Author: SoSoValue Research
Circle delivered a third-quarter earnings report showing growth in both revenue and profit, but the sources of growth shifted noticeably. Total revenue and reserve income rose 17% year over year to $865 million, net income increased 5% to $226 million, and diluted EPS was $0.84; adjusted EBITDA climbed 85% to $317 million. At the time of writing, CRCL was up more than 2% in premarket trading.
The core tension in this earnings report is that the ARC token presale significantly boosted quarterly revenue and profit, while income from USDC reserves continued to decline. Circle’s payment network, enterprise settlements, and Arc mainnet are opening up new avenues for monetization, but the company still has some way to go before recurring fee revenue can ease the pressure from interest rates and distribution costs.
ARC contribution exceeded the entire revenue increase, putting the sustainability of profit growth in focus
Other revenue grew 627% year over year to $207 million in the third quarter, of which $182 million came from the ARC token presale, accounting for about 21% of total revenue. This contribution exceeded the company’s year-over-year revenue increase of about $125 million for the quarter, meaning that revenue from all other sources contracted overall.
Based on the financial results, excluding ARC presale revenue, total revenue and reserve income were about $683 million, down 7.7% year over year; other revenue was about $25.26 million, down 11.4%. The company also explicitly noted that declines in subscription and services revenue partly offset the contribution from the token presale. The new business has already generated substantial revenue, but this quarter’s growth was concentrated primarily in the recognition of presale revenue.
Adjusted EBITDA also includes this revenue. In a static calculation that subtracts only the $182 million in presale revenue while holding costs constant, the result is about $135 million, down approximately 21.5% from the same period last year. This calculation does not adjust for related costs and is not a profit metric reported by the company, but it shows how heavily this quarter’s earnings depended on ARC revenue.
ARC revenue was not entirely outside market expectations. In the second quarter, Circle had already raised its full-year guidance for other revenue to $310 million–$330 million, explicitly including ARC presale revenue. Therefore, the incremental information in these results lies more in the scale and timing of recognition, and whether it can lead to recurring revenue going forward.
USDC transactions are more active, but growth in balances held is slowing
USDC on-chain transaction volume reached $13.9 trillion in the third quarter, up 49% year over year. The number of wallets holding more than $10 in USDC rose to 7.3 million, up 16%. These figures show that USDC’s reach and transfer activity continue to expand.
But growth in average circulation, which directly determines reserve income, was considerably weaker. Average USDC in circulation during the quarter was $73.3 billion, up 8% year over year but down about 4.2% from $76.5 billion in the second quarter. Circulation at quarter-end was $73.9 billion, essentially flat year over year, while market share was 27%, down 1.83 percentage points year over year. Minting and redemption volumes were each about $104 billion during the quarter, and the substantial inflows and outflows did not translate into a corresponding increase in net balances.
This divergence directly affects Circle’s business model. The same USDC can be transferred repeatedly, boosting on-chain transaction volume, while reserve income depends primarily on average balances and the yield on reserve assets. Greater payment efficiency and faster turnover can help expand network usage, but do not necessarily increase the scale of reserve assets in the same proportion. Circle needs to turn growth in usage into revenue through payment, settlement, and infrastructure fees.
Balance pressures persisted into the fourth quarter. According to Circle’s website, as of November 2, USDC in circulation was about $69.8 billion, down approximately 5.5% from the end of the third quarter. This means that constraints on fourth-quarter reserve income have extended to the size of circulation itself.
Behind the 52% margin, retained earnings from the reserve business remain limited
Reserve income was $658 million in the third quarter, down 8% year over year, mainly reflecting a 61-basis-point decline in reserve yield to 3.5%. The 8% growth in average USDC in circulation was not enough to fully offset the lower yield.
Revenue after distribution, transaction, and other costs reached $453 million, lifting the RLDC margin to 52%. However, this metric includes ARC revenue. Net reserve margin, a more direct measure of the reserve business’s profitability, was 38%, up from 37% in the same period last year but below 39% in the second quarter. After distribution and transaction costs were deducted from reserve income, about $248 million remained with the company to cover operating expenses and other costs.
The channel mix showed a similar divergence. USDC balances on Circle’s platform at quarter-end grew 36% year over year to $13.9 billion, but the daily weighted average share of USDC held on the platform was 18.1%, down from 19.5% in the second quarter. The higher quarter-end balance has not yet translated into a higher average retention share over the full quarter.
The interest rate environment affects Circle in both directions. In October, the Federal Reserve kept the federal funds target range at 3.75%–4%. Higher short-term rates help support reserve income; at the same time, they raise the opportunity cost of holding non-interest-bearing USDC, as money market funds and other yield-bearing assets compete for those funds. If rates fall in the future, reserve yields will come under pressure. Whether growth in USDC balances and fee revenue can make up the shortfall will determine earnings sensitivity.
Payments business gains momentum, but commercialization still needs revenue validation
The quarter’s most significant long-term progress for Circle was the expansion of its payment network and local on- and off-ramp capabilities. CPN’s annualized payment volume reached $41.3 billion. Tazapay, which Circle plans to acquire, has more than $25 billion in annualized payment volume, over 60 bank and fintech partners, and a local payout network spanning more than 100 markets; stablecoins are already involved in about 60% of its transaction volume. The deal is expected to close in 2027, subject to regulatory approval.
Tazapay could help Circle connect USDC settlement to local bank accounts, completing the collection, currency conversion, and payout stages of cross-border payments. This could increase business payment flows and create opportunities for service fee revenue. However, the transaction volumes disclosed by the two companies may overlap, and the acquisition’s revenue contribution will still depend on fee levels, channel revenue sharing, and integration results.
Existing partnerships are also moving from integration to real-world use: Visa Direct’s stablecoin prefunding has entered commercial deployment; Samsung Wallet allows eligible U.S. users to send USDC to bank accounts in more than 60 countries; and Tereina has integrated USDC and EURC into enterprise payment workflows. Arc’s mainnet went live on September 16, with more than 100 institutions and ecosystem builders participating on day one, providing a new deployment platform for payment and financial applications.
These developments broaden Circle’s potential revenue sources, but other revenue in the third quarter still declined after excluding the ARC presale. Growth in payment volume and the number of partnerships still needs to translate into recurring fee revenue and profit contribution. Meanwhile, the company’s adjusted operating expenses rose 13% year over year to $139 million, and it disclosed layoffs of about 5% of its workforce, reflecting the cost constraints that continue to accompany business expansion.
Full-year guidance unchanged; the fourth quarter will test earnings power beyond presale revenue
Circle maintained its full-year guidance of $310 million–$330 million for other revenue, a 41.7%–43.7% RLDC margin, and $570 million–$585 million in adjusted operating expenses. The first two figures include ARC presale revenue. The company also retained its target of a 40% compound annual growth rate for USDC across the cycle over multiple years; there remains a substantial gap between this long-term target and growth in the current quarter.
Other revenue totaled about $282 million over the first three quarters. On this basis, full-year guidance implies fourth-quarter other revenue of about $27.53 million–$47.53 million, far below the $207 million in the third quarter. The company’s current outlook does not carry this quarter’s token presale revenue level into the next quarter, and the basis for comparing earnings will consequently change.
The broader market environment has further heightened investor focus on the quality of growth. Following a security incident at Binance, Circle froze more than $800 million in related USDC, bringing greater scrutiny to exchange risk controls and stablecoin fund flows. At the same time, these results disclosed a $100 million equity investment in Circle by Binance and an expanded partnership, putting both channel expansion and counterparty risk into market pricing.
Circle has demonstrated that Arc can generate revenue, and its payment network is expanding in real-world use. But future valuation support will need to come from more stable operating results: a return to growth in average USDC balances, greater retention of reserve income, and recurring fees from payment and infrastructure services. With full-year guidance unchanged and circulation down at the start of the fourth quarter, these operating metrics are more forward-looking than the third quarter’s profit growth.