Circle is questioned when it fights for IPO again: its valuation is almost halved, and its desperate attempt to cash out under pressure?

Author: Nancy, PANews

After years of unsuccessful preparations for the IPO, the issuer of the stablecoin USDC recently submitted an application to the US SEC for listing on the New York Stock Exchange. However, issues such as valuation nearly halved, high revenue reliance on U.S. bonds, and high share of profits have also triggered market doubts about Circle's business prospects.

Valuation is almost halved, sold to Coinbase equity **for

USDC 's full issuance rights**

The day before the U.S. House of Representatives plans to amend and vote on the stablecoin regulation bill GENIUSAct, documents from the US SEC website showed that Circle submitted S-1 documents to the SEC, intending to conduct an initial public offering under the stock code "CRCL" and applying for listing on the New York Stock Exchange. Meanwhile, Circle has hired JPMorgan Chase and Citibank to assist with its IPO, two institutions that were also part of the financial advisory team for the Coinbase IPO.

However, Circle did not disclose in detail its specific number of shares issued and target share price range in this prospectus. However, Circle's valuation has changed several times with the market environment and its own scale, from US$4.5 billion at the time of the SPAC merger transaction in 2021 to US$9 billion after the merger agreement was revised in 2022, and then to the secondary market transaction valuation in 2024 of approximately US$5 billion. According to Forbes, in this traditional IPO plan, Circle's target valuation is between US$4 billion and US$5 billion, which has shrunk by nearly half from its peak.

Circle has completely controlled the USDC issuance rights before its IPO. According to The Block, Circle acquired the remaining 50% of Centre Consortium in 2023 for $210 million worth of shares, which was previously owned by Coinbase. Centre Consortium is a joint venture responsible for issuing USDC stablecoins, jointly established by Coinbase and Circle in 2018.

Circle disclosed in the "Major Transaction" chapter of the prospectus that "in August 2023, while signing the cooperation agreement, we acquired the remaining 50% stake in Centre Consortium LLC from Coinbase." The transaction consideration was paid for approximately 8.4 million Circle common shares (total US$209.9 million at fair value). After completing the acquisition, Centre became a wholly-owned subsidiary of Circle and dissolved in December 2023, with its net assets transferred to another wholly-owned subsidiary of Circle. Coinbase also disclosed that it obtained Circle equity granted by an agreement rather than a cash purchase. This also means that Circle uses the company's shares in exchange for full control of USDC, and this transaction will not directly affect Circle's cash flow.

In fact, Circle had already started preparing for an IPO as early as 2021, and reached a merger agreement with SPAC company Concord Acquisition, which planned to go public through SPAC, but the transaction was postponed because it was not approved by the SEC and was eventually terminated at the end of 2022. In January 2024, Circle once again revealed that it had submitted an IPO application secretly and stated that it would proceed after the SEC completed the review process.

Compared with previous attempts, the background of this application has changed significantly: the scale of the stablecoin market has now achieved a qualitative leap, with strong growth momentum, and the influence of stablecoins including USDC in global finance has continued to increase; at the same time, the United States has a positive attitude towards compliant stablecoins, creating more development space for the development of the stablecoin track. Giants such as JPMorgan Chase, PayPal, Visa, Fidelity and Ripple are all laying out stablecoins, and the Trump family project WLFI is also planning to promote stablecoins. At the same time, with the increasingly clear U.S. crypto companies such as Kraken, eToro, Gemini and CoreWeave are all seeking IPOs.

Relying on U.S. bonds, **Coinbase 's high commissions swallow

profits**

However, Circle's IPO prospects are facing multiple questions, and its core business model and profitability have sparked heated discussions in the market.

First, Circle's revenue is highly dependent on U.S. Treasury yields, and this model is in jeopardy under the expectation of a Fed rate cut. According to IPO documents, Circle's total revenue in 2024 was US$1.676 billion, and its revenue growth mainly comes from reserve income, that is, interest income generated by USDC reserves, accounting for more than 99% of the total revenue, and this part of the interest income mainly comes from US Treasury bonds. In a sense, Circle's income model is like a U.S. debt arbitrage game.

Secondly, the high distribution costs further eroded Circle's profits. Circle's net profit in 2024 was US$155.67 million, a decrease of 41.8% compared with 2023. Behind this decline is the sharp rise in distribution and transaction costs. Circle spent a total of US$1.0108 billion in 2024, accounting for 60.7% of total revenue , an increase of 40.4% compared with 2023. Among them, Coinbase is the main distribution platform of USDC. According to Coinbase's previous financial report, Coinbase received US$225.9 million in revenue from USDC in Q4 2024 alone, and is expected to receive approximately US$900 million for the whole year. This means Circle is spending more money to maintain circulation in the USDC ecosystem, but revenue growth has not been able to keep up with it simultaneously.

In fact, according to the S-1 listing documents, Coinbase, as its core partner, can obtain a 50% share of the remaining income of USDC stablecoin reserves. Coinbase's share ratio is directly linked to the amount of USDC held by its exchange. The document states that when the USDC hosted by the Coinbase platform increases, its share ratio increases accordingly; otherwise, it decreases. In 2024, the proportion of USDC held by the Coinbase platform has increased significantly from 5% in 2022 to 20%.

Matthew Sigel, head of digital assets research at VanEck, said that despite the increase in overall revenue, the sharp rise in Circle's costs in distribution and transactions negatively impacted its EBITDA (earnings before interest, tax, depreciation and amortization) and net profit. Circle also warned that Coinbase's business strategy and policies directly affect USDC's distribution costs and revenue sharing, and that Circle cannot control or regulate Coinbase's decisions.

However, in order to reduce its reliance on Coinbase, Circle has also vigorously expanded its global partners in recent years, including establishing cooperation with global digital finance companies such as Grab, Nubank and Mercado Libre.

But in the view of Omar Kanji, partner at Dragonfly Capital, there is no way to see anything worth looking forward to in Circle's IPO application, and it is completely impossible to understand how it priced to $5 billion. Interest rates have been severely eroded by distribution costs, core revenue drivers have peaked and begun to decline, valuations are outrageously high, and annual salary expenditures exceed US$250 million. It feels more like a desperate attempt to cash out before big players enter the field.

“As Nubank, Binance and other large financial institutions begin to work with Circle, it remains unclear how the market evaluates its distribution network and the net profit margins of Circle. How the market accepts Circle depends in part on how they convey this message to investors, how they execute the story they tell the market, which stablecoin bill wins, and most importantly, how the market evolves and how stablecoins are adopted on a large scale. If the dominant position is USDC, Circle will get a higher valuation multiple even if their commission ratio drops, because the market potential they can expand is huge. Anyway, a few things are clear: 1) a model of sharing revenue with B2B partners will last for a long time; 2) a margin for issuers will shrink as the overall stablecoin market grows; 3) issuers need to diversify their revenue streams, not just relying on net interest spreads.” VanEck Ventures partner Wyatt Lonergan said.

In general, although the improvement of the US crypto regulatory environment and the stablecoin track boom have provided it with a listing window, it is still unknown whether it can further build competitiveness through IPOs under the dual pressure of the Federal Reserve's expectations of interest rate cuts and soaring promotion costs.