- A 100 bps rate cut could cut Circle’s revenue by 23%
- USDC supply must grow by $28B to offset the impact
- Circle is launching new products to diversify income
Circle, the issuer of the stablecoin USDC, may see a sharp decline in revenue and profitability if the U.S. Federal Reserve lowers interest rates by 100 basis points (bps), according to Dragonfly investor Haseeb Qureshi (Omar).
He stated that such a cut would reduce Circle’s annualized revenue by $618 million—a 23% drop—and its gross profit by $303 million, a 30% decline. This would also dent Circle’s gross margin by 3.3 percentage points.
The underlying reason is that Circle earns significant revenue from the interest generated on reserves backing USDC. A lower interest rate environment directly reduces this income stream.
Valuation Impact and Growth Needs
Interestingly, even with this drop in profit, Circle’s valuation would actually rise from 42x to 60.4x its annualized gross profit—about a 50% jump—because the reduced profits shrink the base used for valuation metrics.
To offset the revenue drop, Circle would need to grow the supply of USDC by $28 billion, which is a 44% increase from its current circulating supply of $64 billion. Such a massive increase in adoption isn’t guaranteed, which puts pressure on Circle to act fast.
Circle’s Strategy: Diversification Beyond Yield
Understanding the inevitable nature of future rate cuts, Circle appears to be preparing for this shift. The company recently executed a $1.5 billion share sale, potentially to strengthen its position and invest in new initiatives.
Moreover, Circle is focusing on transaction-based monetization, aiming to reduce its reliance on yield-based revenue. Initiatives like CPN (Circle Programmatic Network) and Circle Chain, a proprietary blockchain platform, are designed to create new revenue streams through transaction fees and ecosystem services.
This pivot signals a clear intention to align Circle’s long-term sustainability with active crypto usage rather than passive interest income.
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