Coinbase Buy Circle? Behind the acquisition rumors, CEX's cruel business reality

Original title: Coinbase Will Have to Acquire Circle – The Only Question Is Price
Compiled: zhouzhou, BlockBeats

background

I worked in the crypto industry for many years – first at CoinFund, an early stage fund, and later joined Coinbase to help expand its venture capital strategy.

All content in this article is based on public data: Circle's S-1 prospectus (April 2025) and Coinbase's public financial reports. There is no insider information - just an analysis that anyone can reproduce, but most people won't do it.

USDC supply structure dismantling

USDC Total = USDC held by Coinbase + USDC held by Circle + all other parts

According to the definition in S-1, platform USDC refers to the "proportion of stablecoins held in a party's custodial product or wallet management service." This means:

• Coinbase = Coinbase Prime / Exchange
• Circle = Circle Mint
• Other = USDC stored on Uniswap, Morpho, Phantom and other platforms

Coinbase's share of total USDC supply is growing rapidly – ​​reaching about 23% in the first quarter of 2025. The proportion of Circle remains stable.

This is reasonable—because Coinbase has a greater influence in the consumer, developer and institutional markets.

USDC income attribution

Both Circle and Coinbase can obtain 100% of USDC reserve revenue in its platform. For USDC "outside the platform" (that is, "other parts"), both parties will be divided into 50%.

But here is a key point: Circle gains disproportionately from USDC off the platform. Although the number of USDCs on the Coinbase platform is 4 times that of Circle, it has only about 1.3 times the revenue advantage.

Based on a rough calculation of the "other parts" earnings of 50/50, the following income share is obtained:

Circle: Betting on market size, not control

Circle's motivation is clear: to expand the overall circulation of USDCs, even if these USDCs are not stored on their own platforms. Circle The ideal world is USDC becoming the number one stablecoin for the US dollar - which itself can bring a strong market position to it. It benefits from being a protocol layer, such as:

• Issuing and maintaining USDC smart contracts, spanning more than 19 chains;
• Control CCTP for native cross-chain and casting/destruction flows.

Although USDC on the platform is more profitable, its growth is not obvious. In terms of large customer expansion, Circle is likely to lose to Coinbase's size. But as long as USDC becomes the largest dollar stablecoin, Circle is still the winner - this is a game of market size, not a game of profit margins.

The overall USDC market may be astonishingly large in the future, so even if you can’t take all your profits, it’s not a bad ending - most of the revenue growth will come from the “off-platform” part. This motivation is in line with Circle's capabilities: it controls USDC's governance, infrastructure and technology roadmap.

Coinbase: USDC must be fully controlled

Macro level

USDC is Coinbase’s second largest revenue source, accounting for about 15% of total revenue in Q1 2025, exceeding the pledge business. More importantly, this is Coinbase's most stable and scalable infrastructure revenue source. With the global expansion of USDC, its potential will grow geometrically.

USDC will become the key moat for Coinbase. Although centralized exchanges (CEXs) are still the main force, USDC revenue is more stable in comparison and will grow simultaneously with the overall crypto economy.

USDC is likely to become one of the top three US dollar stablecoins, and in turn become the main channel for "technology export" of the US dollar to the world. Fintech and traditional financial giants have long realized this and have entered the market one after another. However, USDC has the first-mover advantage and support from the native encryption ecosystem, and is expected to survive and continue to grow. From an infrastructure and regulatory perspective, having it completely is a very valuable story.

Micro level: The paradox of Coinbase monetization

Coinbase is the main force driving USDC growth, but it is structurally confined. Now, USDC is Coinbase’s second largest revenue source (after transactions). Therefore, every product decision must take into account revenue and profit margins. But the problem is: while expanding the market, Coinbase cannot fully control its profits because "off-platform" revenue can only be divided by half.

Ironically, Coinbase attracts users, builds infrastructure, and increases transaction frequency, but is capped on the revenue side due to architectural issues. Its consumer products and developer products were "weaked" from the beginning.

Coinbase’s natural response is to convert the “potential market” into “Coinbase USDC”—that is, the fully monetizable part of the platform (the balance in the custodial product can obtain 100% reserve income). This strategy has indeed come into effect: the USDC share in the Coinbase platform has quadrupled in two years. But this only works with managed USDC, i.e. Exchange + Prime.

The problem lies in the "custodial gray area" - user growth occurs here, but the income ownership becomes vague.

• Coinbase Wallet is unmanaged. Although Smart Wallet improves the experience and may include a shared key mechanism, it still does not comply with the "platform USDC" defined by S-1.
• If most users use on-chain products through this type of wallet in the future, the ownership of this part of USDC will be in the gray area between Circle and Coinbase.
• Base (Coinbase's L2) is also a non-managed architecture. Users can independently exit Ethereum L1, and Coinbase does not hold a key. Therefore, even if Coinbase is the entrance, USDC on Base is likely not classified as "Coinbase USDC".

Conclusion: Coinbase drives USDC growth, but has built-in a weakening system. As long as it does not control the entire agreement, it always faces uncertainty about the ownership of profits. The only thorough solution is to acquire Circle and rewrite the rules.

The benefits of Coinbase's acquisition of Circle

• 100% income attribution: no longer have to worry about "custodial vs non-custodial". Coinbase can directly claim the interest income generated by all US$60 billion, no matter where these USDCs are placed.
• Protocol control: USDC's smart contracts, multi-chain integration, and CCTP are all turned into internal assets.
• Strategic product collaboration: Wallets, Base and future on-chain experience products can be used to monetize USDC natively without coordination.
• Regulatory Integration: Coinbase has become a leader in policy making. After taking control of USDC, it can lead the formulation of stablecoin regulations.

Uncertainty/points to be explored

• Growth potential: USDC's current market value is about $60 billion, which can theoretically increase to $500 billion, corresponding to an annual reserve income of $20 billion, which is expected to push Coinbase to the "Seven Technology Giants" (Mag7) level profit.
• Regulatory policy: The United States is pushing for stablecoin legislation, which is a good thing for market growth. Stablecoins will become the new carrier of US dollar globalization, but may also limit the way platforms promote earnings or saving products. If Coinbase has the entire stack, it can flexibly adjust its strategies to respond to policy changes.
• Operational Complexity: USDC was initially operated by a consortium and the structure may be based on legal/regulatory considerations at the time. Although these obstacles may seem manageable under a unified framework, the legal structures in them may contain unknown risks. But at present, there is no insurmountable problem.

Acquisition price

No one can accurately predict market valuations, but we can refer to the following data:

• Circle plans to make an IPO at $5 billion;
• Ripple has proposed a $10 billion valuation;
• Coinbase’s current market value is approximately $70 billion;
• USDC currently accounts for 15% of Coinbase's revenue. If it is integrated after acquisition, there is a clear path to increase this proportion to more than 30%.

My judgment is:

• Circle is Coinbase’s natural acquisition target, and Coinbase is also aware of this;
• Circle wants the open market to price itself (target $5 billion);
• Coinbase wants to see what valuation the market gives to Circle;
• Coinbase knows it well:

1. It must have a USDC full stack;
2. After integration, USDC can account for 15% to 30% of its revenue;
3. In terms of revenue value, USDC's "reasonable valuation" should be between $10 billion and 20 billion.

Circle also knows this - and realizes that as long as USDC continues to grow, Coinbase will eventually choose to acquire directly in order to resolve the ongoing business, product, and governance frictions in cooperation.

Final opinion

Coinbase should acquire Circle, and it is likely to do so.

At present, the cooperation between the two sides can continue, but in the long run, there are too many conflicts at the platform, product and governance levels that cannot be ignored. The market will give prices, but both parties have already known the value of each other.