Circle reports revenue of $779 million in the first half of the year, holding $1 billion in cash to face competition.

Circle CEO Jeremy Allaire announced that Circle's revenue for the first half of the year reached $779 million, surpassing last year's full-year revenue of $772 million. The adjusted EBITA (Earnings Before Interest, Taxes, Depreciation, and Amortization) profit was $219 million, also exceeding last year's full-year profit of $150 million. The company also retained $1 billion in cash reserves.

BREAKING coverage from @Bloomberg on @circle.

"Circle had $779 million in revenue in the first half of the year, already surpassing the $772 million for all of 2022. The private firm generated $219 million in adjusted earnings before interest, taxes, depreciation, and…

— Jeremy Allaire (@jerallaire) August 10, 2023

USDC Circulation Continues to Decline

The circulation of Circle's USDC has dropped from around $45 billion at the beginning of the year to approximately $26 billion. However, the largest stablecoin USDT has grown during the same period. Circle CEO Jeremy Allaire mentioned in an interview with Bloomberg that part of the reason for this decline was due to an event a year ago when the world's largest cryptocurrency exchange Binance decided to stop using USDC in favor of promoting its own stablecoin BUSD. Then in March this year, Circle had $3.3 billion in deposits at the bankrupt Silicon Valley Bank, causing a temporary hiccup for USDC. Since then, the circulation of USDC has been on a continuous decline.

Benefiting from Interest Rate Hikes, Circle's First-Half Revenue Exceeds Last Year's Annual Revenue

Most of Circle's revenue comes from interest income on assets supporting stablecoins, such as USD deposits and short-term government bonds, making it a beneficiary of rising interest rates.

Circle's revenue in the first half of this year was $779 million, exceeding last year's annual revenue of $772 million. The adjusted EBITA was $219 million, also surpassing last year's $150 million. The company also retains $1 billion in cash on hand.

Note: EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization, which better represents the company's core performance.

Allaire founded Circle in 2013, betting that stablecoins would become the mainstream currency of the internet age. He believes that PayPal's involvement is just the beginning.

I expect you will see more than just internet payment companies getting involved, with various financial services companies and other entities entering the space. Allaire believes this healthy competition will drive more companies to participate in this field.

Continued Disclosure of Financial Information in the Future

Stablecoin operators have long been criticized for not providing enough transparency through traditional auditing methods.

Allaire stated that Circle plans to continue sharing financial information and has engaged Deloitte as its auditing firm. Although Circle decided to terminate its merger listing plan with special purpose acquisition company Concord Acquisition Corp at the end of last year, eliminating the need to publicly disclose financial information, Allaire mentioned that Circle will voluntarily provide transparency.

Circle is actively building partnerships to promote the adoption of USDC. Allaire also mentioned that the company does not intend to offer so-called white-label solutions, like Paxos, where stablecoins are issued on behalf of partners.

Diversifying Revenue Sources, Stringent Regulations Will Benefit Circle

Even if the U.S. starts cutting interest rates, Allaire believes Circle will still benefit, as a low-interest-rate environment often drives more cryptocurrency activities. Circle is also diversifying its revenue sources, having launched cryptocurrency wallet services after acquiring CYBAVO in 2022.

Allaire also predicts that with global regulatory authorities tightening control over stablecoins, many stablecoins will not survive in the long term.

Companies that fail to meet financial integrity, operational, and risk management standards will not be able to continue operating. I believe that in the next two years, those players who do not meet the standards will be pushed out of the mainstream market.

Future Challenges for Circle

Prior to this, Circle's financial reports disclosed since 2020 showed that it barely broke even in 2020, only achieving balance due to recognizing $20 million in extraordinary income from selling Poloniex. We have also seen Circle gradually focusing on its core business, selling off Poloniex, which did not belong to the stablecoin business, and recognizing a convertible bond loss. With the benefit of the Federal Reserve's aggressive interest rate hikes starting last year, interest income has significantly boosted Circle's operations. However, increasing market share and diversifying revenue sources are indeed challenges that Circle must face.

A comprehensive understanding of Circle's previous operating conditions: Is stablecoin a good business? Peek into its business model from Circle's financial reports

Currently, leading stablecoin Tether recently disclosed its second-quarter profit situation, with operational profits exceeding $1 billion and excess reserves of $3.3 billion, indicating that Circle still has a long way to go to catch up!

Deconstructing Forbes' report: Tether's declining profits, misleading with different indicators