Circle’s USDC issuer files IPO prospectus, shows Coinbase revenue burden

Circle's IPO Reveals Coinbase Revenue-Sharing Challenges Despite Strategic Expansion into Capital Markets

  • Circle has filed for an IPO with $1.7 billion in 2024 revenue but only $167 million in operating income due to high distribution costs to Coinbase.
  • Circle’s partnership with Coinbase requires significant revenue sharing until at least 2029, potentially limiting Circle’s ability to partner with other distributors.
  • Despite constraints, Circle is positioned to capitalize on regulated stablecoin opportunities in capital markets through partnerships with Binance and ICE.

Circle, the company behind the USDC stablecoin, has filed a preliminary prospectus for its initial public offering (IPO). The financial documents reveal that while the company generated nearly $1.7 billion in revenue for 2024, its operating income was only $167 million, largely due to substantial distribution costs paid to Coinbase.

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The prospectus shows that Circle spent over $1 billion in 2024 on distribution costs, with most going to Coinbase. This arrangement stems from when Coinbase held a 50% stake in the Centre Consortium that originally controlled USDC. Although Circle took full control of USDC in 2023 by acquiring Coinbase’s stake for $209.9 million in shares, the ongoing revenue-sharing agreement significantly impacts Circle’s profitability.

Despite these financial constraints, USDC remains the leading regulated stablecoin with growth opportunities. Circle recently established a partnership with Binance, though this required a substantial upfront payment. The prospectus mentions a "$74.1 million increase in other distribution incentive costs related to new strategic distribution partnerships, including our upfront, one-time fee to Binance."

Strategic Opportunities in Capital Markets

Circle is positioning itself beyond crypto markets by expanding into traditional capital markets. The company acquired Hashnote, which offers the USYC tokenized treasury fund, and partnered with ICE, owner of the New York Stock Exchange. This strategy combines stablecoins with money market funds, allowing instant redemption of tokenized assets on demand.

The company highlights the potential for USDC to be used as collateral for margin in capital markets, though USYC has recently lost market share, dropping to third place among tokenized money market funds with assets under management nearly halving since acquisition.

The Coinbase Revenue-Sharing Challenge

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Circle’s deal with Coinbase appears to limit its flexibility until at least 2029. The agreement includes an initial three-year term that can be renewed for another three years, with somewhat unclear provisions afterward. The revenue split is based partly on custodial wallet holdings, with Coinbase receiving half of revenues from off-platform holdings.

This arrangement contrasts sharply with Tether, which reported $12 billion in profit last year with fewer than a hundred employees compared to Circle’s 900. Without the Coinbase revenue-sharing obligations, analysts estimate Circle could potentially earn between $4.5 and $5 billion annually.

The central question for investors is whether Circle can maximize its substantial market opportunities while constrained by its revenue-sharing commitment to Coinbase, and whether this arrangement extends beyond six years.

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