Circle's stock price fell by 13% in a single day, and the shadow of declining Interest Rate looms over the stablecoin profit model.

On November 12, 2025, Circle Internet Group Inc. (NASDAQ: CRCL) saw its stock price fall by 13% after the release of its third-quarter financial report, marking the largest single-day drop since June. Despite a 66% rise in quarterly revenue to USD 740 million, exceeding market expectations, the reserve yield dropped by 96 basis points to 4.15%, raising investor concerns about the sustainability of the stablecoin business model during a declining interest rate cycle. Company founder Jeremy Allaire emphasized that the Circulating Supply of USDC more than doubled year-on-year, but the market is more focused on the potential impact of Fed interest rate cuts on core profit sources.

Circle Q3 Financial Report Performance and Market Reaction Analysis

Circle's third-quarter performance shows a clear “ice and fire” characteristic. In terms of revenue, it performed strongly, with actual income of $740 million, about 4.6% higher than the average analyst expectation of $707.4 million from Bloomberg surveys. The net profit reached $214 million, equivalent to $0.64 per share, which includes $61 million in tax benefits and $48 million in gains from changes in the fair value of convertible debt. However, these highlights were completely overshadowed by the decline in reserve yield.

Circle Q3 Key Financial Data

Revenue: 740 million USD (YoY +66%)

Net profit: 214 million USD (including special income)

USDC Circulating Supply: 75 billion USD (YoY +100%)

Reserve Yield: 4.15% (MoM -0.96%)

Operating expenses: year-on-year +70%

The market reaction was stronger than many analysts expected. Dan Dolev, an analyst at Mizuho Securities, pointed out: “The performance in the third quarter was acceptable, but the guidance for the fiscal year 2025 suggests a slowdown in growth in the fourth quarter and a difficult climb ahead.” This concern is reflected in the trading data: although Circle's stock price has risen nearly 180% since its listing in June, it has fallen more than 65% from its summer peak, indicating a repricing of the stablecoin business model.

Circle Interest Rate Sensitivity and Profit Structure Risk

Circle's profit model is essentially highly correlated with the monetary policy cycle. The majority of the company's profits come from interest income on U.S. government securities that support USDC, which performs well during rising interest rate cycles but immediately faces pressure after the Fed began cutting rates in September. Baird analyst David Koning pointed out, “Investors may be concerned about the rising distribution costs.” Data shows that the profit margin after deducting distribution costs for the fourth quarter is expected to be around 35%, down from 38-40% in the previous three quarters.

Distribution, trading, and other costs surged 74% year-on-year, primarily reflecting the increase in distribution payments due to the growth in USDC circulating balance, as well as the increase in average USDC holdings on the Coinbase Global Inc. platform. Although Circle updated its full-year guidance upper limit to 38%, the market seems to believe that this target will be difficult to maintain in a declining interest rate environment.

Circle's Product Diversification Strategy and Transformation Path

In the face of cyclical risks to its core business, Circle is accelerating its revenue diversification strategy. The company is developing a blockchain-based payment network and tokenized money market funds, attempting to reduce its reliance on pure interest income. Allaire stated in an interview after the earnings report release: “When interest rates fall, there will be more investment capital and a faster circulation of money in the economy, which actually creates a strong tailwind for the adoption of this new form of currency and technology.”

Circle Emerging Business Line Progress

Blockchain Payment Network: Arc Blockchain Testnet Attracts Participation from Over 100 Companies

Tokenized Funds: Exploring Compliant Money Market Fund Products

Cross-border payments: Expanding the enterprise-level cross-border settlement network

Institutional Services: Expand Custody and Compliance Solutions

Arc blockchain is a key infrastructure for Circle's strategic transformation. This blockchain platform, designed specifically for traditional financial institutions, aims to help them bring more economic activities on-chain. Circle announced plans to launch a native token on Arc, which could be an important step in building more complex revenue models. However, these new businesses are unlikely to replace the contribution of interest income in the short term.

Evolution of the Stablecoin Market Competition Landscape

Despite facing challenges, Circle's fundamentals in the stablecoin market remain solid. The circulating supply of USDC has reached 75 billion USD, firmly maintaining its position as the second in the industry, only behind Tether Holdings SA's 183 billion USD USDT. The rapid rise in circulating supply partially offsets the impact of falling interest rates, as Allaire emphasized: “Interest rates are not the determining factor of actual income; the growth and adoption of the network are the determining factors of income.”

However, the competitive environment is becoming increasingly complex. Traditional financial giants like PayPal's PYUSD and JPMorgan's JPM Coin are gradually expanding the application scenarios of their stablecoin projects, while new financial institutions like SoFi have also announced their own stablecoin plans. At the same time, changes in the regulatory environment may reshape the market landscape, as the passage of the first federal stablecoin framework in the U.S. sets higher standards for compliance.

Industry Impact and Investment Outlook

The stock price fluctuations of Circle reflect a new assessment of the stablecoin business model by the market. In a declining interest rate cycle, the model that purely relies on reserve income faces severe challenges, and investors prefer projects with diversified income sources and counter-cyclical capabilities. This also explains why, despite the strong rise in USDC Circulating Supply, the market remains cautious about Circle's future.

From an investment perspective, Circle's valuation needs to comprehensively consider both traditional financial attributes and technological innovation attributes. Its similarities with traditional banking (interest income driven) and differences (value of the technology platform) together determine the reasonable valuation range. Analysts are beginning to use more complex valuation models, incorporating network effects, technological moats, and regulatory advantages into pricing considerations.

Regulatory Evolution and Systemic Risk

As a publicly listed digital asset company, Circle faces stricter information disclosure and compliance requirements than private competitors. This transparency may amplify market fluctuations during times of crisis, but in the long run, it helps establish industry standards. The strict requirements from the U.S. Securities and Exchange Commission regarding the accounting treatment of digital assets also make Circle's financial data more comparable and reliable than that of its unlisted peers.

Looking ahead, Circle's development path will provide important reference for the entire digital asset industry. Whether it can successfully transform into a diversified blockchain financial service provider, rather than just a stablecoin issuer, will test the long-term viability of the digital asset business model. In the context of the growing trend of integration between traditional finance and the crypto economy, Circle's exploration has industry significance that goes beyond a single company.