these businesses is limited, included in the other income of $15.169 million. Nevertheless, these businesses represent the company's future growth potential, though the high investment in technology development may increase the cost burden in the short term.

2.3 Complex relationship with a certain trading platform

The relationship between Circle and a certain trading platform is quite dramatic. The two companies jointly established an alliance to manage USDC, and in 2023, Circle acquired the platform's shares in the alliance for $210 million in stock, gaining independent control over the alliance, although the revenue-sharing agreement continues. The platform takes 50% of the reserve income, resulting in Circle's distribution costs reaching $1.011 billion in 2024. This relationship is both a legacy of cooperation and a major source of current profit pressure, making it worth paying attention to whether the revenue-sharing ratio will be adjusted in the future.

3. Strategic Intent of the Listing

3.1 Funding and Expansion Plans

The main purpose of Circle's IPO is to raise funds, with a projected net fundraising amount of X million USD (the specific amount depends on the issuance price). Part of the funds will be used to pay RSU-related taxes, while the remaining funds will be invested in operational capital, product development, and potential merger and acquisition activities. Considering that USDC's current market share of 26% is far lower than a competitor's 67%, Circle clearly hopes to use this funding to accelerate business expansion, such as advancing Layer 2 public chain development and global market penetration.

3.2 Responding to Regulation and Enhancing Credibility

As the United States tightens regulations on stablecoins, Circle has chosen to relocate its headquarters to the U.S. and seek a public listing, proactively accepting the disclosure requirements of the Securities and Exchange Commission. By publicly sharing financial data and reserve status, Circle not only meets regulatory expectations but also enhances trust among institutional investors. This proactive embrace of transparency is quite unique in the cryptocurrency industry and may win Circle more opportunities for collaboration in the traditional financial sector.

3.3 Equity Structure and Liquidity Considerations

The equity structure of Circle is divided into Class A (1 vote/share), Class B (5 votes/share, capped at 30%), and Class C (no voting rights), with the founding team retaining control of the company. The IPO not only provides liquidity exit opportunities for early investors and employees, but the secondary market trading (valuation range of $4-5 billion) has also shown investor demand. Therefore, this IPO is both a means of financing and a measure to balance the interests of various shareholders.

4. Insights for the Cryptocurrency Industry

4.1 Set an industry benchmark

Circle's IPO has opened up traditional exit paths for cryptocurrency companies. In the past, ICOs and private financing were mainstream in the industry, but they carried high risks and poor liquidity. Circle has demonstrated the feasibility of public markets through its IPO, which could enhance the confidence of venture capital institutions and attract more funds into cryptocurrency startups, thereby driving the development of the entire industry.

4.2 The Possibility of Innovative Models

If Circle successfully goes public, it may inspire other companies to follow suit, such as quickly entering the capital market through SPACs or direct listings. In the future, there may also be innovative models such as stock tokenization, trading on the blockchain, or integration with DeFi (such as for lending or staking). These new financing and trading methods could further blur the lines between traditional finance and crypto finance, bringing new opportunities for investors.

4.3 Risks and Challenges

However, the path to going public is not smooth sailing. The recent downturn in the tech stock market (a certain index has seen its worst quarterly performance since 2022) may depress IPO pricing, and the uncertainty of regulatory policies (such as stricter legislation on stablecoins) also poses potential threats. Circle's performance in going public will serve as an important case to test the adaptability of cryptocurrency companies in traditional capital markets.

Conclusion

Circle's IPO showcases its financial strength (with $1.676 billion in revenue), business ambitions (USDC + diversification strategy), and industry aspirations. Reserve income is the lifeblood of the company, but the revenue-sharing agreement with a certain trading platform and dependence on the interest rate environment also pose potential risks. If the IPO is successful, Circle could not only solidify its position in the stablecoin market but also potentially open the doors of traditional finance for the entire cryptocurrency industry, bringing new opportunities for capital and technological innovation. From compliance to exit paths, Circle's journey to going public highlights both opportunities and risks. At the intersection of cryptocurrency and traditional finance, Circle's next moves are worth close attention from the industry.