Circle’s Q3 Surge: Stablecoins to Cement the USD’s Global Grip

When we covered Circle’s IPO in early June, we placed it in the context of stablecoins serving the broader goal of USD dominance. Though technically in private hands, stablecoins are heavily regulated by the U.S. government (USG) and arguably better suited to extend the reach of American monetary power than a controversial central bank digital currency (CBDC).

In September, Deutsche Bank Research Institute reinforced this view by noting the critical value of stablecoins to “cement or even expand the usage of the USD in global invoicing”. This is in addition to increasing the demand for Treasuries, which expands the USG’s financing options.

After all, stablecoin companies typically hold short-dated T-bills to shore up reserves and ensure liquidity, effectively channeling both USD-based invoicing and crypto demand back into the traditional U.S. debt market.

Until Tether goes public, Circle Internet Group (NYSE: CRCL), with its USDC stablecoin, is the largest stablecoin company benefiting from this monetary interplay between private and public interest.

Let’s examine Circle’s latest Q3 earnings to gauge stablecoin adoption and trends.

Circle’s Q3 Earnings Examined

On Wednesday, Circle reported exceptional performance for the third quarter of fiscal year 2025. The company’s USDC stablecoin circulation grew 108% to $73.7 billion from the year-ago quarter. In October 2024, it was already common to see Tether exceeding BlackRock’s profitability, which is Circle’s reserve manager.

With such exceedingly high margins, it is then no surprise to see Circle’s net income growing 202% year-over-year to $214 million, boosted by $61 million income tax benefit. In other words, the stablecoin business is as sound as one could imagine it, given that the entire issuance/redemption process is automated, allowing for a remarkably lean workforce.

Moreover, there is no lending, underwriting, or credit risk management, while custody partners and APIs handle much of the stablecoin infrastructure. Likewise, a stablecoin company neither incurs FDIC insurance costs nor pays interest to depositors. Instead, it is Circle that collects the full yield from T-bills – the safest form of government paper underpinned by the largest military and its formidable nuclear arsenal.

Overall, Circle’s revenue and reserve income increased 108% YoY to $740 million, beating the average analyst estimate of $700 million. As of Monday, BlackRock data on Circle Reserve Fund shows $65.56 billion worth of funds with a 7-day SEC yield of 3.89%.

The company increased its YoY adjusted EBITDA margin by 737bps to 57%. Given the regulatory tailwinds for stablecoins, Circle increased its market share by 643 bps to 29%. This aligns with DeFiLlama’s tracking, as Tether’s USDT holds 60.12% dominance out of total $305.313 billion stablecoin market cap.

Expectedly, most USDC stablecoins are circulating on the Ethereum blockchain, at $49.74 billion, followed by Solana at $8 billion, with under $5 billion circulation covered by Coinbase’s Base and Hyperliquid each.

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Circle’s Expansion Amid Rising Compensation Costs

Over the past month, CRCL stock is down 35%, continuing the slide after the latest Q3 earnings. In addition to profit-taking erecting sell pressure, it is notable that Circle’s operating expenses increased 70% to $211.1 million from a year-ago quarter.

This didn’t come from IT infrastructure costs, which only accounted for $9.4 million compared to $6.8 million last year, but from $129.3 million in compensation expenses. Of that figure, stock-based compensation made up $59 million.

This is not surprising, however, as Bloomberg reported in late May that BlackRock plans to stake 10% of Circle’s IPO. Likewise, Cathie Wood’s Ark Investment Management kept loading on CRCL shares only to unload them in waves.

Moving forward, Circle is centering its efforts on the Arc Network blockchain, aiming for it to become the primary infrastructure for banking, payments and digital assets. So far, the network attracted over 100 companies to its public testnet, while the issuance of Arc’s native token is still being explored.

In the meantime, Circle Payments Network (CPN) is continuing to see rapid adoption, with 500 financial institutions waiting in the pipeline for eligibility review.

Circle’s Outlook Raised Alongside Operating Costs

Circle raised its fiscal 2025 revenue outlook from $75-85 million to the $90-100 million range. The company has its own profitability metric called RLDC margin, which measures total revenue and reserve income after deducting distribution, transaction and other costs.

With an updated outlook, Circle’s RLDC margin is now in the upper band of 38% as the average, moving up from the prior range of 36-38%. Considering Circle’s infrastructure ambitions in this renewed stage of stablecoin adoption, the company raised its operating expense expectations to $495-$510 million range for FY2025, contributing to stock decline.

Disclaimer: The author does not hold or have a position in any securities discussed in the article. All stock prices were quoted at the time of writing.