According to Fortune, Circle’s shares plunged more than 8% following its first quarterly earnings report as a public company, despite the stablecoin issuer posting impressive numbers. The company’s flagship USDC coin circulation more than doubled while revenue grew 66% from last year. Circle revealed its reserve rate of return has dropped to 4.2%, which provides the vast majority of company income. Operating expenses jumped 70% since last year and are expected to keep rising. The stock decline comes despite Circle hitting an all-time high of nearly $300 just weeks after its June debut, with the current valuation sitting around $87 – down roughly 70% from that peak.
The reserve revenue reality
Here’s the thing about stablecoin companies – their business model is fundamentally about managing reserves. Circle holds billions in Treasury bonds and other safe assets to back every USDC token in circulation. When interest rates were high, they were making bank on those reserves. But now that rates are coming down? Their main revenue stream is getting squeezed. A drop from let’s say 5% to 4.2% might not sound dramatic, but when you’re talking about tens of billions in reserves, that’s serious money walking out the door.
The expense explosion
And then there’s the spending problem. A 70% jump in operating expenses is massive for any company, but especially one that just went public. Investors are watching every dollar, and they’re clearly spooked by the cost growth. Mizuho analyst Dan Dolev called out the higher adjusted operating expenses in his note, and the market listened. Basically, Circle is spending way more just as its main revenue source is declining. That’s a tough story to sell to shareholders, even with the regulatory tailwinds from the Genius Act that Trump signed in July.
Playing the long game
But look, some analysts are still bullish on Circle’s future. William Blair’s Andrew Jeffrey thinks USDC could become the “commercial standard” over the next several years. The company just announced over 100 companies have joined their new Arc blockchain network, and they’re exploring launching a native token. The question is whether Circle can grow its market cap fast enough to outpace those declining reserve rates. Can financial performance really “outrun lower rates” as Jeffrey suggests? That’s the billion-dollar question facing every stablecoin business right now.
The regulatory advantage
Circle does have one massive thing going for it – the Genius Act created a clear regulatory framework that’s bringing Wall Street and Silicon Valley into the stablecoin game. While other crypto companies struggle with regulatory uncertainty, Circle suddenly looks like the established, compliant player. That’s huge. But being the regulated favorite comes with costs – compliance isn’t cheap, and neither is building enterprise-grade blockchain infrastructure. The expense growth might just be the price of becoming the mainstream stablecoin, but shareholders clearly aren’t thrilled about footing that bill right now.
