Circle and Coinbase: Compass

Author: Little Pig Web3

Preface

On August 12, 2025, before the U.S. stock market opened, the “first stablecoin stock” Circle announced its first financial report since going public: As of June 30, the circulation of USDC reached $61.3 billion, an increase of 90% compared to the same period last year.

Thanks to the significant increase in USDC circulation, revenue and reserve income reached $658 million, a year-on-year increase of 53%. The financial report also showed that Circle had a net loss of $482 million, primarily due to two non-cash expenses related to the IPO, including the cost of employee stock awards attributed to the company’s listing and the increase in the valuation of convertible bonds due to the rise in stock price. After the financial report was released, Circle’s stock price in pre-market trading quickly surged nearly 14%.

On July 31, just before this, the American “first stock of cryptocurrency exchanges” Coinbase released its second-quarter financial report, which showed profits skyrocketing to $1.4 billion, far exceeding the $36 million profit from the same period last year. However, this was mainly due to the huge gains from its investment in Circle. Meanwhile, the core business performed weakly, and revenue did not meet Wall Street expectations, leading to a stock price drop of over 16% the following day, which also dragged Circle’s stock price down by over 8%.

The partnership between Circle and Coinbase is one of the most notable strategic alliances in the cryptocurrency space. If USDC is likened to a circle, then Circle and Coinbase can be compared to the two legs of a compass. Through a meticulously designed business framework, the two companies have established a unique symbiotic relationship within the USDC stablecoin ecosystem.

The Past and Present of Circle

In 2012, Coinbase was founded in Delaware, USA, by former Airbnb engineer Brian Armstrong and former Goldman Sachs trader Fred Ehrsam, with its earliest product being a Bitcoin wallet. The following year, Circle was founded by Jeremy Allaire in Boston, USA, launching the Bitcoin payment product “Circle Pay” to help investors “more easily convert, store, send, and receive Bitcoin and other digital currencies.”

In 2013, Coinbase began to enter the cryptocurrency exchange market, becoming one of the earliest cryptocurrency exchanges. In 2015, Coinbase became the first cryptocurrency exchange in the United States to hold a formal license. In 2017, Circle acquired the U.S. compliant exchange Poloniex for about $400 million, also entering the exchange business, forming three main business lines: exchange, OTC, and the original payment business.

In 2018, Coinbase and Circle jointly established the Centre Consortium to launch the USDC stablecoin. USDC is jointly owned by Coinbase and Circle. Regarding the distribution of USDC earnings, the USDC on the Coinbase platform earns 100% of the reserve interest income for Coinbase, while the USDC outside the Coinbase platform is split 50% each between Coinbase and Circle.

In 2019, Circle closed all three major business lines and fully focused on the operation of the Centre Consortium. On April 14, 2021, Coinbase went public on the NASDAQ in the United States, with a market capitalization that once reached 100 billion dollars, becoming the first publicly traded cryptocurrency company in the U.S.

In March 2023, Circle held part of its reserves at Silicon Valley Bank, which collapsed, causing USDC to temporarily decouple to $0.87. In August, Circle and Coinbase restructured their partnership: the Centre Consortium was dissolved, Circle acquired Coinbase’s remaining shares in it, becoming the sole issuer of USDC, while Coinbase, as a strategic investor, held a minority stake in Circle and retained the profit-sharing agreement.

In May 2025, Coinbase was approved to be included in the S&P 500 index of the U.S. stock market. On June 5, 2025, Circle successfully went public on the New York Stock Exchange with an issuance price of $31 per share, and it began a strong upward trend on its first day of trading, reaching a peak of $298 on June 23, representing an increase of nearly tenfold, with a market value exceeding its reserve asset value. Circle’s listing also became the largest cryptocurrency company IPO since Coinbase’s IPO in 2021 and marked the first large IPO for a stablecoin issuer.

Coinbase and Circle have formed a symbiotic relationship in the USDC ecosystem, with Coinbase providing critical distribution channels and liquidity support for USDC, while Circle is responsible for issuance and compliance.

From the financing perspective, from 2013 to 2016, Circle completed four rounds of financing, raising a total of 136 million USD, and after the D round of financing in 2016, it was valued at 480 million USD. In 2018, Circle completed a Series E financing of 110 million USD, led by Bitmain, with a valuation of 3 billion USD. In 2022, Circle introduced an important partner, BlackRock, as the USDC reserve fund manager, and completed a Series F financing of 400 million USD, led by BlackRock, with a valuation of 7.7 billion USD.

In terms of revenue, Circle’s income in 2024 will rely 99% on the investment income from reserve funds and bank deposit interest, amounting to $1.661 billion. Of this, 90% of the reserves are managed by a fund set up by BlackRock for investments in U.S. Treasury bonds maturing in 93 days, while the remaining 10% of the reserves are deposited in Bank of New York Mellon as bank deposits. Due to the revenue-sharing agreement with Coinbase, $908 million will be paid to Coinbase in 2024, accounting for 54.2% of the revenue.

From a compliance perspective, Circle holds MTL licenses in 46 states, including the New York DFS BitLicense; in the EU market, Circle is the first stablecoin issuer to obtain a MiCA compliance license, allowing USDC and EURC (the euro stablecoin issued by Circle) to circulate legally in the EU; Circle has also received approval from the Monetary Authority of Singapore (MAS). In some countries and regions, although licenses have not yet been issued, the legality of USDC has been recognized, such as in Thailand, Argentina, Japan, Brazil, and Mexico.

The Future of Circle — CPN

Circle’s “2025 State of the USDC Economy,” released in January, has clearly outlined the future development of Circle and USDC, which is to replace outdated global payment channels such as SWIFT and ACH with the Circle Payments Network (CPN).

SWIFT and ACH were established in 1977 and 1972, respectively. Today, global communication has undergone a complete transformation, allowing people to connect instantly across the globe. However, global payments remain stuck in the past half-century, as evidenced by extremely high transaction costs (0.1% remittance fee and fixed remittance communication fees), long transaction delays (1 to 6 business days), significant transaction frictions (exchange rate frictions), and a large population that cannot access the global banking system, leading to issues of financial inclusion.

The emergence of stablecoins can leverage the innovative achievements of blockchain networks to improve the global banking financial system. Circle is building a value internet based on stablecoins to provide a network upgrade for global finance, referred to as CPN above. CPN connects leading banks, payment service providers, and other institutions globally, centering around the largest regulated stablecoin, USDC, linking all participants in a real-time global settlement system with very low transaction costs and global accessibility.

Circle serves as the main governance and standard-setting body for CPN, as well as a network operator. Through CPN, Circle is building a new platform and network ecosystem that will create value for every stakeholder in the global economy, helping to accelerate the benefits this internet-based new financial system brings to society. These stakeholders include:

• Enterprises: Importers, exporters, merchants, and large companies: can leverage financial institutions that support CPN to eliminate significant costs and friction, strengthen global supply chains, optimize cash management operations, and reduce reliance on expensive short-term working capital financing.
• Individuals: Remittance senders and receivers, content creators, and other individuals who frequently send or receive small payments: will gain greater value, as financial institutions using CPN will be able to provide these enhanced services faster, at a lower cost, and more simply.
• Ecosystem builders: banks, payment companies, and other providers: can leverage the platform services of CPN to develop innovative payment use cases, utilizing the programmability of stablecoins, SDKs (Software Development Kits), and smart contracts to create a thriving ecosystem. Over time, this will be able to fully unleash the potential of stablecoin payments for businesses and individuals. In addition, third-party developers and enterprises can introduce value-added services to further expand the network’s capabilities.

Many companies have already joined CPN, including the emerging Latin American bank Nubank, one of Africa’s largest fintech companies Chipper Cash, the global payment service provider Worldpay, the American payment giant Stripe, and the Hong Kong stablecoin sandbox participant Round Token Technology.

Compliance: A Brief Discussion on Hong Kong’s Stablecoin Regulation

In the global banking and financial system, compliance is of utmost importance, which is why Circle prioritizes compliance and actively applies for licenses around the world. Circle’s compliance needs to meet the local government’s compliance requirements, usually manifested as:

• Issuance / Redemption Phase: Ensure KYC/AML, ensure adoption of a “full reserve model”, ensure a reasonable redemption period;
• Circulation Stage: Real-time transaction screening, continuous monitoring, and fulfilling obligations to regulatory authorities (e.g., freezing accounts).

On August 1, 2025, Hong Kong’s “Stablecoin Regulation” officially comes into effect, with the KYC real-name verification requirements becoming the focal point of controversy. According to HKMA requirements, stablecoin issuers must not only verify user identity information and retain data records for over 5 years but also must not provide services to anonymous users. This means that stablecoins in Hong Kong may initially lack the ability to directly interact with DeFi protocols, and decentralized wallets and permissionless addresses will be isolated from the compliance framework. Such interactions will also be legally considered as “unauthorized use.”

It can be seen that, compared to the scalability and freedom of on-chain protocols, Hong Kong regulatory authorities place greater emphasis on controlling the regulatory power during the circulation phase of stablecoins. Although Circle’s USDC will also undergo real-time transaction screening and continuous monitoring during the circulation phase, this overall does not affect the transfer between wallets and interaction with DeFi protocols. This measure essentially excludes ordinary users from the use of compliant stablecoins in Hong Kong, while also meaning that Circle’s USDC will find it difficult to obtain a compliant stablecoin license in Hong Kong.

In the author’s opinion, ordinary users can continue to use USDT/USDC. The Hong Kong stablecoin itself cannot directly compete with USDT/USDC in scenarios such as wallets and DeFi. The advantage of Hong Kong stablecoins or compliant stablecoins from other countries or regions lies in compliant scenarios, which are controlled by the government. USDT/USDC will inevitably face restrictions, for example, in purchasing tokenized securities or other RWA tokens in collaboration with the Hong Kong Stock Exchange. Transactions involving such assets require strict KYC and identity verification.

If we focus on the payment network of stablecoins, there will be a significant impact. For example, user A in Hong Kong pays in Hong Kong dollars, and merchant B in the United States receives the corresponding amount in US dollars converted at the exchange rate. In fact, the participants in the trading and settlement of stablecoin transactions are the payment company R in Hong Kong (e.g., Yuanbi Technology) and the acquiring company S in the United States (e.g., Stripe), both of which are institutional users that meet KYC real-name verification requirements. Of course, user A needs to undergo KYC, but it follows the KYC system of the stored value payment license.

The real question is why they use a Hong Kong dollar stablecoin, which has a lower market acceptance and higher restrictions, in their trading and settlement processes? If they used the widely adopted USDC, it would clearly be easier for the U.S. acquiring company S to accept it, but in the payment process, there is the step of payment company R exchanging HKD for USDC. They can either mint the Hong Kong dollar stablecoin with HKD and then exchange USDC off-chain, which carries legal risks; or it can be a straightforward OTC licensed business, where the Hong Kong dollar stablecoin cannot participate.

Summary

Circle and Coinbase form a symbiotic relationship around USDC: in 2018, they jointly established Centre, and after the restructuring in 2023, USDC is exclusively issued by Circle, while Coinbase acts as a strategic shareholder enjoying reserve interest sharing. Circle builds a value internet on top of USDC as a foundational layer, with a future strategy focusing on CPN to replace traditional global payment systems like SWIFT. If USDC is likened to a circle, Circle and Coinbase can be compared to the two legs of a compass, both indispensable.

The newly introduced Hong Kong “Stablecoin Regulation” may restrict Circle’s development in the Hong Kong market due to KYC requirements for stablecoins, but it also limits the use of local stablecoins in the payment networks of stablecoins. From the perspective of lawmakers, strict KYC measures to combat money laundering and prevent financial risks are understandable, but they also leave some room.

Looking at the development of mobile payments, it is actually the financial technology companies represented by Alipay that, through their business models or innovations, force financial regulatory agencies to introduce new regulatory policies or rules to address the challenges posed by digital payments and financial technology. In the future, the payment field of stablecoins will give rise to a new “Alipay”, and perhaps we will witness the cyclical nature of history once again.