Written by: 0xFacai
A month ago, the most discussed topic about stablecoin issuer Circle on social media was the rumor of "selling for $4 billion to Coinbase or XRP". After Circle released its prospectus in early April, the industry was filled with doubts about its declining market share, low gross margin, and single profit channel. Crypto investors generally believed that Circle's IPO plan, restarted after many years, might struggle to impress the market. However, the capital's enthusiasm for the stablecoin concept far exceeded crypto practitioners' expectations: Circle completed its listing at $31 per share, with a valuation of $6.9 billion and an oversubscription rate of up to 25 times; the stock's opening price was $69, immediately surging and causing two circuit breakers before falling from its peak of $103.75 and stabilizing at $84.92, increasing its market value to $18.7 billion. What caused such a dramatic market attitude reversal? Did Circle's fundamentals truly improve, or is the market experiencing a "sentiment re-evaluation" of the stablecoin narrative?Two Months, Market Expectations Completely Reversed
Around April this year, when stablecoin issuer Circle restarted its IPO plan, the market's attitude was cautious and even bearish. Many analyses pointed out structural bottlenecks in Circle's business, such as over-reliance on USDC reserve interest, low gross margins, and insufficient revenue growth potential. According to Circle's prospectus, its fiscal year 2024 revenue is approximately $1.67 billion, growing 16% year-on-year, but net profit plummeted from $267.6 million in 2023 to $155.7 million, a 41.8% decrease. On one hand, USDC's interest income is a pro-cyclical dividend that will systematically decline once the Federal Reserve enters a rate-cutting cycle. On the other hand, Circle incurred high costs to promote USDC, especially the 50% distribution cost paid to Coinbase, resulting in extremely low gross margins. Statistics show that Circle's gross margin rapidly dropped from 62.8% in 2022 to 39.7% in 2024. In short, many investors questioned: Circle's profit model is too singular and fragile, lacking long-term prospects. Simultaneously, rumors about Circle's potential sale circulated. In May, Cointelegraph reported that crypto giants including Ripple and Coinbase had considered acquiring Circle for $4-5 billion, nearly closing the deal. Although Ripple's CEO later denied seeking acquisition and Circle emphasized it was not for sale, the mere existence of such rumors suggested the industry's lack of confidence in Circle's prospects. Additionally, USDC's market share decline was a fact. Since the Silicon Valley Bank crisis in 2023, USDC's circulation significantly shrank, with market share compressed by competitor USDT. These factors combined made Circle appear unattractive two months ago, with many perspectives reserving or even bearish about its IPO prospects. However, just two months later, market sentiment underwent a 180-degree reversal. Circle officially launched its IPO pricing in early June, with investors showing high enthusiasm, increasing the offering from 24 million to over 34 million shares and raising the price from $24 to $27, restoring its overall valuation to $6.2 billion. Ultimately, Circle completed its offering at $31 per share, receiving over 25 times oversubscription and raising approximately $1.1 billion. Such a hot subscription scenario swept away the market's previous low expectations. More notably, this IPO attracted top institutional participation: underwriters led by Wall Street investment banks like JPMorgan Chase, Citigroup, and Goldman Sachs, with BlackRock subscribing about 10% of shares and Ark Invest planning to subscribe $150 million. Driven by strong demand, Circle's initial plan for early shareholders to extensively cash out also changed: the originally planned secondary sale proportion of 60% (14.4 million shares by founders and VCs) was cut to 8 million shares, only 25%, indicating that even Circle's internal shareholders chose to sell less and retain more, demonstrating the market's high enthusiasm.However, regulatory legislation and institutional entry undoubtedly belong to the long-term logic: they have legitimized the stablecoin industry and opened up future growth space, rather than being a momentary hype. But in the medium to short term, the recovery of USDC market value and subscription enthusiasm somewhat have a pro-cyclical emotional component. Since the second quarter of this year, with Bitcoin's significant price surge and the overall crypto market warming up, the stablecoin sector has been continuously creating "conceptual momentum", and the hot subscription of Circle's IPO seems more like a short-term excess demand driven by investors' FOMO psychology.
Currently, the US is still in a high-interest-rate environment, with Circle enjoying considerable interest income. Many institutions, and even Circle itself, hope to enjoy this performance dividend before rate cuts arrive, which to some extent is a game of short-term performance. Once the Federal Reserve enters a rate-cutting channel, the market may re-examine Circle's profitability. If Circle's fundamentals are falsified in the future (such as USDC growth not meeting expectations or gross margin failing to improve), the current optimistic sentiment may also fade.
In many traditional media commentaries, the stablecoin's "triple attributes of policy endorsement, technological imagination, and industrial implementation" align with the market's preference for topics that can be "narratively told, implementable, and policy-encouraged". However, for Circle, beyond the concept hype, its ability to deliver still needs time to be verified.
$7 billion valuation: Too high or too low?
Circle's IPO pricing corresponds to a valuation of approximately $6.9 billion. As the "first stablecoin stock", the market seems to have not yet established a consensus valuation model. So, is Circle's nearly $7 billion valuation reasonable?
In 2008, Visa completed its public offering with a financing amount of $17.9 billion, surpassing AT&T's $10.6 billion to become the largest IPO in US history at that time. Circle aims to "replace Visa's payment system". The company's 2024 net profit is $156 million, and with a $7 billion valuation, the static price-to-earnings ratio is around 45 times. In comparison, Visa's net profit for the 2024 fiscal year is about $17 billion, with a market value of nearly $500 billion and a price-to-earnings ratio of around 30 times.
From a profit model perspective, Visa primarily earns from card transaction fees, using its market monopoly as a moat, with stable and growing revenue and extremely high-profit margins (gross margin consistently above 70%). In contrast, Circle has long been questioned by the industry for its growth challenges (USDC's market share has been suppressed by USDT, unable to effectively break through the 30% mark) and gross margin issues (maintaining around 30% in recent years). In terms of profit quality, Visa's profit sources are diverse and stable, while Circle's profits mainly come from reserve interest, easily affected by macroeconomic interest rate policies and crypto market cycles, with higher volatility.
Stablecoin market share, data source: defillama
In replacing Visa, perhaps Tether and its USDT have more hope. In 2024, Tether achieved an extremely high profit of $14 billion with 150 employees, creating an average value of $93 million per person, leaving Wall Street giants speechless. Simply using the traditional financial company's 15 times price-to-earnings ratio, Tether's valuation is around $200 billion.
[Translation continues in the same manner...]Indirect beneficiary targets are mostly in the A-share market, without direct stablecoin business, but their products/technologies can be applied to the stablecoin concept-related industrial chain, with a logic more of a "possibility". For example, Cuiwei Stock (603123), mainly in retail, has explored digital RMB payment scenarios and is seen by the market as a "future stablecoin offline application pioneer", with consecutive limit-up prices; Yinyin Stock (002177), an ATM and bank equipment manufacturer, has seen its stock price rise 4 boards in 4 days due to its layout in digital currency ATMs; companies like Sifang Precision (300468) and Xiongdi Technology (300546) have been hyped by funds for participating in digital payment and electronic identity recognition businesses.
Market's combing of stablecoin concept-related targets, image source: Tonghuashun
As the first compliant stablecoin stock, its IPO's greater significance lies in confidence transmission and trend confirmation - conveying the confidence of mainstream acceptance of stablecoins and confirming the trend of stablecoin compliance and capitalization. In Hong Kong, the global attention brought by Circle's listing may indeed help the local stablecoin field gain more endorsement and cooperation opportunities, attracting overseas funds into Hong Kong's digital finance sector.
From widespread bearishness two months ago to today's 25-fold oversubscription, Circle has experienced a massive market expectation reversal. As a bridge connecting traditional finance and the crypto world, stablecoins are receiving unprecedented attention and re-evaluation. Circle's story may just be the beginning. With the GENIUS bill landing in the US and Hong Kong issuing stablecoin licenses, we may see a more mature and rational stablecoin ecosystem. At that time, the market will speak with fundamentals to test whether this logical transformation truly stands up.
