Circle is operating at a larger scale than ever, but the economics behind USDC look increasingly constrained. In May 2026, the total stablecoin market capitalization moved past $320 billion, and USDC circulation climbed to $78.1 billion. Yet Circle’s first-quarter 2026 earnings told a different story: earnings per share came in above expectations, revenue missed Wall Street estimates, and the stock pulled back sharply from its peak.
The report’s central argument is simple. USDC is not struggling because of a lack of demand. It is struggling because the larger it gets, the thinner Circle’s share of the underlying interest income becomes.
Most of Circle’s revenue comes from reserve income, but Circle does not keep most of it
Circle’s business model is straightforward. From 2022 through 2024, 95% to 99% of its revenue came from one source: investing USDC reserves in short-dated U.S. Treasuries and reverse repurchase agreements and collecting the yield.
In practical terms, the report says USDC functions much like a money market fund whose unit is called USDC. If a user deposits $1 and mints 1 USDC in a 5% rate environment, that dollar can generate $0.05 of annual interest. The problem for Circle is that it does not get to keep that full $0.05.
Users treat 1 USDC and 1 USDT as interchangeable in purchasing power, and switching costs are low. That gives pricing power to the parties that control trading pairs, fiat on- and off-ramps, and wallet distribution.
BlackRock is first in line. Roughly 80% to 90% of Circle’s reserves are placed in a government money market fund managed by BlackRock, with market estimates putting the management fee at about 8 to 10 basis points.
Circle itself keeps only a relatively small issuer reserve, estimated by industry participants at around 12 to 15 basis points, to cover compliance, audits, and cross-chain infrastructure. Against gross reserve yields close to 5%, that retained amount is limited.
The largest share goes elsewhere. Under Circle’s cooperation agreement with Coinbase, all residual interest associated with USDC held on the Coinbase platform goes to Coinbase. In the first quarter of 2026, about $19 billion of USDC sat on Coinbase on average, more than a quarter of total circulation. On that basis, more than 25% of reserve income was directed away from Circle.
Binance also receives economic incentives. The report says Circle previously paid Binance a $60.25 million upfront payment. As long as Binance-held USDC stays above $1.5 billion, Circle must continue paying monthly incentives.
Even the USDC circulating in DeFi and other channels does not fully belong to Circle economically. That portion of the interest is split 50-50 with Coinbase.
Stack those claims together and the path of interest on each $1 of USDC looks like this: BlackRock takes management fees, Circle keeps a small base spread, Coinbase receives all of the residual yield on custodial balances on its platform, Binance gets incentive payments, and whatever remains on other balances is split in half with Coinbase.
The income statement reflects that structure clearly. In fiscal 2024, Circle reported $1.661 billion in total revenue and paid $908 million to Coinbase, equal to 54.2% of revenue. By fiscal 2025, Circle’s margin after distribution costs had fallen to 39%. Put differently, more than $60 out of every $100 of interest income was going to distribution partners.
Higher circulation is not solving the problem
A natural response would be to ask whether Circle can offset weaker economics by growing circulation fast enough. The company has tried. USDC circulation reached $75.3 billion by the end of 2025 and kept rising after that. But rate conditions moved the other way. In the fourth quarter of fiscal 2025, average circulation doubled year over year while reserve yield declined by 68 basis points from a year earlier to 3.8%.
The composition of new growth also matters. The report says a large part of incremental USDC supply was brought in through Coinbase programs offering 3.5% to 4% holder rewards and through Binance liquidity incentives. Those balances accumulate inside channel-controlled addresses, and the interest on those new balances flows back to the same channels under existing agreements. Circle bears the compliance and operating burden, but its share of the economics is reduced to what is left over.
The report describes that dynamic bluntly: Circle is trying to make up for lower pricing with more volume, but both the volume and the pricing power increasingly sit with someone else.
Coinbase’s interest in preserving this structure is easy to understand. During periods of weaker trading activity, USDC interest income at one point accounted for nearly a quarter of Coinbase’s net revenue, making it one of the company’s most reliable cash generators. The agreement is written accordingly. As long as Coinbase continues to meet its promotion and market-making obligations, Circle has little room to exit unilaterally. What began as a channel cost has become a durable burden embedded in the company’s financial model.
That pressure may be intensifying on-chain. Coinbase’s Base network handled 62% of global on-chain stablecoin transaction volume in the first quarter of 2026, according to the report, more than all other chains combined. The more stablecoin liquidity concentrates on Base, the more reserve economics Circle may end up sharing away.
Regulation may have strengthened the gatekeepers
The report points to the GENIUS Act, which took effect in July 2025, as a turning point. Circle, as a regulated issuer, might have looked like a natural winner under a stricter framework. Instead, the piece argues, the law handed distributors a stronger advantage.
The act prohibits stablecoin issuers from paying interest directly to token holders. That means Circle cannot bypass exchanges and wallet platforms by giving holders a direct yield incentive in order to win distribution. That route is now closed by law.
Coinbase, however, is not bound in the same way in the framework described by the report. It can package the interest it receives from Circle as its own customer reward and distribute that benefit to users. In effect, the rule cuts off the issuer’s direct line to users while leaving a workable path open for the channel.
The report says Circle’s last meaningful negotiating lever was taken away in the process.
The only major variable it identifies is the Office of the Comptroller of the Currency, or OCC. The OCC proposed related rules in early 2026. If regulators ultimately decide that channel-distributed rewards funded by revenue-sharing amount to disguised interest payments and move to stop the practice, the short-term effect could hurt demand for holding USDC. Over a longer horizon, though, that same interpretation could give Circle a compliance-based opening to challenge the 50-50 revenue split.
Tether, PayPal and Circle show three very different stablecoin models
The report compares Circle’s position with Tether and PayPal to show how different the economics of stablecoin issuance can be.
Tether, with a team of about 300 people and roughly $118 billion in reserves, generated $5.2 billion in net profit in the first half of 2024, and full-year profit reportedly exceeded $10 billion. It keeps almost all of the reserve income and does not share it with distribution partners.
The explanation offered in the piece is that in parts of Latin America and Africa where users face chronic high inflation, the demand is for dollar purchasing power itself. In that setting, a 4% yield is not the deciding factor. That gives Tether stronger pricing power, enough that it also charges a 0.1% fee on minting and redemption.
PayPal took the opposite route. PYUSD reached a circulation peak of $4 billion, and PayPal funded about 4% in holder rewards out of its own marketing budget. The report says PayPal does not expect the stablecoin itself to be a profit engine. Instead, it uses PYUSD to reduce friction in its cross-border payments network: remittance friction across 70 international markets falls, merchant settlement times shrink from days to minutes, and users remain inside PayPal’s own wallet system.
Tether does not need external channels. PayPal is its own channel. Circle has neither Tether’s hold in inflation-hit emerging markets nor PayPal’s direct consumer entry point, so it has had to buy traffic from exchanges.
What investors may need to watch instead of headline circulation
The report’s conclusion is that Circle should not be valued simply as a high-margin fintech platform with unlimited operating leverage. It looks more like a pass-through money market structure that pays heavily for distribution. Revenue tracks the Federal Reserve’s rate cycle. Profitability tracks the bargaining table with Coinbase.
For investors focused on CRCL, the more important figure may be margin after distribution costs rather than USDC market cap alone. That figure stood at 39% in fiscal 2025. The report says a drop below 35% would be a red warning sign that channel pressure is getting worse.
Competition is another variable. The piece says Tether is reportedly preparing a compliant U.S. stablecoin, USAT, for the American market. If Tether chooses to share economics with channels to gain distribution, Circle’s own distribution costs could rise again.
USDC may continue to grow and may keep becoming more central to dollar liquidity on-chain. But under the structure described here, every additional dollar of USDC issued may benefit Coinbase before it meaningfully benefits Circle.