Circle released its third-quarter results before the U.S. market opened on Nov. 4 Eastern Time. The article’s main takeaway was that the earnings beat came mostly from Arc token sale revenue recognized during the quarter. Strip that out, and the underlying performance looked far less impressive, matching concerns that had built ahead of the report.
Reserve interest income fell as expected
Reserve interest income totaled $660 million in Q3, in line with expectations. Even though USDC market capitalization rose 8% year over year, that revenue line still declined 8% because interest income fell on the same basis. On a sequential basis, average USDC circulation in Q3 was $73.3 billion, down 4% from Q2.
Arc token sale revenue was recognized faster than expected
Other revenue in Q3 came in at more than $200 million, and $180 million of that was tied to Arc token sales. The recognition pace was ahead of market expectations, which had been around $90 million, and it also exceeded the timing implied by Circle’s earlier full-year guidance of $180 million for that revenue stream.
The article said this revenue should not be treated as stable or recurring. It described the contribution as closer to a one-off item. Circle kept its full-year guidance for other revenue unchanged at $310 million to $330 million, which the article took as a sign that Q4 is not expected to include another comparable Arc contribution. Across two presale rounds this year, Arc brought in a combined $224 million. After recognizing $180 million in Q3, about $40 million remains to be recognized next year.
According to the article, the Arc presale drew substantial institutional capital. It argued that the transaction is closer in substance to an equity-style subscription on the future economics of the Arc public chain. Circle first records the proceeds as deferred revenue, then recognizes them as revenue based on the development progress of Arc-chain products.
On that reading, the presale monetizes part of Arc’s future value in advance rather than creating a recurring operating revenue stream. The article said sustainable revenue is expected only in 2027, with sources including Arc transaction fees, staking income and fees from the CPN payments network.
One-off revenue inflated profit while the core trend weakened
Because Arc token sale revenue carries little to no cost, the $180 million recognized in Q3 was described as close to pure profit. That made quarterly earnings look stronger than the underlying business trend. Excluding that effect, profitability was moving lower: revenue declined while costs remained relatively rigid, and GAAP operating margin came in at 3.9%, down 1 percentage point from Q2.
At the same time, the quarter did show some cost improvement tied to layoffs. Nearly half of Circle’s expenses are staff compensation, and adjusted operating expenses, excluding severance costs, fell 5% from the prior quarter. The article linked that move to a 5% workforce reduction during the quarter.
Hyperliquid revenue-sharing pressure is starting to reach the bottom line
The article said the impact of revenue sharing with Hyperliquid will begin to show up in profit from Q3 onward. Based on a rough estimate cited in the piece, Circle could lose nearly $100 million in gross profit per year, with the pressure potentially becoming more visible as early as Q4.
Hyperliquid was described as the largest on-chain perpetual futures exchange and also operates its own public chain. Users must deposit USDC as collateral before trading, leaving about $6 billion in USDC on the platform. For Circle, the article said, this is one of the few large USDC pools outside centralized exchanges.
Against the backdrop of ongoing wrangling among stakeholders around the CLARITY Act, Hyperliquid has asked Circle since September to return reserve interest tied to those USDC balances. The article also noted that Circle already has a pre-arranged revenue-sharing agreement with Coinbase.
