Author: SoSoValue

Circle released its Q1 2026 financial report on May 11. Overall, the report is not bad, but it cannot be called strong either.

In Q1, Circle's total revenue was $694 million, an increase of 20% year-on-year, but below the market consensus expectation of $720 million; adjusted EBITDA was $151 million, an increase of 24% year-on-year, but a decrease of 10% quarter-on-quarter; GAAP net profit was $55 million, a decrease of 15% year-on-year, and a decrease of 59% quarter-on-quarter; EPS was $0.21, higher than the consensus expectation of $0.17, but lower than some optimistic expectations of $0.25.

Looking only at the quarterly performance, it is hard for the market to give high praise. Revenue fell short of expectations, net profit saw a significant quarter-on-quarter decline, and reserve interest income was also beginning to face pressure from declining interest rates and rising costs. In other words, Circle's fundamentals are still growing, but profit elasticity has started to come under pressure.

This financial report has a new variable, which is the Arc ecosystem. The ARC Token completed an institutional pre-sale of $222 million, with an FDV of $3 billion, and investors include top institutions such as a16z, BlackRock, ARK Invest, Apollo, Intercontinental Exchange, among others. This increment had not been fully reflected in market expectations, giving Circle a new valuation narrative.

Overall, although there are short-term macro headwinds, Circle's long-term story remains attractive. The stablecoin business model has advantages, and the demand for USDC is still growing. CPN, Managed Payments, AI Agent, and payment networks are advancing, and the Arc ecosystem has added a new valuation variable for Circle. Additionally, the market looks forward to the swift passage of the Clarity Act, which has also become a driving force for the stock price.

1. Reserve business continues to grow, but profit pressure from interest rate cuts has emerged

The current core source of income for Circle remains the USDC reserve interest.

In Q1, reserve interest income was $653 million, an increase of 17% year-on-year, but below the market consensus expectation of $680 million. The circulation of USDC reached $77 billion, growing 28% year-on-year, a slight increase from $75.3 billion in Q4 2025; on-chain transaction volume grew 263% year-on-year, indicating that the demand for USDC use remains strong.

The problem is that the growth in USDC circulation is not enough to fully offset the pressure from declining unit yields.

The Q1 Reserve Return Rate dropped to 3.5%, a quarter-on-quarter decrease of 30 basis points, comparable to the decline in the guaranteed overnight repurchase rate. As interest rates fall, the earnings generated by each dollar of reserves will decrease. Circle needs faster growth in USDC circulation to maintain the momentum of reserve interest income growth.

This is also the market's main concern regarding Circle: it remains highly dependent on the revenue model of "USDC circulation × reserve yield." The stablecoin business model itself is still excellent, but if the revenue structure lingers long on reserve interest, the valuation will be constrained by the interest rate cycle.

2. The Arc ecosystem is the biggest new variable in this financial report

The most important new variable in this financial report is the Arc ecosystem.

Arc is the stablecoin financial network launched by Circle, with the core goal of further embedding USDC into payments, cross-border settlements, institutional fund flows, and on-chain financial applications, currently in testing on the testnet.

Recently, Circle completed the institutional pre-sale of ARC Token, raising $222 million, with an FDV of $3 billion, and investors include top institutions such as a16z, BlackRock, ARK Invest, Apollo, Intercontinental Exchange, etc.

According to the white paper, the initial supply of ARC is 10 billion tokens, of which 60% belongs to the ecosystem, 25% belongs to Circle, and 15% serves as long-term reserves. The Gas of the Arc network is USDC, and the main functions of ARC Token include staking for protocol fee distribution, discounted rates, and governance.

According to the communication from the company's earnings briefing, ARC Token may impact Circle's profit statement in three ways in the future:

• First, Circle will hold ARC Token on its balance sheet at zero cost. Future token sales will convert sales proceeds into pure profit, thus enhancing EBITDA.
• Second, Circle can earn network rewards by operating validator nodes and other means.
• Third, to promote the Arc network, Circle will issue incentive grants to developers or partners, which will be reflected in other revenue and other costs.

It can be seen that 25% of the ARC Token is expected to become one of Circle's new profit engines. The current guidance for Q1 does not include ARC Token pre-sale, Arc incentive plans, or future Arc revenue impacts, but there is room for upward revision when the guidance is updated next quarter. More precisely, Arc has already provided new earnings elasticity, but management has not officially included it in the full-year expectations.

Therefore, what the market will focus on next is whether Circle will adjust its full-year guidance in Q2 or subsequent quarters due to Arc-related income, cost confirmations, or ecosystem progress.

3. Other revenue growth exceeds expectations, although the amount is still small, payment potential is considerable

Circle's Q1 other revenue was $41.63 million, a 101% increase year-on-year, and a 12.5% increase quarter-on-quarter, exceeding the market consensus expectation of $37.4 million.

This is a relatively positive signal for the quarter, indicating that Circle's commercialization in payments, network services, and new settlement scenarios is advancing.

Among them, the transaction volume of CPN (Circle Payments Network) reached an annualized $8.3 billion, a 75% increase over the last financial report. The Managed Payments launched in April also allow banks and payment institutions to access stablecoin settlement without holding digital assets directly.

This part of the business represents the direction of Circle's future income structure transformation: from single reserve interest, gradually expanding to stablecoin networks, payment infrastructure, and on-chain settlement services.

Other revenue has high gross margins and fast growth, but the quarterly scale is only over $40 million, accounting for about 6% of total revenue. It is a highlight of growth, but still not enough to change Circle's current high dependence on reserve interest in its revenue structure.

4. AI Agent payment network continues to be implemented, enhancing the AI narrative

In addition to Arc, Circle is also continuing to strengthen its narrative around AI and Agentic Commerce.

On May 11, Circle announced the launch of the Circle Agent Stack, with initial products including Circle CLI and agent wallets, aimed at serving the payment and settlement needs of AI Agents.

Stablecoins are naturally suitable as assets for machine payments, automatic settlements, and small high-frequency transactions. If AI Agents become a significant source of demand for on-chain payments in the future, USDC has the opportunity to become one of the underlying settlement assets.

5. Q1 maintains full-year guidance unchanged, awaiting more validation in Q2

Circle maintained its full-year KPI guidance unchanged for this quarter: other revenue is expected to be between $150 million and $170 million; the long-term compound annual growth target for USDC circulation is 40%; RLDC Margin is expected to be between 38% and 40%; adjusted operating expenses are expected to be between $570 million and $585 million.

This guidance is relatively conservative.

Given that the ARC Token pre-sale has just been completed, it is understandable that management did not immediately revise the full-year guidance. However, this also means that Q2 will become a more critical validation window. If Arc-related income, incentive arrangements, validator income, or network income are incorporated into the full-year model, there is room for Circle to raise its other revenue guidance; if CPN and other revenues continue to exceed expectations, it will also strengthen market confidence in the transformation of the revenue structure.

Conclusion

Circle's Q1 financial report itself is not strong.

Revenue fell short of expectations, GAAP net profit decreased by 59% quarter-on-quarter, reserve interest income was below expectations, and USDC circulation did not break through the market expectation of $80 billion. Without the Arc as a new variable, combined with the recent high market risk appetite, this financial report would likely be viewed as negative by the market.

However, Circle's long-term story remains attractive. The stablecoin business model has advantages, and the demand for USDC is still growing. CPN, Managed Payments, AI Agent, and payment networks are advancing, and the Arc ecosystem has added a new valuation variable for Circle. Additionally, the market is looking forward to the swift passage of the Clarity Act, which has also become a driving force for the stock price.

The most accurate state of Circle currently is: the old business is still making money, but the decline in interest rates is weakening profit elasticity; new businesses are continuing to advance, but have not yet really supported the main revenue; Arc is a new variable, but it remains to be seen if it enters the guidance and profit statement in Q2.

Next, what the market will really look for is whether Circle can convert Arc, CPN, AI Agent, and the payment network into higher other revenues, better profit margins, and a revenue structure that is less reliant on reserve interest. If it can do this, Circle's valuation logic will upgrade from "a stablecoin company that earns money from reserve interest" to "a global stablecoin payment and on-chain financial network."

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