Circle IPO Prospectus Interpretation: Financial Condition, Business Model, and Strategic Layout

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". This company, which centers its business around the USDC stablecoin, had previously attempted to go public through a SPAC in 2022 but was unsuccessful. Now, it returns to the capital markets with more detailed financial data and clear strategic objectives. This article will delve into Circle's financial condition, business model, and its intentions for going public, exploring the potential implications of this move for the cryptocurrency industry.

1. Financial Overview of Circle

1.1 The Paradox of Income Growth and Profit Decline

Circle's financial data presents a situation of simultaneous growth and pressure. In 2024, the company's total revenue and reserve revenue reached $1.676 billion, a 16% increase from $1.450 billion in 2023. However, net income fell from $268 million to $156 million, a decline of 42%. What are the reasons behind this contradictory phenomenon of rising revenue and declining profits?

Data shows that the revenue growth is mainly driven by reserve income, reaching $1.661 billion in 2024, accounting for 99% of total revenue. This is attributed to the significant increase in USDC circulation - as of March 2025, the circulation reached $32 billion, a year-on-year growth of 36%. However, the pressure on the cost side cannot be ignored: distribution and trading costs rose from $720 million to $1.011 billion, an increase of 40%; operating expenses also increased from $453 million to $492 million, with general administrative expenses rising from $100 million to $137 million. This rising cost trend, particularly in relation to a revenue-sharing agreement with a certain trading platform, is the main factor leading to the decline in profits.

1.2 Sources and Distribution of Reserve Income

Reserve income is the core source of revenue for Circle, reaching up to $1.661 billion in 2024, accounting for 99% of total revenue. This part of the income mainly comes from the interest earned on managing USDC reserve assets. USDC is a stablecoin pegged to the US dollar at a 1:1 ratio, meaning for every USDC issued, there is a corresponding dollar in support. As of March 2025, the circulating amount of $32 billion USDC means an equivalent amount of reserve assets, which are invested in low-risk instruments, including U.S. Treasury bonds (85% managed by a dedicated fund from an asset management company) 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, it is worth noting that Circle must share this income with a trading platform. This means that Circle can actually only retain half of the reserve income, which also explains why the net income is relatively low. Moreover, the stability of this income also depends on the circulation of USDC and the interest rate level. In the future, if the Federal Reserve lowers interest rates or if there are fluctuations in USDC demand, it may affect the income.

1.3 Asset and Liquidity Status

Circle's asset structure emphasizes liquidity and transparency. 85% of USDC reserves are invested in government bonds, with 10-20% held in cash at top-tier banks, and monthly reports are published to enhance trust. However, the company's cash and short-term investment interest income is negative, with a projected loss of $34.712 million in 2024, possibly impacted by management fees. Although the prospectus does not fully disclose specific total asset and liability data, the robustness of reserve management suggests that Circle's financial foundation is relatively solid, but it remains necessary to be vigilant about the potential impacts of changes in the external environment.

2. Analysis of Circle's Business Model

2.1 the core position of USDC

The core business of Circle is USDC, which ranks second in the global stablecoin market. According to statistics from a certain data platform, the circulation of USDC is 60.1 billion USD (Note: This data may differ from the 32 billion stated in the prospectus due to timing differences in statistics), with a market share of approximately 26%, second only to a major competitor. USDC is widely used in payments, cross-border transfers (market size of 150 trillion USD), and the decentralized finance (DeFi) sector, utilizing blockchain technology to enable fast, low-cost transactions, outperforming traditional international payment systems in efficiency.

The main advantages of USDC lie in its compliance and transparency. It meets the requirements of the EU MiCA regulations and obtained the French EMI license in July 2024. Monthly reserve reports are verified by auditing firms, and these features give it a competitive edge in regulatory compliance. In terms of revenue composition, 99% comes from reserve interest (1.661 billion USD), while transaction fees and other income are only 15.169 million USD, accounting for a small proportion. This revenue structure indicates that Circle's business model is more akin to "earning interest on savings" rather than primarily relying on service fees.

2.2 Diversification attempts in business

In addition to USDC, Circle is also developing a digital wallet, cross-chain bridge (for connecting different blockchains), and its own Layer 2 public chain, aiming to expand the application scenarios of USDC and enhance scalability. These businesses currently contribute limited revenue, included in the $15.169 million other income. Nevertheless, they represent future growth potential, but 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 complex. The two companies co-founded an institution to manage USDC, and in 2023, Circle acquired shares of the platform for $210 million in stock, gaining independent control over USDC management. However, the revenue-sharing agreement remains in effect. The platform takes 50% of the reserve income, leading to Circle's distribution costs soaring to $1.011 billion in 2024. This cooperative relationship is both a historical legacy and a major constraint on current profits, making any potential adjustments to the revenue-sharing ratio worthy of attention in the future.

3. Strategic Intent of the Listing

3.1 Fundraising and Business Expansion

Circle's IPO aims to raise funds, with a net fundraising amount expected to be in the hundreds of millions of dollars (the exact amount depends on the issue price). Part of this will be used to pay taxes on employee stock incentives, while the remainder will be invested in operating capital, product development, and potential acquisition activities. Considering that USDC's current 26% market share is significantly lower than the 67% of its main competitors, Circle is clearly looking to use this funding to accelerate market expansion, such as advancing Layer 2 public chain development and global market penetration.

3.2 Addressing Regulatory Challenges and Enhancing Market Credibility

Against the backdrop of increasingly stringent regulation of stablecoins in the United States, Circle has chosen to relocate its headquarters to the U.S. and seek a public listing, actively accepting the SEC's strict disclosure requirements. Public financial and reserve data not only meets regulatory expectations but also enhances the trust of institutional investors. This proactive approach to regulation and increased transparency is expected to help Circle win more partners in the traditional financial sector.

3.3 Optimize Equity Structure and Provide Liquidity

The equity structure of Circle is divided into Class A (1 vote per share), Class B (5 votes per share, capped at 30%), and Class C (no voting rights). The founders have retained control of the company through this structure. The IPO will also provide liquidity exit opportunities for early investors and employees, and the secondary market trading (valued at $4-5 billion) has shown investor demand. Therefore, the IPO is not only a means of financing but also a strategic move to balance shareholder interests.

Four, Insights on the Cryptocurrency Industry

4.1 Set industry benchmarks

Circle's IPO has opened up traditional exit paths for cryptocurrency companies. Compared to the previously popular ICO and private financing methods, the IPO process is more complex but can significantly reduce risks and improve liquidity. Circle's success may enhance venture capital firms' confidence in the crypto industry, attract more funds, and promote the overall development of the sector.

4.2 The Possibility of Innovative Financial Models

If Circle is successful in going public, it may inspire other crypto companies to follow suit, such as quickly entering the capital markets through SPACs or direct listings. Future innovations may include tokenization of stocks, trading on the blockchain, or integration with DeFi (such as for lending or staking). These new models are expected to blur the lines between traditional finance and crypto finance, creating new opportunities for investors.

4.3 Potential Risks and Challenges

However, the road to going public has not been smooth sailing. The recent slump in the tech stock market (the Nasdaq index recorded its worst quarterly performance since 2022) may affect IPO pricing, while the uncertainty of the regulatory environment (such as the potential tightening of legislation related to stablecoins) also poses a potential threat. Whether Circle can successfully go public will become an important case for testing the adaptability of crypto companies in the traditional financial market.

Conclusion

Circle's IPO not only showcases the company's financial strength (with $1.676 billion in revenue), business ambitions (USDC and diversification strategy), and industry aspirations, but also reflects the trend of the cryptocurrency industry moving towards mainstream financial markets. Although reserve income is the main source of revenue for Circle, the revenue-sharing agreement with a trading platform and dependence on the interest rate environment remain potential risks. If the listing is successful, Circle could not only solidify its position in the stablecoin market but also potentially open the door for the entire cryptocurrency industry to traditional finance, bringing new capital inflows and opportunities for technological innovation. From compliance strategies to exit mechanisms, Circle's attempt to go public demonstrates both opportunities and reminds of the challenges facing the industry. At this critical juncture where cryptocurrency intersects with traditional finance, Circle's next steps are worth closely monitoring.