Circle and Coinbase: Compasses

Foreword

Before the US stock market opened on August 12, 2025, Circle, the "first US stablecoin stock," released its first financial report since its IPO. As of June 30, USDC (USDC) in circulation reached $61.3 billion, a 90% year-over-year increase.

Thanks to this significant increase in USDC circulation, revenue and reserve income reached $658 million, a 53% year-over-year increase. The report also revealed a net loss of $482 million, primarily due to two non-cash expenses related to the IPO: the cost of employee stock awards vesting upon the company's IPO and the increased valuation of convertible bonds due to the stock price increase. Following the release of the report, Circle's US stock price quickly rose by nearly 14% in pre-market trading.

Just before, on July 31, Coinbase, the first cryptocurrency exchange in the United States, released its second-quarter financial report, which showed that profits soared to US$1.4 billion, far exceeding the US$36 million profit in the same period last year, but this was mainly due to the huge gains from its investment in Circle. However, the core business performed weakly and revenue fell short of Wall Street expectations, causing its stock price to fall by more than 16% the next day, and dragging Circle's stock price down by more than 8%. The partnership between Circle and Coinbase is one of the most notable strategic alliances in the cryptocurrency space. If USDC is a circle, Circle and Coinbase can be likened to the two legs of a compass. Through a carefully designed business structure, the two companies have formed a unique symbiotic relationship within the USDC stablecoin ecosystem. Circle's Past and Present: In 2012, Coinbase was founded in Delaware by former Airbnb engineer Brian Armstrong and former Goldman Sachs trader Fred Ehrsam. Its earliest product was a Bitcoin wallet. The following year, Circle was founded in Boston by Jeremy Allaire and launched Circle Pay, a Bitcoin payment product designed to help investors "more easily convert, store, send, and receive Bitcoin and other digital currencies." In 2013, Coinbase entered the cryptocurrency exchange market, becoming one of the earliest. In 2015, Coinbase became the first licensed cryptocurrency exchange in the United States. In 2017, Circle acquired the regulated US exchange Poloniex for approximately $400 million, entering the exchange business and establishing three business lines: exchange, OTC, and its original payment business. In 2018, Coinbase and Circle jointly established the Centre Consortium and launched the USDC stablecoin. USDC is jointly owned by Coinbase and Circle. Regarding USDC revenue distribution, Coinbase receives 100% of the reserve interest income for USDC held on the Coinbase platform, while Coinbase and Circle each receive 50% of the reserve interest income for USDC held outside the Coinbase platform. In 2019, Circle shut down all three of its business lines to focus entirely on Centre Consortium operations. On April 14, 2021, Coinbase went public on the Nasdaq Stock Exchange. Its market capitalization peaked at $100 billion, making it the first publicly listed cryptocurrency company in the United States. In March 2023, the collapse of Silicon Valley Bank, where Circle held a portion of its reserves, caused USDC to temporarily decouple and drop to $0.87. In August, Circle and Coinbase restructured their partnership: the Centre Consortium was dissolved, and Circle acquired Coinbase's remaining shares, becoming the wholly-owned issuer of USDC. Coinbase, as a strategic investor, held a portion of Circle's equity and retained the profit-sharing agreement. In May 2025, Coinbase was approved for inclusion in the S&P 500 Index. On June 5, 2025, Circle successfully listed on the New York Stock Exchange at an issue price of $31 per share. The stock price surged on its first day, reaching a peak of $298 on June 23, a nearly tenfold increase, with its market capitalization exceeding the value of its reserve assets. Circle's listing also became the largest cryptocurrency company IPO since Coinbase's 2021 IPO and the first major IPO for a stablecoin issuer. Coinbase and Circle have formed a symbiotic relationship within the USDC ecosystem, with Coinbase providing crucial distribution channels and liquidity support for USDC, while Circle is responsible for issuance and compliance.

From a financing perspective, Circle completed four rounds of financing from 2013 to 2016, raising a total of US$136 million. After its Series D round in 2016, Circle was valued at US$480 million. In 2018, Circle completed a US$110 million Series E round of financing, led by Bitmain, at a valuation of US$3 billion. In 2022, Circle brought in BlackRock, a key partner, as the manager of its USDC reserve fund and completed a $400 million Series F funding round, led by BlackRock, at a valuation of $7.7 billion. In terms of revenue, Circle's 2024 revenue will rely on investment income from the reserve fund and interest on bank deposits for 99% of its $1.661 billion. 90% of the reserve fund is managed by a BlackRock fund and invested in US Treasury bonds (maturing within 93 days), while the remaining 10% is held as a deposit at Bank of New York Mellon. Due to a profit-sharing agreement with Coinbase, Circle will pay Coinbase $908 million in 2024, representing 54.2% of its revenue. In terms of compliance, Circle holds MTL licenses in 46 states, including the New York DFS BitLicense. In the EU market, Circle is the first stablecoin issuer to receive a MiCA compliance license, allowing USDC and EURC (Circle's euro-denominated stablecoin) to legally circulate in the EU. Circle has also received approval from Singapore's MAS. Some countries and regions, such as Thailand, Argentina, Japan, Brazil, and Mexico, recognize the legality of USDC, despite not yet issuing licenses.

The Future of Circle — CPN

Circle’s “2025 State of the USDC Economy,” released in January, has clarified the future development of Circle and USDC, which is to replace old global payment channels — SWIFT and ACH — through the Circle Payments Network (CPN). SWIFT and ACH were established in 1977 and 1972, respectively. Today, global communications have undergone a complete transformation, allowing people to connect instantly around the world. However, global payments remain stuck in the past half a century, manifested in extremely high transaction costs (a 0.1% remittance fee and fixed remittance communication fees), extremely long transaction delays (one to six business days), and significant transaction friction (exchange rate friction). This, in turn, creates financial inclusion issues for a large number of people who lack access to the global banking system. The emergence of stablecoins can leverage the innovative achievements of blockchain networks to improve the global banking and financial system. Circle is building an internet of value powered by stablecoins, providing a network upgrade for global finance. This is the aforementioned CPN. Connecting leading global banks, payment providers, and other institutions, CPN is centered around USDC, the world's largest regulated stablecoin, connecting all participants in a real-time global settlement system with ultra-low transaction costs and global accessibility. Circle serves as the lead governance and standard-setting body for CPN and also serves as the network operator. Through CPN, Circle is building a new platform and network ecosystem that will create value for every stakeholder in the global economy and help accelerate the societal benefits of this new internet-based financial system. These stakeholders include:

• Enterprises: Importers, exporters, merchants, and large corporations can leverage CPN-enabled financial institutions to eliminate significant costs and friction, strengthen global supply chains, optimize treasury 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 can provide these improved services faster, at a lower cost, and with greater simplicity;

  
  

• Ecosystem Builders: Banks, payment companies, and other providers can leverage CPN CPN aims to leverage the platform services of the stablecoin ecosystem to develop innovative payment use cases, leveraging the programmability of stablecoins, SDKs (Software Development Kits), and smart contracts to foster a thriving ecosystem. Over time, this will unlock the full potential of stablecoin payments for businesses and individuals. Furthermore, third-party developers and businesses can introduce value-added services, further expanding the network's functionality. Nubank, a Latin American emerging bank; Chipper Cash, one of Africa's largest fintech companies; Worldpay, a global payment provider; Stripe, a US payment giant; and Circle Coin Technology, a participant in the Hong Kong Stablecoin Sandbox.

  

  Compliance: A Brief Discussion on Hong Kong's Stablecoin Ordinance

  In the global banking and financial system, compliance is of paramount importance. This is why Circle puts compliance first and actively applies for licenses around the world. Circle's compliance needs to meet the compliance requirements of local governments, which are generally manifested in:

  • Issuance/Redemption Phase: Ensuring KYC/AML, ensuring the adoption of a "full reserve model," and ensuring redemption within a reasonable period;

    
    

  • Circulation Phase: Real-time transaction screening, continuous monitoring, and fulfilling regulatory obligations (such as freezing accounts).

  On August 1, 2025, the Hong Kong Stablecoin Ordinance officially came into effect, with the KYC real-name verification requirement becoming a focus of controversy.

On August 1, 2025, the Hong Kong Stablecoin Ordinance officially came into effect, with the KYC real-name verification requirement becoming a focus of controversy.

According to the HKMA, stablecoin issuers must not only verify user identity information and retain data records for at least five years, but also prohibit services for anonymous users. This means that stablecoins in Hong Kong may initially be unable to directly interact with DeFi protocols. Decentralized wallets and permissionless addresses will be isolated from the compliance system, and such interactions will be considered "unauthorized use" under the law. This shows that, compared to the scalability and freedom of on-chain protocols, Hong Kong regulators are more focused on controlling the circulation of stablecoins. While Circle's USDC will also undergo real-time transaction screening and continuous monitoring during the circulation phase, this does not affect inter-wallet transfers and DeFi protocol interactions. This move essentially excludes ordinary users from using Hong Kong's compliant stablecoins and also means Circle's USDC will have difficulty obtaining a compliant stablecoin license in Hong Kong. In my opinion, ordinary users should continue to use USDT/USDC. Hong Kong's stablecoins themselves cannot directly compete with USDT/USDC in wallets and DeFi scenarios. The advantages of Hong Kong's stablecoins, or compliant stablecoins from other countries or regions, lie in compliant scenarios, which are controlled by the government. USDT/USDC is inevitably restricted, for example, by collaborating with the Hong Kong Stock Exchange to purchase securitized tokens or other RWA tokens. These asset transactions inherently require strict KYC and identity verification. If the focus is on stablecoin payment networks, the impact will be significant. For example, if user A in Hong Kong pays in Hong Kong dollars, and merchant B in the US receives US dollars at the corresponding exchange rate, the parties involved in the stablecoin transaction and settlement process are Hong Kong payment company R (e.g., Yuanbi Technology) and US acquiring company S (e.g., Stripe). Both are institutional users and must meet the KYC (know your customer) and real-name verification requirements. While user A does undergo KYC, it follows the KYC regulations for stored-value payment licenses. The real question is why would they use a Hong Kong dollar stablecoin, which has lower market acceptance and higher restrictions, for their transactions and settlement? Using the widely adopted USDC would obviously be more acceptable to US acquiring company S, but the payment process would involve payment company R exchanging HKD for USDC. Either they mint HKD stablecoins using HKD and then exchange them for USDC off-chain, which carries legal risks; or they could simply operate an OTC licensed business, in which the Hong Kong dollar stablecoin cannot participate. Summary: Circle and Coinbase have formed a symbiotic relationship around USDC: they jointly established Centre in 2018, and after a restructuring in 2023, Circle will exclusively issue USDC, while Coinbase, as a strategic shareholder, will share in reserve interest. Circle is building the Internet of Value using USDC as its foundational layer, and its future strategy focuses on CPN as an alternative to traditional global payment systems like SWIFT. If USDC is a circle, Circle and Coinbase can be likened to the two legs of a compass; neither is indispensable. The newly enacted Hong Kong Stablecoin Ordinance's KYC requirements for stablecoins may limit Circle's development in the Hong Kong market, but it also restricts the use of local stablecoins within stablecoin payment networks. From a lawmaker's perspective, strict KYC (know your customer) regulations to combat money laundering and prevent financial risks are understandable, but some wiggle room should be left. Looking at the development of mobile payments, it's fintech companies like Alipay, through their business models and innovations, that have forced financial regulators to introduce new policies and rules to address the challenges posed by digital payments and fintech. In the future, a new "Alipay" will emerge in the stablecoin payment space. Perhaps we'll witness history repeating itself.