The stablecoin landscape is continuously evolving, with USD Coin (USDC) standing as a major pillar in the crypto economy. As the second-largest stablecoin by market capitalization, its operational and financial structure involves key players like Circle and Coinbase. This article breaks down the power dynamics, revenue-sharing mechanisms, and strategic incentives that may drive a full acquisition of Circle by Coinbase.
Understanding USDC’s Supply Structure
USDC’s total supply can be categorized into three segments:
- Coinbase’s USDC: Includes reserves held on Coinbase Prime and the exchange.
- Circle’s USDC: Refers to tokens held within Circle Mint.
- Other Platforms: Comprises USDC on decentralized platforms like Uniswap, Morpho, and Phantom.
Recent data shows that Coinbase’s share of USDC supply is growing rapidly, accounting for approximately 23% in Q1 2025. In contrast, Circle’s portion has remained relatively stable. This trend highlights Coinbase’s expanding influence across consumer, developer, and institutional markets.
How USDC Revenue Is Shared
The revenue model for USDC is bifurcated:
- For USDC held on their respective platforms, Circle and Coinbase retain 100% of the reserve income.
- For USDC held off-platform (i.e., on other platforms), the revenue is split 50/50 between Circle and Coinbase.
Notably, Circle benefits more from off-platform holdings. Even though Coinbase holds nearly four times more USDC on its platform than Circle does on its own, Coinbase’s revenue advantage is only about 1.3x that of Circle’s. This indicates a structural incentive for Circle to prioritize expanding USDC’s total circulation—even if it isn’t held on its platform.
Circle’s Strategy: Prioritizing Market Scale Over Control
Circle’s primary goal is to establish USDC as the leading dollar-backed stablecoin. Even if a significant portion of USDC is held off-platform, Circle still benefits from the expanded total addressable market (TAM). As the protocol provider, Circle maintains several key advantages:
- Deploying and managing USDC smart contracts across over 19 blockchains.
- Controlling the native bridge for the Cross-Chain Transfer Protocol (CCTP) and overseeing minting/burning processes.
While on-platform USDC is more profitable, its growth has plateaued. Circle’s efforts are therefore focused on expanding overall adoption, trusting that market leadership will deliver long-term defensive advantages.
Why Coinbase Needs Full Control Over USDC
Macro Perspective
USDC is Coinbase’s second-largest revenue stream, accounting for about 15% of its total revenue in Q1 2025—surpassing even staking income. This revenue is notably stable and scalable, growing in tandem with the broader crypto economy.
Beyond immediate earnings, USDC serves as a core competitive moat for Coinbase. It supports the company’s infrastructure offerings and enhances its role in the global financial system. As traditional finance and fintech firms explore stablecoins, USDC’s early-mover advantage and regulatory clarity position it for continued growth.
Micro Perspective: Coinbase’s Profitability Dilemma
Despite being the primary driver of USDC adoption, Coinbase faces structural limits in monetization. Every product decision must account for revenue trade-offs. For example:
- Coinbase Wallet: As a non-custodial wallet, it may not qualify as a “platform” under current definitions. If most users begin holding USDC in such wallets, Coinbase could lose significant revenue.
- Base Layer-2 Network: Being non-custodial, USDC on Base may not be classified as “Coinbase USDC,” even though Coinbase is the primary gateway.
This creates a paradox: Coinbase is incentivized to grow USDC usage, but its efforts are inherently capped by revenue-sharing rules. The only definitive solution is for Coinbase to acquire Circle and redefine the terms.
Benefits of Acquiring Circle
Full Revenue Control
An acquisition would allow Coinbase to claim 100% of the interest income generated by all USDC in circulation—whether held on-platform or off-platform. This would eliminate ongoing legal ambiguities and unlock the full revenue potential of the stablecoin.
Protocol-Level Authority
Coinbase would gain direct control over USDC’s smart contracts, multi-chain integrations, and cross-chain infrastructure like CCTP. This technical consolidation would enable tighter product integration and faster innovation.
Strategic Product Alignment
With full ownership, Coinbase could natively integrate USDC across its wallet, Base, and future on-chain products without third-party coordination. USDC could serve as a seamless abstraction layer for user interactions.
Regulatory Influence
As a leader in crypto policy, Coinbase could more effectively shape stablecoin regulation by controlling one of the largest and most compliant stablecoins. This would strengthen its position in ongoing regulatory discussions.
Challenges and Open Questions
Growth Trajectory
USDC’s current market cap is around $60 billion, but some projections suggest it could reach $500 billion. At that scale, annual reserve income could approach $20 billion, making USDC a cornerstone of Coinbase’s long-term revenue.
Regulatory Developments
The proposed U.S. stablecoin legislation (e.g., the GENIUS Act) could further legitimize stablecoins and integrate them into the traditional financial system. However, it may also encourage competition from traditional financial institutions and fintech firms.
Acquiring Circle would provide Coinbase with greater flexibility to navigate regulatory changes and adjust product marketing strategies as needed.
Operational Complexities
USDC was initially designed as a consortium model, which may have been motivated by legal or regulatory considerations. Consolidating under a single corporate structure could introduce edge-case risks, though these appear manageable.
Valuation Considerations
Although market valuations are inherently uncertain, several reference points exist:
- Circle is seeking a $5 billion valuation for its upcoming IPO.
- Ripple is targeting a $10 billion valuation for its own public offering.
- Coinbase’s current market capitalization is approximately $70 billion.
- USDC currently contributes about 15% of Coinbase’s revenue; full integration could increase this to 30% or more.
Based on these figures, an acquisition of Circle could be valued between $10 billion and $20 billion. Circle may be waiting for public market validation via its IPO, while Coinbase might prefer to acquire after the market sets a price.
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Frequently Asked Questions
What is USDC?
USDC is a fully reserved dollar-backed stablecoin issued by Circle and widely used across crypto exchanges, DeFi protocols, and payments applications.
How does Coinbase benefit from USDC?
Coinbase earns interest on USDC reserves held on its platform. It also benefits from increased liquidity and utility across its product ecosystem.
Why would Coinbase acquire Circle?
Full ownership would eliminate revenue-sharing constraints, grant protocol-level control, and enhance regulatory influence—strengthening Coinbase’s competitive position.
What are the risks of such an acquisition?
Key risks include regulatory scrutiny, integration challenges, and potential competition from other stablecoin issuers.
How does USDC compare to other stablecoins?
USDC is known for its regulatory compliance and transparency. It trails only USDT in market cap but is ahead of other fully reserved stablecoins.
What is the future of stablecoin regulation?
U.S. regulators are progressing toward comprehensive stablecoin legislation, which could encourage broader adoption while imposing new compliance requirements.
Conclusion
Coinbase has strong strategic and financial incentives to acquire Circle. While the current partnership functions adequately, long-term conflicts in platform governance and revenue sharing make full integration increasingly logical. As both companies prepare for future growth, market valuation may soon catalyze this logical next step.