The Rundown - Deep Dive: What Circle Actually Does (And Why Stablecoins Matter)

Episode Date: June 14, 2025

Circle’s stock just tripled after going public, but behind the headlines is a much bigger story about the future of money. In this deep dive, we explain how stablecoins like USDC actually work, how Circle makes its money, and why global banks and regulators are racing to catch up. We break down the high-stakes rivalry with Tether, the Fed’s influence on Circle’s revenue, and the legislation that could reshape the industry. If Circle succeeds, it won’t just be a crypto company; it could become the new backbone of global finance.This video is for informational purposes only and reflects the views of the host and guest, not Public Holdings or its subsidiaries. Mentions of assets are not recommendations. Investing involves risk, including loss. Past performance does not guarantee future results. For full disclosures, visit ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Public.com/disclosures⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠.

Welcome back to the rundown for another weekend deep dive. Today, we are breaking down Circle. The stable coin company became the first major crypto company to IPO since Coinbase back in 2021. And they're already sending shockwaves through the industry. Circle stock serves 300% in its first three days of trading. And that's turning heads in finance, tech and policy circles. No pun intended. But you know, this isn't just another crypto high.

hype story, because behind Circle is a powerful idea, that money itself is being reprogramed, and that stable coins are going to play a huge part in the future of finance. So in today's episode, we're looking at what stable coins actually are and how Circle even makes money as a business. And we'll tell you why Wall Street banks and lawmakers are suddenly racing to catch up. We got a great one for you today. Let's dive in. Let's start by defining what a stable coin even is.

A stable coin is a digital asset designed to track the value of another asset, typically the US dollar. Think of stable coins as a digital poker chip for the internet that is programmable and lives on the blockchain. For every chip in circulation, there's a real dollar or something very safe like a government bond, sitting in a vault somewhere to back up that chip. And stable coins have allowed people to move money around the globe, 24-7 almost instantly with very low fees without needing a traditional bank. It's like the best of both worlds. You get the benefit of the crypto tech, low fees, 24-7 access, fast transactions,

but also the stability of traditional finance and the US dollar. Right now, the stable coin market is dominated by two players, Tether and Circle. Together, both these companies control 86% of the stable coin market. Now, Tether is the big dog here. They control 62% of market share. We're going to talk more about them in a bit. And then Circle holds about 24% of the stable coin market. Now Circle's been around for a while now.

They were founded back in 2013, which is like a lifetime ago in the crypto space. And their mission at the time was to increase global economic prosperity through the frictionless exchange of value. Essentially, they wanted to rebuild the financial system for the internet era. And the way they were going to do that was with a stable coin, they launched in 2018 called USDC. This was a pretty big deal because this stable coin was a dollar-backed digital currency that was redeemable, one for one, for the US dollar. And most importantly, it was regulated.

So Circle hoped that this would set their stable currency apart and ultimately let people and businesses transact more freely and frictionlessly while also facilitating this new use case for money. So the question is, who is actually using this stuff? Well, at first, it was mostly crypto traders who needed a way to move U.S. dollars between exchanges, even at 3 o'clock in the morning on a Sunday without having to wait for a bank to do a wire transfer. But now the use case for stable coins is growing, especially in emerging markets, where the U.S. dollar is more stable than local currencies.

So stable coins backed by the U.S. dollar offer citizens of emerging markets a place to part their money easily. And look, as the adoption of stable currency grows and benefits from not, network effects, the possibilities of newer use cases from fintech firms and banks will continue to stack up. In fact, Circle thinks that their opportunity is as big as the entire global monetary supply. The company is not shy about setting the bar high for themselves. They want USDC to be the default way people move money across the world. One place they're starting is remittances and cross-border payments. According to the consulting firm McKinsey, remittances in cross-border payment market generated $288 billion in revenue in 2023.

And Circle wants a slice of that. Circle also sees itself becoming the preferred medium through which people buy, sell, and trade digital assets. And if that wasn't enough, they also want to become the standard for peer-to-peer transaction. So essentially, Circle wants to be Venmo, Western Union, and the New York Stock Exchange for crypto all at once. Like I said, the company has big goals.

But how do they make money from all of this? Well, let's talk about it. So, if USDC is always worth $1, how does Circle actually make money from all of this? Well, they make money from something called reserve income. And simply put, they make money from interest. So when people buy USDC, they give Circle real US dollars. Circle then takes that money and invest it in super safe, boring assets like US Treasury bonds that pay interest. Now, just to do some simple math here, for example, if Circle holds, say, $30 billion in U.S. Treasury,

which yields 5%, they would earn about $1.5 billion a year in interest from holding that cash. In fact, reserve income made up 99% of Circle's total revenues last year. In 2024, that amount was $1.66 billion, which was up 16% from 2023. and then in 2023, that income nearly doubled thanks to rising interest rates by the Federal Reserve. Visa estimates that Circle and Tether combined earned $7 billion in interest income last year. And the more people that adopt USC, the more cash Circle would have to reinvest in U.S. Treasury bonds and the more interest income they would earn. It's a pretty good business, but with one tiny problem.

Circle's entire business model is dependent on interest rates set by the Fed's. Federal Reserve, which they have no control over. I mean, even the president of the United States doesn't have control over that. Right now, the rates are around 4 to 5%. But if the Fed starts cutting raids, which many people are expecting, that could really deliver a blow to Circle's revenue. Oh, and there's also another catch. Circle doesn't actually get to keep all that reserve income they make.

Circle has to actually pay a huge chunk of its revenue to its distribution partners. Those are the exchanges like Coinbase, Binance, and others that get the U.S. SDC into people's hands. In 2024, they paid out over 60% of the reserve income in those fees. And these costs are going up. Distribution and transaction costs for Circle increased by 40% in $291 million to $291 million compared to the prior year. That was mostly driven by the $217 million increase in distribution costs paid to Coinbase alone. And that's why some investors see Coinbase stock as a sneaky way to participate in circles upside without the interest rate in regulatory risk associated with investing in a pure play stable coin company. Because whatever Circle makes as a business,

they're going to have to pay a chunk of that to Coinbase. And that's why there's a lot of pressure on Circle to diversify their revenue. Now, just 1% of their revenue comes from non-interest sources, primarily their Circle Mint platform, which offers APIs for minting USDC and Treasury infrastructure. The Circle Mint program brought in $15.3 million in 2024. Now, Circle's trying to work on other long-term strategies as well, including building financial infrastructure rails, monetizing cross-chain and cross-border transactions, and launching yield-bearing and Treasury Solutions.

Nothing has really caught on yet, but if the entire Playbook comes together as Circle is planning, they could one day become the back-end infrastructure for global digital money. Kind of like what Stripe has become for e-commerce payment, and what Visa is for credit and debit card networks. But as of right now, they have a long way to go. And they aren't even the biggest player in the stablecoin category. That would be Tether.

So let's talk about their biggest competitor and some of the other emerging players. Before we talk about the new players, let's talk about the leader in the stable coin space, Tether. Tether's stable coin is called USDT. The company is affiliated with the Chinese-based crypto exchange, BitFinex, and it's currently headquartered in El Salvador. Now, Circle only mentioned Tether twice in their S-1 filing, but they made sure to flag Tether's Chinese ties. Pretty strategic move in today's political climate, I would say. But it's a valid point, because while USDT is the largest dollar peg stable coin in circulation, there's a lot less oversight into the company's finances. In fact, the company has never

submitted a full financial audit, and USDT has been delisted in the EU due to new European compliance rules. That's the exact opposite approach that Circle has taken. Circle is a compliance first company, even saying that the regulatory alignment is a competitive advantage. But that hasn't stopped Tether from dominating the stable coin space so far. I mean, just taking a look at the market share difference, Tether has about 155 billion USDT in circulation compared to just 60 billion for Circles, USDC. So Tether is more than double the size of Circle. And the revenue differences also matches. According to analytics firm, Defi Lama, Tether pulled in $6.1 billion in revenue over the past 12 months. And the one key area of contrast is how Tether manages their reserves.

Now, while they do hold about $120 billion in U.S. Treasury bills and cash equivalent, roughly 19% of its reserves are in assets like corporate bonds, Bitcoin, precious metals, secured loans, and other non-traditional investments. This is based on information. from a recent independent auditor's report for Q1 of 2025. So essentially, Tether is using the dollars they take in and investing it in higher risk assets like Bitcoin and corporate bonds. That makes them more money, but that also puts them at a risk. Like what would happen if some of these investments turns sour?

Would Tether still be able to back all their stable coins one for one? That's definitely a concern for some people when it comes to using Tether. And that's how Circle is trying to stand out. Now, moving beyond Tether, outside of the other, of the big two, other stable coins are also starting to emerge. One of the most notable ones is PayPal's USD, which is issued and operated by Paxos. PayPal's stable coin is already integrated into PayPal's wallet products. And while distribution does remain limited and their adoption is in the early stages, its emergence was significant enough to earn a mention in Circles S1 right after

Tether. Plus PayPal is one of the most recognizable brands in the fintech space. As this opportunity becomes clearer and bigger and regulatory hurdles start to fall, new players are bound to try to enter the space. And beyond just the fintech players, Wall Street banks are also trying to get in. So let's talk about that. The Wall Street Journal reported a few weeks ago that banks, including J.P. Morgan, Wells Fargo, Bank of America, and Citigroup are exploring a joint stable coin venture to go head to head with the crypto industry. See, banks are starting to feel threatened by crypto companies and stable coins. Stable coins offer a better alternative to moving money around.

It's cheaper, faster, and available 24 hours a day, seven days a week. So more and more people are going to gravitate towards stable coins over time. So the banks are trying to get ahead of that by creating their own stable coin. But as these banks are playing catch up to crypto companies, crypto-native companies are trying to get into banks. Some of them are even applying for banking charters. Crypto firms including Circle, Bitgo, Coinbase, and Paxos are among those seeking banking charters, according to the Wall Street Journal. So we're starting to see a blurring of the two industries.

Crypto and traditional finance are all starting to compete with each other. And at some point, it's all just going to be finance. Now, right now, the only crypto company in the U.S. with a federal banking charter is Anchorage Digital. And it does come with a steep cost. The company spends tens of millions of dollars a year to follow regulations. But regulation might be getting a bit simple moving forward. Right now, there's a groundbreaking legislature making its way through Washington, D.C., and they could have a massive impact on the future of crypto and stable coins.

For years, stable coins have operated in a regulatory Wild West, but that's about the change. A bipartisan Senate bill called the Genius Act is making its way through Congress. And the goal of this bill is to create a federal framework for stable coins, issuers, which would finally bring them into the mainstream financial system. Supporters of this bill say this could solidify the U.S. as the global capital of crypto. And with stable coins being backed by U.S. treasuries, it could also increase the demand for U.S. debt, which would lower the borrowing cost for the government. But there are critics of this bill, and they see risk.

Some warn that linking stable coins to closely with traditional finance could over-expose the system to crypto's volatility. Stable coin operators like Circle and Tether now hold more short-term U.S. debt than China does. In fact, the only financial institutions holding more U.S. short-term debt than the collective holdings of stable coin operators are J.P. Morgan and Fidelity. So critics are concerned about that, and one of the loudest voices in opposition is Senator Elizabeth Warren, who raised concerns about inadequate consumer protections and the growing influence of Trump-aligned crypto firms. But right now, the markets and investors are more. focus on the upside. Since Circle went public last week, their stock has tripled in value, giving the company a market cap of over $25 billion at the time of this recording. And that

could be a signal that the financial world is at a turning point. That's why you have traditional Wall Street banks looking to jump into stable coins themselves. Now, there's still a lot of questions about stable coins and the business model of stable coins. But Circle is betting their future on the idea that money is no longer just about paper or metal, it's about coat. And if they're right, they won't just be another successful fintech company. They might be the new plumbing

for the entire global economy. Well, all right, guys, that's it for today's weekend, deep dive. If you like this episode, be sure to subscribe to the podcast on Apple, Spotify, YouTube, or wherever you listen to your podcast. We filmed these deep dive episodes with videos so you can watch them on Spotify or YouTube. And while you're there and you want to support the show, consider giving us a five-star rating

and leaving us a comment, telling us what you thought about this episode and what topics you want us to cover in future deep dive episodes. Thank you guys so much for listening. Shout out to Mike and Connor for all the work behind the scenes and we'll see you guys back here on Monday.