Circle (Minutes): The Ecological Network is More Important than Commercialization

The following is the$Circle(CRCL.US)FY25 Q3 earnings call minutes, with a quick interpretation availablehere

I. Review of Core Financial Data

1. Performance Overview:

(1) Scale and Growth: USDC circulation reached $73.7 billion, up 108% year-over-year; on-chain transaction volume was $9.6 trillion, up 580% year-over-year.

(2) Profitability: Total revenue and reserve earnings were $740 million, up 66% year-over-year; adjusted EBITDA was $166 million, up 78% year-over-year. The profit margin reached 57%.

(3) Other Key Data:

Other income: Significantly increased to $29 million (mainly includes blockchain service subscription income).

USDC holdings on the platform: $10.2 billion, indicating increased institutional adoption.

II. Detailed Information from the Earnings Call

2.1 Key Information from Executive Statements

1. Strategic Vision and Platform Architecture

Full-stack internet platform vision: Circle is committed to building a multi-layered internet financial platform, including:

Layer 1 (Blockchain Network): Serving as the "economic oasis" of the internet, it is the foundational operating system for economic activities.

Layer 2 (Digital Assets): Encompasses stablecoins, internet-native digital assets, and tokenized assets, aiming to transform global value storage, conversion, and exchange.

Layer 3 (Application Tools): Covers core economic applications such as payments, commerce, and capital formation.

Market-neutral positioning: By building open and compliant infrastructure, leading enterprises can develop on it, solidifying competitive advantages.

2. Business Progress and Competitive Advantages

USDC network growth:

Market share continues to expand, with stablecoin market share rising to 29% in the third quarter; overall stablecoin circulation increased by 59% year-over-year.

Cross-Chain Transfer Protocol (CCTP) transaction volume reached $31.3 billion, up 640% year-over-year,accounting for 47% of the total volume of major bridging service providers (over 50% in October).

Multi-chain expansion: Added support for 5 new chains, now covering 28 chains, reflecting a commitment to market neutrality.

Digital asset market growth:

USDC expansion in the perpetual contract market, especially on platforms like Binance and Superfluidity.

Tokenized money market fund USYC reached approximately $1 billion, growing more than threefold, becoming the world's second-largest tokenized money market fund.

Expansion of application scenarios: Collaborations with Brex, Deutsche Börse, Fireblocks, and others to provide USD channel services for global users.

3. Platform Expansion and Innovation

ARC Network:

Public testnet launched, attracting over 100 world-class enterprises (including Apollo, Amazon Web Services, BlackRock, HSBC, etc.).

Exploring the issuance of native tokens to drive network utility, incentives, and governance.

Aiming for commercial mainnet launch by 2026 and integration into the Circle product matrix.

Circle Payment Network (CPN):

Launched CPN console and payment settlement features, supporting automated stablecoin payments.

Registered financial institutions increased to 29, with 55 under review and 500 seeking to join; markets covered include Brazil, Canada, with plans to expand to Colombia, the EU, and other regions.

Significant growth in payment volume: Payment volume in the past 30 days grew over 100 times compared to five months ago, with an annualized transaction volume of $3.4 billion.

4. Financial Guidance

Other income guidance: Raised for 2025 to a range of $90 million to $100 million (due to strong growth in subscription and service income and transaction revenue momentum).

Profit margin outlook: Expected to maintain RLDC profit margin at around 38% for the year.

Adjusted operating expenses: Raised to a range of $495 million to $510 million, reflecting investment in platform capability building and global partnerships (including potential employee stock option-related salary taxes).

2.2 Q&A Session

Q: How should investors view the pipeline development of CPN? How do you think about converting partners under review to full users? And how does Circle monetize CPN?

A: CPN is progressing well, and we are focused on ensuring that products and operations can scale members and activation, as reflected in results and shared data.The key point is not the total number of members, but the increase in markets and quality participants,who have significant traffic, benefit from the multilateral framework, and have good coverage. Qualification review includes local liquidity, banking systems, currency, meeting SLA capabilities, and we are underwriting for quality and operational capability.

Regarding monetization, the current focus is on growing the network, not monetizing or extracting value, as network growth creates value for all participants.In the future, there may be opportunities to charge small fees, benefiting from a more efficient internet-scale architecture, with fees lower than traditional models and larger scale. Network members can make money by charging users and businesses, and currency flow, adding value to member products and services, allowing them to generate value. We look forward to integrating ARC into CPN to support mainstream payment flows.

Q: What is your reaction to the comments from Federal Reserve officials about cryptocurrencies no longer being on the fringes of the financial system and intending to actively participate? Are you surprised?

A: We fully agree with this view. Circle's infrastructure, including the stablecoin network, USDC, and cross-chain infrastructure, is the cornerstone of the emerging on-chain and DeFi financial system, maintaining a strong leadership position in this field. This reflects a global architectural shift in the building blocks of the financial system towards code, smart contracts, and tokenized assets, representing a major transformation in the underlying design of the global financial system, which is at the core of Circle's philosophy. We are committed to building an internet financial system and believe that this large-scale transformation is taking shape, with Circle aiming to be a leading internet platform company of the new era. It is very encouraging that central banks and global institutional leaders recognize this and adjust policies, technologies, and business practices accordingly.

Q: USDC's market share increased from 28% to 29% this quarter, where did the growth come from? Has there been a noticeable change in demand following the passage of the 21st Century Financial Act in the US? Has regulatory clarity boosted the share growth?

A: The growth in the third quarter was very strong, driven by both regulatory clarity and overall technological advancements, which together spurred more market activity. More mainstream financial institutions, payment companies, digital banks, and large enterprises are adopting stablecoins in their products and services, creating a strong tailwind. Not only in the US, but also in Europe, Asia, such as Hong Kong, and the UAE, stablecoins are regulated, and mainstream participants want to partner with companies like Circle that have trusted, transparent, liquid, and compliant infrastructure. We have long adhered to this infrastructure philosophy, and as this trend becomes mainstream, Circle benefits. Our year-over-year share growth and recent absolute growth reflect this.

Q: What are the considerations for exploring the ARC native token? What are the reasons and impacts of advancing or not advancing it?

A: Our network is designed and built in collaboration with many major institutions, with a fundamental principle of wanting to establish a distributed network with operators from different regions and economic systems worldwide. As we gather mainstream companies and leading enterprises in the digital asset ecosystem, we see potential benefits of the Arc native token: it can provide utility to network users, align incentives around network growth, and offer stakeholders concrete ways to participate in governance, including choices about technology and its upgrades, as well as options for network operator expansion.

We are actively evaluating the Arc token and will share more information once it takes shape. Based on the launch of the public testnet and developer participation, we are excited and believe it could become a key infrastructure for Circle and the entire global ecosystem, supporting mainstream-scale applications built on these networks and operating systems.

Q: What is the current or near-future convergence point of CPN and ARC?

A: First, as ARC enters the testnet, we are activating it as infrastructure and integrating it into all Circle products and services. During the testnet, we will ensure everything is ready, such as our tokenized money market fund product USYC, which is already live on the testnet.

Second, the ARC network can become an important infrastructure for CPN,providing first-class, low-cost infrastructure with settlement finality, and eventually having strong foreign exchange infrastructure.

The ARC testnet announcement includes many non-USD currency issuers, many of which are already running on the testnet. We hope to increase the number of local currencies, as this can establish seamless, real-time, atomic exchange capabilities and be embedded as a foundational function for CPN members to use. ARC, as a platform for stablecoin finance, has enterprise-grade and regulatory-compliant infrastructure that aligns well with CPN's ultimate goals. Therefore, the application layer CPN is being built on our stablecoin and digital asset network and can leverage the ARC operating system.

Q: What are the catalysts and timeline for channel conversion in CPN? What can be realized in the next 1-2 quarters? What is the economic model for partners? How will costs change as channels expand?

A: Building this type of membership payment network is like the "chicken or egg" dilemma, requiring both sides to ensure fund flows. The current focus is on acquiring quality fund flows from major market initiators to global destinations, and we have already seen initial success. Many institutions involved in fund flows (especially cross-border), such as banks, cross-border payment companies, and large enterprises handling complex receivables and payables, want to leverage the speed, capital efficiency, and cost advantages of stablecoin infrastructure. This is where the catalyst lies: existing enterprises realize that internalizing fund flows can release capital, reduce collateral, improve capital efficiency, and provide a faster, higher-quality user experience.

These are their commercial motivations. We focus on ensuring high-quality network participants so that each new node can exponentially increase network value according to Metcalfe's law, allowing new members to immediately experience the bidirectional benefits of using the network.

Regarding costs, as the network grows and accelerates,accessing financial institutions will inevitably incur more costs, such as risk compliance reviews and ongoing monitoring. These costs are within our overall budget. As a technology company, we are building in a highly scalable infrastructure-driven manner and embedding AI technology as much as possible to ensure that expansion is not at the expense of increasing headcount but is done in a very cost-effective way, which is highly consistent with the strong operational leverage inherent in our entire model.

Q: What have you learned from the demand side in communications with potential partners and customers that will impact the product roadmap? And what is the current discussion or interest in mergers and acquisitions?

A: The key demand from the demand side is the need for strong direct liquidity between stablecoins and local markets. Therefore, we focus on enhancing the liquidity network, conducting large-scale minting and redemption through global financial centers, and increasing the number of banks accessing our infrastructure, which constitutes our core differentiation advantage. On top of this, we are building abstract layers such as foreign exchange, settlement credit, and CPN coordination capabilities. For companies new to this field, technologies like ARC are crucial, providing sub-second certainty settlement, extremely low transaction costs, stablecoin payment fees, and confidentiality features to meet the needs of mainstream scale stages. We are building this type of infrastructure for global mainstream institutions across the entire product stack.

Regarding mergers and acquisitions, we view them as tools to accelerate core products rather than for diversification. This year we have completed three transactions and will continue to seek M&A opportunities in the blockchain, digital asset, and payment network fields to accelerate development. We primarily build infrastructure through organic growth but also supplement through acquiring IP and teams, and we are confident in our innovation capabilities and IP generation.

Q: The $10.2 billion USDC held on the platform, is it primarily used for payments, cross-border fund flows, or in the crypto-native field? Can you provide more background information?

A: We do not directly segment platform data by use case.Our focus is on partnering with companies that want to build on our tech stack (ideally using our tech stack end-to-end), leveraging our wallet, Circle Mint, core liquidity, and an increasing number of other developer services and infrastructure (such as CPN).We are very focused on partnering with companies that want to build on our infrastructure and are growth-oriented, establishing strong economic relationships with companies that have reliable growth paths. Collaborations driving growth on the platform all meet this standard.

Specifically, some partners have hundreds of millions or even billions of users, who are typically using so-called "financial super apps" that offer wallet, payment, trading, investment, and other services. However, we cannot fully insight into all user behavior details, such as how much is used for peer-to-peer transfers, how much for investment, etc. Overall, what we truly seek is partnerships with platforms that have good distribution capabilities and can grow with us.

Q: ARC network's transaction fees are extremely low and paid in stablecoins like USDC, so is the native token being explored used to pay gas fees? Is it more like a governance token? What other potential economic accrual or utility does it have besides gas?

A: We are broadly examining the utility, economic incentives, stakeholder participation, and governance of the entire ARC ecosystem. We are exploring an ARC network token that aligns with achieving all these goals. However, there is no more information to share at this time. Of course, as exploration continues, if progress is made, we will be able to share more information.

Q: The subscription income in other income grew significantly quarter-over-quarter, was this mainly driven by the addition of 5 new chains, or other recurring income sources? Meanwhile, transaction income slightly declined quarter-over-quarter, what was the reason?

A: The strong growth in subscription and service incomemainly comes from blockchain network partnerships. This part of the income includes upfront integration fees and ongoing maintenance fees, which are influenced by various factors, so this business income has historically been volatile.This quarter's strong performance was due to our efforts to execute the accumulated fee pipeline, with upfront fees being the main part, but the foundational recurring income in subscription services also showed strong growth, which is satisfying.

Transaction income decreased from $5.8 million last quarter to $4.7 million this quarter, with the quarter-over-quarter decline mainly due to an unusually high point last quarter:at that time, our USYC tokenized money market fund product experienced a large number of redemptions after being acquired and repositioned as digital asset market collateral, leading to a surge in redemption fees.This short-term peak masked the underlying growth trend of other products and services within this category. Notably, USYC itself has resumed growth, with its scale growing by 200% since the end of last quarter, now becoming the world's second-largest tokenized money market fund product.

Q: The guidance for RLDC profit margin in the fourth quarter suggests a significant decline quarter-over-quarter, which is contrary to market expectations. What factors are driving the profit margin decline? Is it related to market incentives and distribution costs?

A: There are many volatile factors in the business, making forecasting challenging. We are pleased with the strong quarter-over-quarter RLDC revenue growth against the backdrop of declining profit margins in recent years. We have long believed that the network has network effects, which are evident in the growth of USDC outside the platform and in certain economic protocols, which may have volatility, and this is related to the thinking behind the guidance formulation.

Regarding our overall guidance philosophy, we have consistently advocated for as much clarity and transparency as possible within the range of clear visibility, thus adopting a slightly conservative stance.We do not include all the work we hope to happen or are working on in the forecast, but rather base the guidance on what we are confident we can deliver and always strive to exceed expectations.

Q: How do you respond to skeptics who believe stablecoins have become commoditized and the market is highly competitive? What is the key to USDC's long-term success?

A: There is a fundamental misunderstanding in the market that large companies issuing stablecoins can succeed, but history has shown that many large attempts have actual circulation of zero.The core of the stablecoin network lies in network effects, and its value depends on the number of products, services, and integrations accessing the network.Developers will prioritize networks that provide direct utility to users and have the greatest interoperability, and USDC has become the default choice due to its global coverage and interoperability, even being adopted by many B2B companies without formal partnerships.

The key advantages are reflected in three aspects: first, we have built the most comprehensive liquidity network, including primary liquidity from major global banking systems and extensive secondary market liquidity; second, we have established a strong regulatory and infrastructure moat, having obtained relevant licenses in 55 markets; finally, network utility, developer ecosystem, and liquidity form a strong compound effect. This allows us to continue growing amid increasing competition and occupy a "winner-takes-most" market structure. We will continue to seize opportunities in global technological evolution and regulatory clarity to become a leader in the internet upgrade of the financial system.

Regarding guidance, we are at the beginning of a major trend in building the internet financial system, with a huge addressable market. Therefore, we only provide guidance on a few key metrics. In the early stages of an exponential growth curve, short-term fluctuations are normal, and over-focusing may "miss the forest for the trees."

Q: Besides cryptocurrency trading, what is the most urgent use case for USDC? What are your views on the near-term prospects for non-crypto activities?

A: We see growth in stablecoins in the cross-border and international payments field, which drives the establishment of our new business pillar, CPN, as mainstream fund flows want to use it as a superior fund movement system. Large enterprises are focusing on internal fund management and global fund allocation, which becomes a growth driver. Meanwhile, the demand for USDC as a digital dollar value store continues among enterprises and households.

The Financial Act has greatly unleashed the willingness of major institutions to adopt this technology and has created a global regulatory chain reaction, pushing regulated products like USDC into local markets.

Additionally, traditional financial markets (such as clearinghouses and derivatives exchanges) are beginning to embrace stablecoins, using them as collateral and settlement tools to improve the way traditional banking systems work. We have announced collaborations with Intercontinental Exchange, Deutsche Börse, and others. Traditional financial institutions are also issuing smart contracts and tokenized investment products, which commonly use USDC as the cash and settlement end. We are actively investing in areas with the most direct product-market fit and market pull.

Q: Can you quantify USDC's usage outside of cryptocurrency trading, DeFi, and access to dollars in developing markets, particularly in the use cases of payments and capital markets?

A: These cross-border use cases are indeed growing. Recent data from third-party analysis firm Artemis on B2B international payment growth shows very strong recent growth, reflecting what we observe in partnerships formed in the cross-border payment field. While we do not segment all transaction data by category ourselves, the fund flows in CPN inherently belong to this category due to its product structure.

However, USDC's use in international settlements extends far beyond CPN itself. Therefore, we do not provide specific breakdowns but suggest referring to third-party reports that examine the entire ecosystem (not just Circle) to assess growth and activity in this area.

Q: If stablecoins are allowed to bear interest under the Congressional Market Structure Act, what impact will this have on your business?

A: The key issue is not the stablecoin itself becoming an interest-bearing tool.The current focus of market structure legislation discussions is whether stablecoin distributors (such as exchanges, brokers, and other wallet products) have the ability to use rewards as an incentive to encourage users to use stablecoins on their platforms.Under the 21st Century Financial Act, this practice is allowed. There is currently a call within the industry (not just from the digital asset side) to seek not to amend the 21st Century Financial Act but to provide provisions in the Market Structure Act to allow these stablecoin distributors to continue implementing reward offerings.

We believe the wording in the 21st Century Financial Act is very appropriate, creating a balanced approach, and crucially, it maintains the nature of stablecoins as cash and cash-equivalent tools, which is critical from both a financial market and prudential regulatory perspective. However, we also believe that these distribution platforms should have room for business model innovation when interacting with customers, so we also support the industry's stance on this matter.

Q: In collaborations with high-profile financial institutions, what are the economic terms required by the other party? Do new partners pay full price? Does the network effect allow you to obtain better economic terms in these collaborations than in the early days?

A: Our global utility network is so strong that if a product wants to achieve global interoperability and easily transfer value, it must support USDC. Therefore, we have a strong network effect. When considering partnerships, we focus on "investing" with partners who can expand distribution, providing growth incentives. Simply adding USDC support in their products or services is not enough to gain any economic benefit; we need to see a real, win-win path where partners will prioritize using our platform and network, actively promote, and drive measurable growth.

Only when we see this situation do we intervene and establish economic incentive mechanisms. We aim to build win-win partnerships that drive value and growth for both parties. Currently, many major brands choose to support USDC purely because we are the most trusted, transparent, compliant, liquid, and globally available choice, and many of these collaborations have no direct economic incentives.

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