A month ago, the world’s largest exchange invested $100 million in Circle. On the day the news was announced, $CRCLB jumped from 85 to 94.5, and the market briefly saw it as a shot in the arm for the stablecoin sector. A month later, the stock had slid to 81.7, giving back all its gains and then some. The price action itself tells a story: an event-driven surge ran into the gravity of fundamentals.
A closer look at the partnership agreement changes the picture. The two are tied together for five years, and Circle pays its partner monthly incentives based on the amount of USDC held on the platform. It’s hard for outsiders to know how much of that $100 million investment effectively bought shares in exchange for a revenue split. But the outcome is clear: in the first half of the year, for every $100 in interest income, Circle paid $58.50 to its distribution partner, leaving just around $7 in net profit. Circle’s core predicament hasn’t changed: it has no end users of its own, and its lifeline is in someone else’s hands.
A more serious risk is now materializing. USDC in circulation has fallen from $75.6 billion last October to $72.7 billion today—down over the past year rather than up. Meanwhile, Coinbase, Circle’s largest distribution partner, helped launch a new stablecoin, OUSD, at the end of September. It reached $800 million in just three weeks, with the interest income going to the partners. The company helping you sell your product has opened its own store—a direct erosion of Circle’s pricing power with its distribution partners.
The November 4 earnings report is the next key moment. The market shouldn’t focus on total revenue: that figure will likely be flattered by one-off revenue from a presale of a new blockchain’s tokens. What really matters is the quarter-over-quarter change in interest income, and whether USDC balances at quarter-end can climb back above $77.5 billion. If they do, it would show that the underlying business is still growing. If they fall below $70 billion, then $CRCLB will be little more than an option on U.S. stablecoin legislation.
Of course, that legislative option shouldn’t be underestimated. The past two times the stock fell to a low, news of progress on the legislation drove it sharply back above 100. If the bill makes meaningful progress around the time of the earnings report, a policy-driven surge could abruptly break the bearish thesis. But in the absence of news, the combination of high distribution costs, shrinking circulation, and distribution partners building competing products will only add to the downward pressure on the stock. There won’t be an answer to this question before earnings night.
A closer look at the partnership agreement changes the picture. The two are tied together for five years, and Circle pays its partner monthly incentives based on the amount of USDC held on the platform. It’s hard for outsiders to know how much of that $100 million investment effectively bought shares in exchange for a revenue split. But the outcome is clear: in the first half of the year, for every $100 in interest income, Circle paid $58.50 to its distribution partner, leaving just around $7 in net profit. Circle’s core predicament hasn’t changed: it has no end users of its own, and its lifeline is in someone else’s hands.
A more serious risk is now materializing. USDC in circulation has fallen from $75.6 billion last October to $72.7 billion today—down over the past year rather than up. Meanwhile, Coinbase, Circle’s largest distribution partner, helped launch a new stablecoin, OUSD, at the end of September. It reached $800 million in just three weeks, with the interest income going to the partners. The company helping you sell your product has opened its own store—a direct erosion of Circle’s pricing power with its distribution partners.
The November 4 earnings report is the next key moment. The market shouldn’t focus on total revenue: that figure will likely be flattered by one-off revenue from a presale of a new blockchain’s tokens. What really matters is the quarter-over-quarter change in interest income, and whether USDC balances at quarter-end can climb back above $77.5 billion. If they do, it would show that the underlying business is still growing. If they fall below $70 billion, then $CRCLB will be little more than an option on U.S. stablecoin legislation.
Of course, that legislative option shouldn’t be underestimated. The past two times the stock fell to a low, news of progress on the legislation drove it sharply back above 100. If the bill makes meaningful progress around the time of the earnings report, a policy-driven surge could abruptly break the bearish thesis. But in the absence of news, the combination of high distribution costs, shrinking circulation, and distribution partners building competing products will only add to the downward pressure on the stock. There won’t be an answer to this question before earnings night.