Circle: Ugly tape, the first stablecoin stock still expands

Pre-mkt on May 11 ET, the first listed stablecoin play $Circle(CRCL.US) reported Q1 2026 results.

Note that ~95% of revenue is interest on USDC reserves, which is largely predictable given disclosed USDC supply and reserve yields. As a result, the stock mostly trades with changes in USDC market cap, effectively a proxy for Fed cuts expectations and crypto policy shifts.

The areas that can create variance vs. expectations are non-interest income, internal operating efficiency, and guidance that signals medium/long-term strategy.

Overall, the quarter’s highlight again sat in 'other revenue' that investors focus on, underscoring steady USDC ecosystem expansion into non-crypto use cases. However, the rigid investment needed to scale the ecosystem will pressure near-term profitability and increase volatility.

Details:

1. Ecosystem: same playbook — crypto-facing flows under pressure, new use cases expanding

(1) Avg. USDC in circulation was $75.2bn in Q1; after a Feb trough amid geopolitical strains, it climbed to ~$77bn by quarter-end, up 2% QoQ, similar to Q4. New mints were $73bn, down QoQ on weak crypto markets, but excluding that effect, minting remained elevated, pointing to demand beyond crypto investing. Redemptions reached $72bn with faster YoY growth, reflecting profit-taking and rotation into yield products as crypto came under pressure.

USDT’s size vs. USDC dipped in Jan but recovered quickly in the next two months, so the competitive threat from USDT remains material. After the April Drift hack, Circle faced negative headlines while Tether provided tangible support to Drift, and Circle lost clients as a result.

That said, the stablecoin market is still in an early 'grow-the-pie' phase. Competition should not be the main drag on USDC growth for now.

(2) Within the USDC ecosystem, Circle’s own share further rose to 18%, with a 17.2% avg. same-day retention, up from ~6% a year ago. The external revenue share paid out on reserves also dipped by 1ppt, which could keep improving and lift margins. Coinbase accounted for nearly 25% and continues to show an active retention trend vs. last quarter.

(3) As of quarter-end, MeWs (wallets holding >$10 on-chain) reached 7.2mn, with a net add of 0.4mn QoQ, ahead of market expectations. This points to growth in directly connected end users.

(4) On ecosystem expansion, Q1 saw partnerships with Cash App, Polymarket, and Kyriba (platforms enabling native USDC transactions), alongside scaling of the Arc chain and CPN payments. On-chain USDC settlement totaled $21.5tn in Q1, up 263% YoY. CPN’s annualized run-rate, based on Mar, was $8.3bn; in Apr, Circle launched Managed Payments to let FIs enable stablecoin payments without managing digital assets.

2. Revenue: solid but less dazzling than last quarter — non-interest income beat, but growth slowed QoQ

The B2B ecosystem build-out also drives non-interest 'other revenue' beyond reserves income. This is the second growth curve to offset pressure when rates decline. Q1 'other revenue' was $42mn (6% of total). It still doubled on a higher base, but QoQ growth of 13% slowed vs. 29% in Q4.

3. GPM: higher self-retention cushioned sharing pressure

The market worried that ecosystem expansion would force Circle to share more reserve income with partners, and with Coinbase disclosing a higher USDC share, channel costs could rise and pressure GPM. In practice, Circle kept raising its self-held USDC share to offset cost inflation. Costs paid to Coinbase as a share of total rev-sharing fell from 97% to 75%. Given Coinbase’s strong bargaining power in the partnership, its 50% rev-share is the highest.

Moreover, software, payments, and other infra services in 'other revenue' are typically high-margin. With faster growth this quarter, the mix improved. GPM reached 41.4%, up 130bps QoQ.

4. Rigid investment cycle pressures profits: operating profit fell sharply YoY, as the large interest income base makes profits sensitive when that line is impacted during an investment-heavy phase. That said, management kept FY2026 Adj. operating expense guidance unchanged at $570–585mn, better than the market’s higher spend expectation of ~$725mn.

5. Outlook: guidance intact; remain cautious on near-term swings

(1) Management maintained a multi-year USDC CAGR target of 40% in Q1. As with last quarter, Dolphin Research remains cautious and would not price this in immediately. Given market volatility, this qualitative mid/long-term target may not be met in the near term.

(2) 'Other revenue' guidance remains $150–170mn (+46% YoY). Annualizing Q1 implies ~$167mn, right in the range. Dolphin Research believes if the CLARITY Act progresses effectively, this target has room to beat.

6. Key financial metrics

Dolphin Research View

Q1 looked like an 'enhanced' version of last Q4 — crypto trading sentiment cooled further, but Circle kept pushing into non-crypto scenarios, leading to greater near-term profit pressure. While Coinbase and Circle sit at different points of the value chain and bear different sensitivity when crypto slumps (Circle less so), they also share revenue-split dynamics and, tactically, tend to move together in the short run.

Last quarter, amid crypto pressure and an unclear policy timeline, we emphasized downside protection in pricing. This quarter, we focus more on upside repair potential. At a $28bn valuation, Circle is in line with Dolphin Research’s neutral case from our initial coverage last year (see 'Coinbase vs Circle: a symbiotic struggle in stablecoins — who leads?').

Given elevated near-term volatility, we also frame it against this year’s outlook: assume crypto conditions stabilize over the next three quarters, but last year’s rally is hard to repeat with inflation and rate expectations. We model stablecoin supply at +5% QoQ (vs. 12% in Q2–Q3 last year), reaching $87bn by year-end. With the Fed funds rate at 3.5%, annual interest income totals ~$2.8bn; 'other revenue' likely tops the $170mn guide. Total revenue would be ~$3.0bn, +9% YoY.

On a 42% GPM and ~$580mn Adj. OpEx mid-point, Adj. operating profit would be ~$680mn. At a $28bn mkt cap, EV/Adj. EBITDA ≈ 40x, well above typical FinTech comps.

From an ecosystem-intrinsic expansion lens, EV/USDC market cap = 0.36x. This has recovered from 0.19x last quarter and 0.12x at IPO pricing, but remains below Tether: in Feb, Tether’s valuation was ~$170bn vs. USDT at $189.6bn, implying EV/USDT market cap of ~0.897x.

All in, Circle’s reasonable rebound is largely done. Further upside depends on stablecoin and USDC expansion. In the near term, effective progress on the CLARITY Act could lift sentiment absent new macro shocks, supporting the current valuation.

Detailed analysis below

I. Circle’s biz. framework

Circle, the issuer of USDC, generates revenue from: (1) interest on reserves, linked to USDC in circulation and U.S. Treasury yields; and (2) 'other revenue' — Web3 software (SaaS), CPN payments (fee per amount/transaction), and service/Gas fees on the Arc chain (per-transaction fees). To mitigate rate-cut risk, Circle is scaling 'other revenue'. In 2025, it focused on CPN and Arc, and 'other revenue' has trended toward ~5% of total, with scope to accelerate.

On costs, internal OpEx is mostly payroll; external costs are primarily channel rev-share and transaction costs (about 60% of revenue, largely to Coinbase). Adj. EBITDA margin is ~20% (ex-D&A and SBC), below many FinTech platforms. Thus, as the ecosystem expands, higher rev-sharing has raised concerns about near-term margin pressure.

Longer term, ecosystem expansion matters more. USDC ranks No.2 by stablecoin market share, with compliance as its edge vs. USDT. If the CLARITY Act lands, USDC’s 'relative' advantage could attract more institutional capital.

II. USDC ecosystem: faster minting pace, but near-term pressured by crypto

Avg. USDC in circulation was $75.2bn in Q1, down QoQ, but rose to $77bn by quarter-end (+2% QoQ). Mints were $73bn and redemptions $72bn, with net issuance slowing markedly vs. Q3. Per CoinMarketCap, USDC balances fell sharply in Jan on crypto drawdowns and only rebounded in early Feb.

1. USDC external market share

USDC’s share in the stablecoin market was steady QoQ at ~28%. Against its closest rival USDT, USDC has not shown sustained competitive gains.

2. USDC internal channel mix

Circle’s self-held share continued to rise to 18%. Coinbase’s share of USDC circulation rose QoQ to ~25%, suggesting continued active retention vs. last quarter.

Another core indicator of ecosystem health — effective digital wallets reached 7.2mn MeWs (wallets holding >$10) by quarter-end, with a 0.4mn QoQ net add. We infer growth slowed as crypto pressure persisted.

III. 'Other revenue' keeps beating, but the trend is less upbeat

Because ~95% of revenue (reserve interest) is essentially public, the surprise driver is 'other revenue', which beat again in Q1. This bucket includes minting income, trading, custody, Web3 API suite, tokenized fund USYC, and fees launched last Apr under CPN (fixed access plus per-transaction settlement/audit fees) and Arc Gas.

Q1 'other revenue' was $42mn, +13% QoQ, a slowdown from last quarter’s pace. The company still guides to $150–170mn for FY 'other revenue', which is not overly aggressive on a QoQ trajectory. Dolphin Research sees room to beat if USDC expansion proceeds normally.

The core revenue line depends on USDC growth and the UST yield backdrop. Avg. USDC supply rose 70% YoY in Q1, while yields slipped to 3.5% (−64bps YoY), resulting in reserve interest income growth of 17%, a sharp deceleration. With rate-cut odds now near zero, stable rates plus normal supply growth (QoQ >5%) over the next three quarters could still deliver 5–10% full-year growth despite YoY rate headwinds.

IV. Profit under pressure amid rigid investment

Q1 GPM rose 130bps QoQ to 41.4%. Circle continued to lift self-held USDC to offset rising rev-share costs, and high-margin software/payments/infra revenues grew faster, improving mix. Despite slower topline, expenses still grew fast; Adj. EBITDA was $133mn with a 19.2% margin, up 50bps QoQ.

For FY2026, the company kept total costs and OpEx (ex-SBC and D&A) at $570–585mn, +10% YoY and below market expectations.

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Dolphin Research: 'Circle' archive

Earnings

Trans on Feb 26, 2026: 'New bill nearing passage; Arc to be a new growth driver'

Earnings take on Feb 25, 2026: 'Circle: answering skeptics with results — can the first stablecoin stock hold up?'

Trans on Aug 13, 2025: 'Circle (Trans): expanding use cases and distribution'

Earnings take on Aug 13, 2025: 'Circle: bold promises, candid de-risking'

Deep dives

Initiation Part 3 on Jul 3, 2025: 'Coinbase vs Circle: a symbiotic struggle in stablecoins — who leads?'

Initiation Part 2 on Jul 2, 2025: 'Stablecoins: believe it — Coinbase’s iPhone moment'

Initiation Part 1 on Jul 1, 2025: 'Coinbase: on-chain boom — can the 'picks-and-shovels' seller cruise?'

Risk disclosure and statements: Dolphin Research Disclaimer and General Disclosures