Circle, the company behind the USDC stablecoin, is now valued at about 70% of Coinbase’s market cap, even though it hands over more than half of its revenue to Coinbase for distribution and partnership fees. This situation has caught the attention of many in the crypto industry, especially when you look at how Circle actually makes its money and how expensive its stock is compared to its profits.
Most of Circle’s revenue comes from the interest it earns on the reserves backing USDC, which has a market cap of about $61 billion. In 2024, Circle made $1.67 billion in revenue, but after paying out over $1 billion in distribution and transaction costs, including $908 million to Coinbase, its net income was only $156 million. This means Circle’s profit margin is extremely thin, and a huge part of its business depends on the ongoing partnership with Coinbase, which holds around 20% of all USDC on its platform.
Despite these slim profits, Circle’s market cap has recently jumped as high as $19 billion, and its price-to-earnings, or P/E, ratio has ranged from about 100 times to nearly 300 times, depending on the share price and income used. For comparison, this is much higher than what you would see with even the fastest growing tech companies or traditional financial firms. Investors are betting that Circle will see massive future growth, either from USDC’s circulation expanding or from Circle successfully turning into a broader digital finance company. Right now, though, every USDC issued only earns Circle about $0.004 after costs, and the company’s profits are very sensitive to changes in interest rates and competition.
Critics have called Circle’s business a “glorified treasury yield splitter” because the company collects interest on billions of dollars in customer deposits, pays nothing to USDC holders, and then splits a huge chunk of the revenue with Coinbase and other partners. If interest rates go down or if other companies start offering stablecoins that share yield with users, Circle’s profits could shrink even more. The company’s high valuation is based on the hope that it can keep growing USDC and move into new, more profitable services before competitors catch up.
Circle’s business is profitable at a large scale but it relies heavily on Coinbase and current interest rates. Its high valuation is based on very optimistic growth expectations, but with more than half its revenue paid out to partners and a P/E ratio over 200, investors are betting on a nearly perfect future. If anything changes, like new regulations, more competition, or lower interest rates, Circle’s high-flying valuation could be at risk.
