Circle Internet Group

Phase A — Understand the business

Lens 1 · Company Overview

Circle is the issuer of USDC, the second-largest stablecoin, and is building what it calls a "full-stack internet financial platform" around it. The business model is deceptively simple and is the key to everything: Circle holds the dollars that back USDC in a reserve of US Treasuries, cash, and overnight repo, and earns the interest on that reserve. It does not (yet) pay holders that interest. The spread between what the reserve earns and what Circle pays out to distribution partners is the company.

• Revenue mechanics. "Reserve income" was $652.5M of $694.1M total revenue (94%) in Q1 2026. "Other revenue" (Arc, USYC tokenized fund, Circle Mint, CPN, subscription/services) was just $41.6M (6.0% of total), up from 3.6% a year earlier — diversification is real but tiny. This is, functionally, a money-market fund with a brand and a distribution network bolted on.
• Customers / counterparties. The "customers" that matter are the distribution partners who hold and circulate USDC — above all Coinbase, plus Binance and a growing roster of strategic partners. End-users are exchanges, fintechs, institutional treasuries, and increasingly B2B cross-border payers (Meta, Kyriba cited on the Q1 call).
• Suppliers. Reserve custody/management runs through BlackRock-managed government money funds and banking partners (BNY Mellon historically); the "supplier" set is the financial plumbing for $77B of reserves.
• Contract structure — the load-bearing term. Under the August 2023 Collaboration Agreement, Coinbase "receives allocations based on the amount of USDC held on its platform after our issuer retention, and Coinbase also receives half of the remaining amount tied to broader ecosystem growth". In plain terms: for USDC sitting on Coinbase, Coinbase gets effectively all the reserve income; for USDC elsewhere, the residual is split ~50/50 after Circle's retention. This single clause is why a $2.7B-revenue company posts thin margins.
• Regulatory wrapper. Circle operates a NY State trust charter (Circle Internet Financial), publishes monthly Deloitte attestations, and in December 2025 received conditional OCC approval for a national trust bank charter. It is among the best-positioned issuers for the GENIUS Act (signed July 2025) and the pending CLARITY Act.

Read: Circle is the cleanest, most compliant way for institutions to hold a digital dollar — and the most rate-exposed, distribution-taxed way to own that franchise as equity.

Lens 2 · Supply Chain

The "supply chain" of a stablecoin issuer is a value-flow chain (dollars in → reserve → yield → split among the chain), not a physical one. Named stakeholders along it:

1. Reserve asset issuer — the US Treasury (and the Fed funds rate). The single most important "supplier": Circle's revenue is a derivative of the front end of the Treasury curve. ~$77B sits in short-duration Treasuries, overnight reverse repo, and government money funds.
2. Reserve manager / custodian — BlackRock (Circle Reserve Fund) and banking custodians. They run the reserve; Circle sets the standard (limited to Treasuries, overnight repo fully collateralized by Treasuries custodied with A/A2-rated custodians, government money funds).
3. Circle — issues/redeems USDC and EURC via Circle Mint, holds bare legal title to reserves (the bankruptcy-remoteness argument), captures the spread.
4. Distributors — Coinbase (chokepoint), Binance, and "other strategic distribution partnerships." In FY2025 the increase in distribution cost was +$438.4M to Coinbase, +$152.1M Binance, +$60.4M other. Coinbase is the single-source dependency of the whole P&L.
5. End customers — exchanges, wallets, fintechs, institutional treasuries, DeFi protocols, and (the new leg) B2B payers via the Circle Payments Network.

Chokepoint: Coinbase. It both distributes USDC and captures the majority of the economics of the USDC it holds. Circle cannot route around its largest cost line without either growing off-Coinbase circulation faster (CPN, direct enterprise) or renegotiating — which is exactly the August 2026 event. The second chokepoint is invisible and macro: the Fed. A 100bp cut flows almost directly into reserve income.

Lens 3 · Competitive Advantages (moats)

Circle's moat is regulatory trust + network breadth, not technology — USDC is a commodity dollar token; anyone can mint a stablecoin.

• Regulatory moat (the real one). First-mover on compliance: NY trust charter, full monthly attestations, MiCA-compliant EURC in the EU, conditional OCC national trust charter (Dec 2025), GENIUS-Act-ready in substance the day the law passed. For a regulated institution that must hold an audited, redeemable, US-overseen dollar, USDC is the default. This is a genuine switching-cost/credentialing moat against unregulated rivals (Tether) and is the core of the bull case.
• Network / liquidity. USDC is integrated across exchanges, chains (CCTP cross-chain transfer), wallets, and now Arc. Deep liquidity is self-reinforcing — but it is narrower than Tether's, which dominates emerging-market and Tron rails.
• Bargaining power — weak today, possibly improving. Circle's bargaining power over its key distributor (Coinbase) is structurally poor: the contract hands Coinbase the majority of platform-held economics. Over end-users it is moderate (USDC is trusted, but substitutable). The CLARITY Act's yield restrictions may raise Circle's bargaining power by stripping Coinbase of the ability to compete on yield-rewards — analysts argue the selloff overstated the harm.
• The Arc gambit. Circle is launching Arc, a purpose-built Layer-1 (sub-second finality, dollar-denominated fees, opt-in privacy) with a planned ARC token — a bid to own the settlement layer, not just the token, and convert distribution dependence into platform ownership. If it works it deepens the moat; if it doesn't it's a costly distraction.

Verdict on moat: Real but asymmetric — strong against unregulated rivals, weak against (a) its own distribution partner and (b) the Fed. The moat protects market position, not margin.

Lens 4 · Segments

Circle does not report multiple operating segments — it runs as effectively one reporting segment, split by revenue type and disclosed by geography in the filings. The meaningful "segment" cut is revenue-line and product:

Full-year trajectory (the more revealing view):

The single most important pattern in this dossier: revenue nearly doubled 2023→2025, but operating income went from +$269.5M to a −$96.4M loss. Two causes: (1) distribution costs scaled with reserve income (and Coinbase's share), and (2) compensation exploded to $844.9M in FY2025 (from $263.4M) — of which $424M was IPO-vesting stock-based comp. Adjusting that out, FY2025 Adjusted EBITDA grew 104% to $582M. So the GAAP loss is largely a one-time IPO artifact; the underlying business is profitable and scaling — but its margin is hostage to rates and the Coinbase split.

Geography: predominantly US-domiciled reserve income with growing EU (EURC) and international B2B flows; the filings flag international regulatory exposure but USDC economics remain US-Treasury-rate-driven.

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Phase B — Measure performance

Lens 5 · Earnings Result (latest print — Q1 2026, reported 2026-05-11)

• Revenue $694.1M, +20.0% YoY, ~in line with the ~$694M consensus. Reserve income $652.5M (+17%); other revenue $41.6M (+101%).
• USDC in circulation ~$77B, +28% YoY; on-chain transaction volume $21.5T, +263% YoY. Volume growth massively outpaces supply growth — USDC is being used, not just held.
• Margins compressed hard. Operating income fell to $45.0M from $92.9M a year earlier. Cause: compensation $138.1M (from $75.6M) and G&A $57.3M (from $30.7M) — the cost of being a public company plus Arc/CPN build-out. Distribution+txn cost $406.8M = 62% of reserve income, up from 60% — the Coinbase tax is widening as on-platform balances grow.
• Net income $55.3M (vs $64.8M); diluted EPS $0.21; Adjusted EBITDA $151M (+24%).
• Balance sheet. Corporate cash $1.52B + $0.79B segregated-corporate stablecoin cash; essentially no debt (convertible note fully converted in Q1 2026); reserves segregated for holders $76.9B. Fortress balance sheet — the equity story is margin, not solvency.
• ⚠ Cash-vs-earnings flag. Operating cash flow was only $21.1M (down from $56.6M) versus $55.3M net income — driven by a $101.4M drawdown in accounts payable/accrued expenses and $51.8M non-cash SBC add-back. Worth watching but explicable (AP timing + comp accruals), not a red flag yet.
• Guidance: FY2026 guidance held unchanged; CFO noted guidance excludes any ARC-token presale/incentive/revenue impact.
• Market reaction: the stock has been driven far more by macro (rates) and regulatory headlines (CLARITY) than by the print itself — see Lens 8.

Read: A clean operational beat on volume and supply, undercut by visible margin compression from self-inflicted opex growth. The market is not trading this on the quarter; it's trading it on August.

Lens 6 · Earnings Calls (sentiment trend)

Tone across the public-era calls (Q3 2025 → Q1 2026) has been relentlessly visionary and increasingly platform-focused, while the financial subtext has quietly shifted from "reserve income growth" to "we must diversify off reserve income."

• What management keeps saying: "internet financial system," "the largest platform shift in the history of the internet," "regulation-first," USDC as the "core means of value exchange." On Q1 2026 Allaire leaned into an AI × stablecoin convergence narrative ("economic operating systems") and B2B cross-border (Meta, Kyriba).
• What they've started emphasizing: Arc, the ARC token, CPN, the Circle Agent stack and CPN Managed Payments — i.e., non-reserve revenue. This is a deliberate pivot in emphasis: the more rates threaten reserve income, the louder the "platform flywheel" story gets.
• What they downplay: the Coinbase economics and direct rate sensitivity get the minimum required disclosure in the MD&A/market-risk section, not the call narrative.

Sentiment trend: consistently bullish-vision, with a rising defensive undertone on revenue diversification. The gap between the soaring vision and the compressing operating margin is the central tension a skeptic should sit on.

Lens 7 · Comps

CRCL is a near-unique public asset (a pure-play regulated stablecoin issuer), so true comps are scarce; the honest peer set is "crypto-financial infrastructure." Multiples below are `` and approximate as of mid-June 2026; several rows are explicitly n/a rather than fabricated.

Lens 8 · Stock-Price Catalysts (moves >5%, IPO June 2025 → June 2026)

CRCL's one-year tape is one of the most violent of any 2025 IPO — +168% day one, peak ~$298.99 on ~June 23 2025, now ~$80 (−73% from peak, near the $66 all-time low and back to ~IPO area). The pattern is unusually legible:

• Jun 2025 — IPO + mania. Priced at $31, +168% day one, ran to ~$298 in 18 days. Pure momentum/scarcity.
• Jul–Sep 2025 — the unwind. −70% off peak as rate-cut expectations rose (reserve income is rate-levered) and lock-up fears built.
• Aug 2025 — follow-on at $130 (3.5M shares, $444.8M net) — dilutive, insiders/holders selling.
• Nov–Dec 2025 — lock-up expiry (second trading day after Q3 earnings; further unlocks to Dec 5) drove the stock to all-time lows ~$66.
• Mar 2026 — the CLARITY shock. A draft CLARITY Act with a strict stablecoin yield ban crashed CRCL ~18–20% in a single session. This is the defining macro-regulatory catalyst of the year.
• May 2026 — CLARITY relief. Final text (May 2) banned bank-equivalent yield but allowed "bona fide" rewards; the sector rallied on the overhang lifting.
• Ongoing — Fed path + insider 10b5-1 sales (Allaire ~$4.9M early June) keep a lid on it.

What the market actually reacts to: (1) rate expectations (the dominant driver — this trades like a leveraged front-end-rate bet), (2) stablecoin regulation (GENIUS/CLARITY/yield), and (3) supply/lock-up technicals. It reacts least to the earnings print itself. Translation for a position: you are primarily underwriting the Fed and Congress, secondarily Circle's execution.

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Phase C — Judge people & books

Lens 9 · Management

• Jeremy Allaire — Co-Founder, Chairman & CEO. Serial entrepreneur (founded Allaire Corp / ColdFusion, Brightcove) who has run Circle since 2013 through a brutal pivot from consumer payments/crypto-exchange to the USDC issuer model. Track record: built USDC from zero to ~$77B and took the company public in the highest-profile crypto IPO of 2025 — a genuine franchise-building achievement. Founder archetype, with super-voting Class B stock (co-founders hold Class B) — founder control is entrenched, which cuts both ways.
• Skin in the game / insider activity. Allaire is selling under 10b5-1 plans — a new plan (adopted Mar 4 2026) for up to 373,589 shares through Nov 30 2026, after terminating his prior plan having sold only 31,251 shares; he sold ~$4.9M in early June at $78–88. Director Sean Neville adopted a plan for up to 300,000 shares + exercise of ~2.0M expiring options. Read: programmatic diversification, not a fire sale — but the cadence of insider supply is a real overhang into a depressed stock, and "selling near IPO price" is not a confidence signal.
• Capital-allocation history. Mixed. The IPO + Aug 2025 follow-on raised ~$1B; capital is being plowed into Arc, CPN, the Agent stack, and acquisitions (SeedInvest legacy convert just settled). The ARC token presale (740M tokens, $0.30, $3.0B implied FDV, ~$222M gross to Circle, a16z-led, May 8 2026) is a creative non-dilutive-to-equity financing of the platform bet. No buybacks/dividend (appropriate at this stage). The honest concern: opex (comp +83% YoY in Q1) is being spent ahead of proven non-reserve revenue.
• Red flags (governance): dual-class founder control; heavy IPO-vintage SBC ($424M in FY2025) that diluted and tanked GAAP earnings; aggressive visionary framing on calls that runs ahead of the P&L. None are integrity red flags — they are stage and promotion flags.

Read: A credible, proven founder running a real franchise, financing an ambitious platform expansion — but with entrenched control, steady insider selling, and a comp/SBC profile that flatters Adjusted EBITDA while depressing GAAP.

Lens 10 · Forensic Red Flags

Acting as a forensic analyst on the three filings:

• Reserve accounting / off-balance-sheet framing. Circle holds bare legal title to ~$77B of reserves and books "deposits from stablecoin holders" ($76.8B) as a current liability offsetting segregated cash. The bankruptcy-remoteness of those reserves is a legal position, not a settled fact — the 10-K explicitly warns a US or French court could deem reserves part of the bankruptcy estate, in which case holders become unsecured creditors. This is the single largest structural/legal risk on the balance sheet, even if remote.
• Distribution cost as contra-revenue. Coinbase/distribution payments are booked as "distribution, transaction and other costs" ($406.8M in Q1, 62% of reserve income) — not netted against revenue — which keeps headline revenue gross and large. Defensible under the standard (no distinct service), but it means "revenue" overstates the economics Circle actually keeps.
• SBC flattering non-GAAP. FY2025 net loss of $(69.5)M becomes +$582M Adjusted EBITDA largely by excluding $424M of IPO-vesting SBC. Legitimate (one-time IPO vesting), but the gap between GAAP loss and Adj-EBITDA is enormous — always read both. Q1 2026 SBC was still $51.8M (cash-flow add-back).
• Cash flow < earnings (Q1 2026). OCF $21.1M vs net income $55.3M — the divergence is explained by a $101.4M AP/accrued drawdown and large SBC add-backs, not aggressive revenue recognition. Monitor, don't indict.
• Intangibles/goodwill. Goodwill $265.7M + intangibles $421.0M = ~$687M, ~20% of equity, from acquisitions — modest impairment risk but not alarming.
• ARC token contingencies. The $222M presale carries repayment rights if tokens aren't delivered or the PoS transition isn't completed by May 8 2028 — a contingent liability and a reputational/legal risk if Arc slips.
• Controls: management concluded disclosure controls effective; no material weakness; no change in ICFR.

Regulatory findings (required).

• SEC Litigation Releases / AAERs: None. A search of SEC EDGAR EFTS (LR + AAER) for "Circle Internet Group" over 2021-06-17 → 2026-06-17 returned 0 findings.
• 10-K Item 3 (Legal Proceedings): Circle discloses only ordinary-course litigation/claims and cross-refers to risk factors and Note 22 — no specific material litigation is itemized. Q1 2026 10-Q Item 1 is identical in substance.
• Non-SEC (web): No material FTC/DOJ/CFPB enforcement action, consent decree, or fine against Circle surfaced; the live regulatory story is legislative (GENIUS/CLARITY rulemaking, of which most of 21 rulemakings are due July 18 2026 and none were finalized as of May 2026), not enforcement.

Conclusion: No accounting fraud markers, clean SEC enforcement record, clean controls. The genuine forensic concerns are structural, not deceptive: (1) the legal contingency around reserve bankruptcy-remoteness, (2) the GAAP-vs-Adjusted gulf created by SBC, and (3) revenue optics that show gross flows while Coinbase keeps ~half the economics. Label every figure when quoting headline revenue.

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Phase D — Project & stress-test

Lens 11 · Forward Projection (FY2026–FY2028 EPS)

Bottom-up from the latest actuals. The swing variables are (a) USDC circulation, (b) reserve rate (Fed path), (c) the Coinbase/distribution share, and (d) opex/SBC. All outputs `` with arithmetic.

Anchors: Q1 2026 reserve income $652.5M on ~$77B avg USDC ⇒ implied annualized reserve rate 3.4–4.1% net of mix; FY2025 Adj EBITDA $582M; Q1 2026 Adj EBITDA $151M ($600M annualized run-rate); diluted shares ~267M.

Base-case logic: at ~$77–100B USDC and a ~3.5% net reserve rate, reserve income ≈ $2.7–3.5B; after ~60% distribution + normalized opex, normalized net income ≈ $500–650M; ÷ ~270M shares ⇒ ~$1.85–2.40 EPS. This is highly rate-elastic: every ~50bp of reserve-rate change on $80B is ~$400M pre-distribution revenue, ~$160M post-split — ~$0.60/share of swing. Per skill, the Brier forecast is NOT logged (watchlist breadth loop).

The honest projection takeaway: the base case justifies something close to today's ~$80 only if you also credit a re-rating from the Coinbase renegotiation and revenue diversification; absent those, falling rates pull EPS toward the bear path and the multiple looks full.

Lens 12 · Bull vs Bear

Bull case. Circle is the regulated digital-dollar standard at the exact moment the US is legislating stablecoins into the financial system (GENIUS signed, CLARITY finalizing). USDC supply (+28% YoY) and especially on-chain volume (+263% YoY) show the network compounding; the conditional OCC national trust charter and GENIUS-readiness build a regulatory moat unregulated rivals (Tether) can't easily cross. The August 2026 Coinbase renegotiation — with CLARITY's yield rules weakening Coinbase's leverage — could re-rate the whole P&L by reclaiming a chunk of the ~$900M/yr Circle hands over. Arc + the ARC token + CPN convert distribution dependence into platform ownership and a second, rate-independent revenue leg. Fortress balance sheet, no debt, ~$1.5B cash, proven founder. If even two of {rates hold, Coinbase deal improves, diversification works} hit, the stock re-rates toward the ~$143 consensus.

Bear case (permanent-impairment risks).

1. Rate cliff. ~94% of revenue is reserve income; the reserve rate already fell ~0.96pp to ~4.15% in Q3 2025. A sustained easing cycle compresses the core engine dollar-for-dollar — this is structural, not cyclical noise.
2. Distribution tax + renegotiation risk. Coinbase takes half of revenue ($900M/yr); the August renegotiation could go either way, and a bad outcome cements thin margins permanently.
3. Competition floods the regulated lane. Tether's USAT, plus SoFi, JPMorgan, Mastercard entered the US regulated stablecoin market in the prior ~4 months; bank deposit-coins threaten Circle's institutional positioning exactly where its moat was supposed to be strongest.

Pre-mortem (18 months out, thesis broke): The Fed cut 150bp through 2026–27; reserve income fell while opex stayed high; the August Coinbase deal delivered only a token improvement; bank- and Tether-issued US coins took share in the institutional lane; Arc's mainnet slipped and the ARC token underwhelmed. Normalized EPS drifted toward $1.20, the multiple compressed, and CRCL revisited the $50s.

Is the multiple too high? At ~33–36x EV/Adj-EBITDA / mid-30s–60x normalized P/E on a business whose core revenue shrinks with rate cuts, yes — the multiple already prices in a benign rate path and a successful renegotiation. There is little margin of safety at ~$80 for a base case; you're paying for the bull.

Contrarian view (what the market refuses to see): The consensus frames CRCL purely as a "leveraged rate bet" and has beaten it down 73%. The contrarian read is that the August Coinbase renegotiation under CLARITY is a genuinely underappreciated, asymmetric catalyst — if Circle claws back even 10pp of the distribution share, that's ~$270M of high-incremental-margin revenue dropping toward the bottom line, a re-rate the rate-bears aren't modeling. The market is so fixated on the Fed that it's under-pricing the contract.

Lens 13 · Devil's Advocate (short-seller)

Dismantling the bull case:

• What structurally breaks the model? A Fed easing cycle. This is not a software company with pricing power — it's a spread business on the front end of the curve, and the spread is set by the FOMC, not by Circle. Bulls who model "USDC growth" while ignoring the rate path are modeling the wrong variable; volume can grow 263% and EPS can still fall if the rate halves.
• Revenue concentration. ~94% reserve income, and within distribution, one counterparty (Coinbase) controls ~half the economics and a chunk of the supply. If Coinbase ever launched/favored its own coin, shifted balances, or simply held its line in August, Circle's margin is capped. That is extreme concentration for a $20B company.
• Why the moat is weaker than bulls think. "Regulation-first" was a moat when Circle was the only compliant option. Post-GENIUS/CLARITY, everyone gets a charter — Paxos, Ripple, BitGo also got conditional OCC trust charters in late 2025; JPMorgan and banks can issue deposit coins; Tether is coming onshore with USAT. The regulatory moat is being commoditized by the very laws that were supposed to anoint Circle.
• Most dangerous competitor bulls underestimate: the banks (JPMorgan deposit coins + the bank lobby shaping CLARITY rulemaking to protect deposit yield), not Tether. Banks own the institutional relationships and the deposit base Circle wants to disintermediate.
• Worst capital-allocation / governance: dual-class founder control; $424M IPO SBC that produced a GAAP loss; opex +83% YoY ahead of proven non-reserve revenue; steady insider 10b5-1 selling near IPO price.
• Assumptions that must hold for ~$80: rates stay ~4%+, the Coinbase deal improves, and Arc/CPN diversification works. Three things, not one.
• Growth disappoints 20–30%: if USDC stalls near $77B and rates fall, normalized EPS heads to the ~$1.20 bear; at even a 30x multiple that's ~$36 — ~55% downside from spot.
• Single scenario that permanently impairs: a court ruling that USDC reserves are part of Circle's bankruptcy estate (the 10-K's own disclosed risk) — low probability, catastrophic if it hit, because it would shatter the trust that is the franchise.

Lens 14 · Management Questions (ordered by information value)

1. Coinbase renegotiation (Aug 2026): what is the realistic range of outcomes for your effective distribution share, and what's your BATNA if Coinbase holds the line?
2. How does reserve income behave under a 150bp Fed easing cycle — quantify the EPS sensitivity per 25bp, and what offsets exist?
3. Under the final CLARITY Act, can you legally pay USDC holders any rewards, and would doing so help or hurt your net economics versus the distribution model?
4. What is the credible FY2028 mix of reserve income vs. "other revenue," and which specific products (Arc, CPN, USYC, Agent stack) get you there?
5. What does Arc mainnet success look like in hard metrics 12 months post-launch, and what's the failure threshold at which you'd wind it down?
6. The ARC token presale carries repayment rights if PoS isn't live by May 2028 — what's the probability you hit that, and what's the contingent liability?
7. How do you defend the institutional lane against bank-issued deposit coins (JPMorgan et al.) that own the customer relationship?
8. Tether's USAT is onshore now — where specifically do you win and lose against it in the US?
9. Why should compensation/opex grow faster than revenue, and when does operating leverage actually inflect to GAAP profitability?
10. What is your realistic path to reducing the distribution-cost ratio below 50% of reserve income, and on what timeline?
11. How do you think about the legal risk that reserves could be deemed part of the bankruptcy estate, and what structurally mitigates it?
12. How concentrated is USDC circulation across your top 5 distributors/holders today, and is that concentration rising or falling?
13. What is the capital-return philosophy once Arc/CPN are funded — at what point do buybacks make sense given the depressed stock?
14. With insiders selling under 10b5-1 plans near IPO price, what signal should long-term holders take, and what's your personal ownership floor?
15. What single external event would most change your strategy in the next 18 months?

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