Circle reports increased revenue in first earnings after IPO

Michael Nagle/Bloomberg

The stablecoin issuer Circle released its first earnings report since the company went public in June and the GENIUS Act for U.S. stablecoin regulation was signed into law.

Total revenue for the company was $658 million, a 53% increase year over year. Circle reports its revenue as a combination of reserve income and other forms of revenue such as subscription and transaction fees. Reserve income went up by 50% to $634 million, and the remaining $24 million from other revenue reflected a 242% increase from the previous year.

Reserve income comes from the Circle Reserve Fund, an SEC-registered government money market fund holding a portfolio of short-dated U.S. Treasuries, overnight U.S. Treasury repurchase agreements and cash. The company attributed the quarter's reserve income increase to a 90% growth in circulation of USDC, the U.S. stablecoin the company issues.

"We make money in two ways," Circle's chief financial officer Jeremy Fox-Gein said on the company earnings call. "We monetize the money stock on the network through reserve income, which we earn on the cash equivalent assets we hold to back our stablecoins. We are also starting to monetize certain transaction flows and elements of our network infrastructure. While these other revenues are small today, they are growing, are high margin and also have the potential to scale rapidly with network adoption and usage."

Since Circle primarily relies on the interest from its backing assets to make money at this point, discussions of potential interest rate cuts from the Federal Reserve could impact the stablecoin issuer's revenue in the immediate future. However, the company has previously said lower interest rates would also increase the amount of USDC in circulation.

"There's a question of 'will interest rates hold?'" Robert Le, a crypto analyst for PitchBook, previously told American Banker when Circle was planning its IPO. "If rates drop, that would materially impact Circle's revenue. And if something were to happen in the broader cryptocurrency market and a lot of USDC gets redeemed, that could be a problem."

The GENIUS Act, signed into law on July 18, created a regulatory framework for issuing stablecoins as a form of digital currency in the United States and is expected to increase interest in stablecoins across the financial services industry.

"Circle's market and competitive strength is further cemented with the signing of the GENIUS Act," said Circle CEO Jeremy Allaire in the earnings call. "We believe this law will accelerate stablecoin adoption by major financial institutions, mainstream enterprises, technology companies, and ultimately drive much broader use of stablecoins across retail and wholesale payments as well as broader usage in trad-fi capital markets. This is likely the catalytic moment for the mainstream scaling of stablecoins, and we are already seeing this in our business momentum."

The company reported a net loss of $482 million for the quarter and a diluted earnings per share of -$4.48, which Circle attributed to stock-based compensation from the company's IPO-related vesting and an increase in convertible debt fair value due to higher share price. The company tripled its stock price on opening day and has raised $1.2 billion in the stock market over the past two months. 

After the company's earnings report and call, stocks in the stablecoin issuer remained stable and closed at a 1.27% increase.

Circle filed for an OCC national trust bank charter on June 30. The company also partnered with FIS to offer bank stablecoin payments using USDC later this year based off of a payments partner network Circle launched in April.

"We believe Circle Payments Network will become a breakthrough in global money movement by building an on-chain native payments network that will move money faster and more efficiently," Allaire said.