Author: Nancy, PANews
On the evening of May 11, Circle presented a fairly standard financial report, but instead told a future story that excited the market.
On the eve of Circle's earnings release, investors were quite anxious. On one hand, the Clarity Act was about to pass the Senate, and the restrictions on stablecoin interest-bearing provisions could impact Circle's business model. On the other hand, with the change of Federal Reserve chair imminent, expectations of interest rate cuts were rising, and the high-interest-rate bonus period for stablecoins might be gradually coming to an end.
However, with its compelling narrative of AI agent economy and ARC stablecoin public chain, Circle quickly shifted market focus from current performance to growth expectations, successfully igniting market sentiment and driving a significant increase in its stock price.
USDC continues to gain market share, but the interest rate advantage has begun to diminish.
According to its financial report, Circle's revenue in the first quarter reached $694 million, a year-on-year increase of 20%, but lower than the Wall Street consensus of $715 million; adjusted EBITDA was $151 million, a year-on-year increase of 24%.
Despite strong growth in its core business, Circle's net income fell 15% year-over-year to $55 million this quarter. The profit pressure was primarily due to a significant 76% increase in operating expenses to $242 million, mainly driven by a substantial rise in stock-based compensation and related payroll tax expenses following the IPO. However, diluted earnings per share (EPS) reached $0.21, exceeding analysts' expectations of $0.17.
From the perspective of core business, USDC continues to be the growth engine. In the first quarter, the circulating supply of USDC reached $77 billion, a year-on-year increase of 28%; the on-chain transaction volume reached a staggering $21.5 trillion in a single quarter, a year-on-year surge of 263%; and the USDC holdings on the platform reached $13.7 billion, a significant year-on-year increase of 254%.
It's worth noting that, according to an analysis by Mizuho Securities in March of this year, USDC surpassed Tether's USDT in trading volume for the first time, with the former's adjusted trading volume at approximately $2.2 trillion, compared to the latter's $1.3 trillion. Visa also disclosed data showing that USDC continues to gain market share in stablecoin transactions, currently accounting for 63% of all stablecoin transactions.
Benefiting from the expansion of USDC's scale, Circle's reserve income reached $653 million, a year-on-year increase of 17%, accounting for 94% of Circle's total revenue. However, affected by declining interest rates, the reserve return rate decreased by 66 basis points year-on-year to 3.5%. This means that although the scale of USDC continues to expand, the contribution of yield per USDC is declining.
Meanwhile, USDC growth also drove up distribution costs. Distribution and transaction costs reached $405 million this quarter, a 17% year-over-year increase, remaining Circle's largest expense. The partnership with Coinbase remains the primary distribution channel. According to Coinbase CFO Alesia Haas in a previous Coinbase earnings call, the partnership agreement automatically renews every three years and is permanent and cannot be terminated.
Top institutions invest in a group with a valuation of 3 billion, and ARC clarifies its airdrop plan.
The market's focus has shifted beyond Circle's current quarterly data to its future narrative. To move away from a single growth model that relies excessively on USDC reserve interest income, Circle is actively building a diversified revenue structure, with ARC being a core component.
As an institutional-grade Layer 1 public chain under Circle, specifically designed for stablecoin finance, ARC primarily serves scenarios such as payments, foreign exchange, asset tokenization, capital markets, and AI-driven agent economies. Its core positioning is an internet-native economic operating system, aiming to become the foundational infrastructure for global on-chain finance. This L1 chain natively uses USDC as its gas token, is EVM compatible, supports sub-second settlement and configurable privacy features, and cross-chain transfers are completed through Circle's CCTP.
According to the white paper, Arc's initial supply is 10 billion tokens, with 60% allocated to the ecosystem, including token sales, developer incentives, airdrops, and other network growth initiatives; 25% for operating validator infrastructure and generating staking rewards; and the remaining 15% allocated to long-term reserves. The initial annual inflation rate is set at around 2-3%. The Arc mainnet is expected to launch in the summer of 2026, and the testnet was launched in October 2025, processing 244.1 million transactions as of May 5th.
Arc officially disclosed that the reason for issuing the ARC token is that while USDC is suitable as a medium of exchange and asset swap, it cannot effectively coordinate the alignment of incentives and interests among long-term network participants. Therefore, ARC was designed as a native coordination layer of the protocol to align the long-term interests of validators, developers, institutions, and other participants, supporting network governance, enforcement of economic rules, and ecosystem incentives.
According to a recent CNBC report, the ARC token has completed its pre-sale fundraising of $222 million, with a fully diluted valuation of approximately $3 billion. This valuation is nearly three times the current FDV of Tether-backed Plasma L1.
The investment lineup is truly impressive, with a16z leading the $75 million round, and top institutions including BlackRock, Apollo Funds, Intercontinental Exchange (ICE), SBI Group, Janus Henderson, Standard Chartered Ventures, General Catalyst, Marshall Wace, ARK Invest, IDG Capital, Haun Ventures, and Bullish participating in the follow-on investment. This makes Circle the first publicly traded company to conduct a token pre-sale.
Behind the high valuation and top-tier endorsements lies the market's pricing in multiple certainties. On one hand, ARC directly enters the growth track of stablecoin infrastructure; on the other hand, it comes from the market's pricing in factors such as gradually clearer regulations, the expansion of USDC's scale, and Circle's compliance capabilities.
When explaining its investment rationale, a16z Crypto pointed out that most blockchain infrastructure currently serves native crypto users and individual developers, lacking the native support capability for large institutional-level needs. The main reason for participating in the ARC token ecosystem is that as global finance gradually moves onto the blockchain, only a few public chains will be able to support the foundation of an on-chain economic system in the future.
Furthermore, Circle explicitly stated in its latest financial report that the current quarter's results do not yet include ARC-related token sales, ecosystem incentives, and potential revenue contributions. The company will update its earnings guidance to include ARC in the next financial report, and anticipates it will have a significant positive impact on revenue, profit margins, and EBITDA. This means that ARC could become a new growth driver for Circle's future financials.
Building a financial operating system for the AI-driven agent economy
AI is another key battleground in Circle's strategic transformation.
According to reports, Circle's Circle Agent Stack provides native infrastructure support for the rapidly emerging AI agent economy. It enables AI agents to autonomously hold assets, discover services, and execute transactions, operating like independent economic entities, with USDC as the core settlement currency. Simultaneously, the system incorporates built-in access control, spending controls, and compliance safeguards, fundamentally addressing issues such as developers manually managing keys, security risks, and human intervention.
The Circle Agent Stack is now officially online, comprising five core modules: Agent Wallets, which allows AI agents to build on-chain wallets, conduct transactions, access USDC, and operate under preset policies and security safeguards; Agent Marketplace, which allows both humans and AI agents to browse, evaluate, and programmatically integrate services; Circle CLI, a command-line tool for developers and AI agents to quickly create wallets, define policies, discover services, and execute transactions; Circle Gateway-driven Nanopayments, which supports gas-free, high-frequency transfers as low as 0.000001 USDC, is designed for machine-to-machine (M2M) payments and incorporates the x402 protocol; and Circle Skills, which provides Circle implementation patterns and best practices for AI coding tools, helping agents better integrate Circle infrastructure.
The launch of Agent Stack marks a significant step for Circle in expanding into an AI-powered financial operating system. A related research report from Citigroup points out that this product strengthens Circle's transformation from a single stablecoin issuer to a provider of agent-based economic infrastructure.
With a year-to-date gain of nearly 60%, the market is casting a vote of confidence.
The market chose to buy into the story. Following the earnings release, Circle's stock price surged nearly 16% intraday on Monday, approaching its March high, and has now risen more than 57.8% year-to-date. As of the latest data, CRCL's market capitalization has reached $32.572 billion.
As a rising star in the stablecoin sector, Circle is gaining market confidence. For example, Cathie Wood's Ark Invest recently purchased approximately $5.5 million worth of Circle Internet Group stock, totaling 41,904 shares, through three ETFs: ARKK, ARKW, and ARKF. ARK had already increased its holdings multiple times during the previous stock price correction, and Circle is now the sixth largest holding in the ARKK ETF, with a weighting of 4.6% and a market value of approximately $306.5 million.
Dan Bin, a well-known domestic investor and chairman of Oriental Harbor, recently announced that he has established a position in CRCL. He believes that one of the core catalysts for the rise is the upcoming key progress of the US Clarity Act. This act is considered an important legislative branch to promote the implementation of a crypto regulatory framework, which may help alleviate long-term regulatory uncertainty in the industry and open up long-term growth space for leading compliant stablecoins such as Circle. At the same time, Circle's core business is entering a period of explosive growth, with the circulating supply of its issued USDC exceeding $79 billion, a record high. With the growth of interest income from reserve assets, the company's profit forecast for the first quarter of 2026 is clear, and its business fundamentals continue to be strengthened.
Despite a clear strategic transformation direction, Circle currently remains highly dependent on USDC reserve interest income, and its transition to programmable payments and L1 infrastructure is still in its early stages, lacking a scalable and predictable growth curve. Whether its current high valuation can truly break through its ceiling remains to be seen.
