Author: @lufeieth

Preface

This is merely an attempt at a thought experiment, for reference only, and I welcome the exchange of ideas. This is not investment advice, and you bear your own risks.

Valuing Circle (CRCL) is not easy, especially using a discounted cash flow (DCF) model, where small changes in key parameters can lead to significant differences. We can only attempt to find some vague correctness under a relatively conservative mindset.

The following prompt sent to ChatGPT and Gemini yields the same numbers.

Prompt:

According to: Circle's EBITDA ≈ USDC issuance scale dollar benchmark interest rate 38% gross margin - annual fixed operating costs.

Specific numbers:

As of December 31, 2025, the USDC issuance is calculated at 70 billion.

If we assume an average annual growth rate of 15% for USDC issuance from January 2026 over the next 10 years (2026-2035).

Interest and EBITDA are calculated using the average USDC issuance for the year (rather than the year-end issuance).

The annual dollar benchmark interest rate is assumed to be 2.5%.

Annual fixed operating costs are projected to be $500 million in 2025, increasing by 10% each year starting from 2026.

The effective tax rate is assumed to be 24%.

PE is calculated at 20 times.

The fully diluted share count is assumed to be 275 million shares.

A discount rate of 10% is assumed.

Calculate CRCL's free cash flow, enterprise value, and discount it to a reasonable stock price as of January 2026.

I. Explanation of Parameters Used in the Valuation Model

1. Gross Margin:

In the Q3 2025 financial report, Circle's gross margin was 39.5%, we take 38% for calculation.

Circle refers to key operational metrics as RLDC in their performance materials. RLDC is defined as Total Revenue and Reserve Income minus Total Distribution, Transaction, and Other Costs, i.e., total revenue and reserve income minus total distribution costs, transaction costs, and other costs.

RLDC Margin is defined as RLDC divided by Total Revenue and Reserve Income.

2. Benchmark Interest Rate:

As of February 2026, the federal benchmark interest rate is 3.5-3.75%, and the specific trajectory for the future is uncertain. We take an average of 2.5% over the next 10 years.

3. Fixed Operating Costs:

The company's guidance for fixed costs in 2025 is $495-510 million, we take $500 million, increasing by 10% each year. (Reference: VISA, MA's fixed cost growth rate is around 10% in 2025).

4. PE Ratio:

For CRCL, we take an average PE of 20 times over 10 years. (Reference: VISA, MA's average 10-year PE valuation is 27-35 times.)

5. USDC Issuance:

As of December 31, 2025, the USDC issuance is 75.3 billion, but as of February 1, 2026, it is 70.2 billion, we take 70 billion as the base for calculation.

6. Average Annual Growth Rate of USDC Issuance:

This is the largest variable. Initially, we calculate it at 15%. Later, there will be tables showing different valuations corresponding to growth rates of 10%-40%.

7. Effective Tax Rate:

"Income tax expense or benefit" divided by "pre-tax profit" reflects the company's overall tax burden level under the current profit structure. In Q2 and Q3 2025, Circle's financial reports showed negative values due to tax deductions and exemptions, making it unreferable. We temporarily take 24%.

8. Fully Diluted Share Count:

Basic share count: refers to the "number of common shares issued and outstanding," which is the total number of shares that shareholders actually hold and that exist at a certain disclosure point.

As of November 6, 2025, Circle has issued 216,487,160 Class A shares and 18,988,431 Class B shares, totaling 235,475,591 shares.

Fully diluted share count: based on the basic share count, adding current potential dilution items, commonly used for per-share valuation, accounting for currently existing potential dilution instruments. This includes:

① The number of "issuable shares" corresponding to granted equity incentives: 35,413,000 shares.

② Issuable shares related to mergers and acquisitions, subject to service period conditions: 1,744,000 shares.

③ Potentially convertible shares from convertible notes: 1,125,000 shares.

④ Potential shares related to warrants: 1,248,000 shares.

Totaling approximately 275,005,591 shares, or about 275 million shares.

There is also a maximum fully diluted share count (a more conservative stress test approach, including the future ungranted incentive pool):

On top of the 275 million shares, we add the "future equity incentive pool available for grants" of 31,348,000 shares. Totaling approximately 306,353,591 shares, or about 306 million shares.

Our model uses the fully diluted share count of 275 million as this metric.

The following sections II, III, and IV present the calculation results:

II. Units and Standards

1. Unit Explanation

(1) All amounts in the table are in "hundred million dollars."

(2) USDC issuance scale is based on "average balance for the year," in "hundred million dollars."

(3) Stock price is in "dollars per share."

2. Calculation Chain

(1) Annual interest benchmark income = Annual USDC average balance × 2.5%

(2) Gross profit retention = Interest benchmark income × 38%

(3) EBITDA ≈ Gross profit retention − Annual fixed operating costs

(4) Tax = max(EBITDA, 0) × 24%

(5) FCF ≈ EBITDA − Tax

(6) Discount rate 10%, discounting cash flows back to January 2026 at year-end

(7) Terminal value at the end of 2035 = 2035 FCF × PE 20 times

(8) Fully diluted share count = 275 million shares

III. Yearly Free Cash Flow from 2026 to 2035 (Hundred Million Dollars)

The present value of explicit period FCF from 2026 to 2035 is approximately $2.282 billion.

IV. Enterprise Value and Reasonable Stock Price as of January 2026 (Based on Fully Diluted 275 Million Shares)

1. Terminal Value at the End of 2035

(1) 2035 FCF = $926 million

(2) Terminal value = 9.26 × 20 = $185.13 billion

(3) Present value of terminal value = 185.13 ÷ 1.1^10 = $71.38 billion

2. Enterprise Value EV (Discounted to January 2026)

(1) EV = Present value of explicit period 22.82 + Present value of terminal value 71.38 = $94.20 billion

3. Reasonable Stock Price Discounted to January 2026

(1) Per share value = $94.20 billion ÷ 275 million shares = $34.25 per share

4. A Checkpoint

(1) The present value of the terminal value accounts for about 75.8%, indicating that the valuation is highly sensitive to the 38% retention rate, fixed cost path, and terminal value multiple.

V. Summary of Results Under Different Average Annual Growth Rates of USDC (2026–2035 Explicit Period, Terminal Value at PE=20, 10% Discount)

Explanation:

(1) Under different scenarios of average annual growth rates of USDC from 10% to 40% (in 1% increments), calculate the enterprise value (EV) discounted to January 2026 and the reasonable stock price.

(2) The EV in the table below is the enterprise value discounted to January 2026, stock price = EV ÷ 275 million shares (fully diluted share count).

(3) Units: The USDC scale and EV at the end of 2035 are in billion dollars (B USD), and the stock price is in dollars/share.

The table above highlights 20% in red, which means: under conservative estimates, if you believe that the average annual growth rate of USDC can reach 20% in the future, then the current CRCL price of $62 (as of February 2, 2026, 22:00, half an hour before market opening) may have a slight margin of safety.

Note: Even if there may be a slight margin of safety, it does not mean that it won't continue to decline. Moreover, I hope it continues to decline. It may still drop significantly. There are many factors that influence short-term stock price fluctuations, such as those forced sellers' forced selling behaviors. If you used leverage in the market, you might even face liquidation to zero. Remember:

“Preserve the principal, do not go to zero.”

So do not use leverage. Otherwise, the future will have nothing to do with you.

VI. Some Explanations

1. The parameters used in the model are all relatively conservative, just to see what a reasonable valuation would be under conservative estimates. Everyone can modify the specific numbers and send them to ChatGPT or Gemini for direct calculation.

2. The model only considers the reserve interest income from USDC and does not take into account other income items. In Circle's Q3 2025 financial report, other income items amounted to $29 million, but due to the difficulty in estimating growth rates, they were not included in the model for conservative estimation.

3. The product vision of Circle in 2026 mentions products under development such as the Arc chain, CPN network, xReserve, and StableFX, which may bring future income but are not included in the model and can be viewed as unaccounted upside options in the valuation.

4. The biggest variable affecting the model's valuation and the core issue becomes:

• How large do you think the scale of stablecoins and USDC will be in the next 5 or 10 years? Can the average annual growth rate of USDC reach 20%?

• Will Circle still be the leading compliant stablecoin and maintain its market share in an environment of increasing regulation and competition?

1. Although the market generally believes that trends such as cross-border payments, "dollarization" in the third world, tokenized stocks, on-chain government bonds, RWA, prediction markets, and even AI Agent payments will benefit stablecoins, for investors who need to bet real money, cognition and logic are just the starting point.

What truly determines the position and whether one can hold on during volatility are those continuously emerging, traceable, and verifiable facts and evidence. Conclusions need to be personally sought and verified by each individual; only by holding the evidence chain in one's own hands can one have the capability and composure to withstand the fluctuations and noise that may arise in the future.

VII. Appendix Reference: USDC vs USDT Growth Chart Over the Past 6 Years (2020–2025)

Explanation

1. Issuance volume criteria: Circulation as of December 31 each year, in hundred million dollars.

2. Year-on-year growth rate YoY: Year-end of the current year ÷ Year-end of the previous year − 1.

3. Thought decoding content: Fill in according to the original text of the image you sent.

4. "Average annualized growth rate" is calculated based on the CAGR from the end of 2020 to the end of 2025 (over 5 annual intervals).

This is just for reference, to have an intuitive sense of the magnitude. It does not represent that such growth rates will continue in the future.

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