The recent IPO filing by Circle, the issuer of the $60 billion USDC stablecoin, has pulled back the curtain on the company's intricate financial relationships. While it reported substantial revenue of nearly $1.7 billion in 2024, its operating income of $167 million tells a more nuanced story. A significant factor influencing these figures is Circle's costly, long-term partnership with crypto exchange giant Coinbase, a relationship that now shapes its strategic flexibility in an increasingly competitive market.
This analysis explores the dynamics of Circle's key partnerships, the financial implications of its deals with Coinbase and Binance, and what these alliances mean for the future trajectory of USDC.
Understanding Circle's Revenue-Sharing Model with Coinbase
Circle's relationship with Coinbase dates back to when both companies co-founded the Centre Consortium, which originally governed USDC. In 2023, Circle assumed full control of USDC and dissolved the Consortium, paying Coinbase approximately $209.9 million in stock (about 8.4 million shares) to acquire its stake.
The current revenue-sharing arrangement is complex and significantly impacts Circle's profitability:
- Circle retains a small initial percentage to cover essential operational costs
- Additional revenues are divided based on USDC held in each company's custodial wallets
- Most notably, Coinbase receives 50% of revenues from USDC held anywhere outside these specific wallets
This arrangement has become increasingly costly for Circle as Coinbase's share of USDC holdings grew from 5% in 2022 to 20% in 2024, driving distribution costs to over $1 billion in 2024 alone.
The Binance Partnership: Strategic Expansion at a Cost
In late 2024, Circle announced a significant strategic partnership with Binance, the world's largest cryptocurrency exchange. This agreement aims to accelerate USDC adoption across Binance's extensive ecosystem of products and services.
While the partnership represents a substantial opportunity for expanded USDC distribution, it came with immediate financial implications:
- Circle reported a $74.1 million increase in "other distribution incentive costs" attributed primarily to the Binance arrangement
- The upfront nature of this payment suggests Circle is investing significantly to secure broader distribution
The partnership is particularly strategic given Binance's substantial stablecoin holdings, which currently include:
- $30.7 billion in Tether's USDT
- $5.5 billion in USDC
- $1.67 billion in FDUSD
Notably, Binance reportedly holds $2 billion of its own reserves in USDC compared to $1.3 billion in Tether, indicating a substantial institutional preference for Circle's stablecoin.
USDC's Position in the Evolving Stablecoin Landscape
Despite the financial burdens of its exchange partnerships, USDC maintains several competitive advantages:
Regulatory Compliance and Trust
USDC remains the leading regulated stablecoin, providing it with significant credibility advantages as governments worldwide increase scrutiny of digital assets.
Traditional Finance Integration
Circle is strategically positioning USDC to lead the adoption of tokenized assets and money market funds in traditional finance. Key developments include:
- Acquisition of Hashnote, a tokenized treasury firm offering the yield-bearing USYC fund
- Partnership with ICE, the parent company of the NYSE
- Development of infrastructure enabling instant redemption of tokenized assets when combined with money market funds
These moves position USDC at the intersection of traditional finance and blockchain innovation, potentially opening substantial new revenue streams beyond the crypto trading ecosystem.
Comparative Analysis: Circle Versus Tether
The financial disparity between Circle and Tether highlights different approaches to the stablecoin business:
- Tether reported approximately $12 billion in earnings in 2024, compared to Circle's net income of $156 million
- Tether operates with fewer than 100 employees, while Circle employs around 900
- Applying Circle's revenue model to Tether's scale suggests potential revenues of $5.6 billion, indicating Tether's significantly higher profitability
This comparison underscores how Circle's partnership costs and broader operational approach impact its bottom line, even as it maintains a more regulatory-compliant position.
Future Outlook and Strategic Constraints
The Coinbase agreement presents both stability and constraints for Circle's future:
- The current terms extend for an initial three-year period with an option to renew for another three years
- Termination clauses exist, but Coinbase is unlikely to exit unless it launches a competing stablecoin
- The arrangement limits Circle's ability to pursue revenue-sharing partnerships with other exchanges until at least 2029
This partnership structure raises questions about whether equity ownership might have created better long-term alignment between Circle and Coinbase, though it would likely have introduced other strategic complications.
👉 Explore advanced stablecoin strategies
Frequently Asked Questions
What is Circle's relationship with Coinbase?
Circle and Coinbase were original co-founders of the Centre Consortium that governed USDC. Circle now owns USDC outright but has a revenue-sharing agreement with Coinbase that gives the exchange a significant percentage of revenues from USDC held outside specific custodial arrangements.
Why did Circle partner with Binance?
The Binance partnership aims to accelerate USDC adoption across Binance's extensive global user base and product ecosystem. This expands USDC's distribution network but required substantial upfront investment from Circle.
How does USDC compare to Tether's USDT?
USDC positions itself as the leading regulated stablecoin with greater transparency and compliance focus, while Tether has achieved significantly higher market penetration and profitability through a different business approach.
What are tokenized assets and how does USDC fit in?
Tokenized assets are traditional financial instruments like treasury bonds represented on blockchain networks. USDC serves as a stable settlement currency for these assets, with Circle developing infrastructure to enable instant redemptions and transfers.
How long will the Coinbase revenue-sharing agreement last?
The initial term is three years with an option to renew for another three years. Whether it continues beyond 2029 remains uncertain, though termination would likely require Coinbase to launch a competing stablecoin.
What challenges does Circle face despite its strong revenue?
High distribution costs primarily tied to the Coinbase agreement significantly impact profitability. Additionally, the company must balance investment in new opportunities like tokenization against these existing financial commitments.
Conclusion
Circle stands at a pivotal moment in its development as it moves toward becoming a public company. While USDC maintains a strong position as the leading regulated stablecoin with significant growth potential in traditional finance applications, its financial performance is constrained by the costly Coinbase partnership.
The recent Binance agreement represents both an opportunity for expanded distribution and additional financial commitment. As the stablecoin market continues to evolve and face increased regulatory scrutiny, Circle's ability to navigate these partnerships while expanding into new use cases will determine its long-term trajectory beyond the initial six-year term of its foundational Coinbase agreement.
The company's future success will depend on balancing these existing relationships with the development of new revenue streams that leverage USDC's strengths in regulatory compliance and traditional finance integration.