© 2026 The DeFi Report. All Rights Reserved.
Hello readers,
Before we hop in, a quick update on the TDR Pro portfolio. We are currently 17% cash. We were 80% cash last October when we alerted Pro members to our “risk-off” stance. The reporting below represents the current unrealized positions (cash redeployed in the bear market).
Total Unrealized P&L: 42.1%
Non-BTC Unrealized P&L: 60.3%
Alpha vs Benchmarks since inception of TDR Pro in July of ‘25:
vs BTC: +78.3%
vs Nasdaq: +18.4%
vs S&P 500: +22.7%
Given recent market activity, now is a great time to lock in. If you’d like to join TDR Pro and receive weekly “Cycle Awareness” reports and portfolio management alerts when we make changes, you can sign up and get one month free here.
If you’re an existing Pro member and would like to lock in at a 30% discount to the monthly rate ($16.67/month), you can sign up here.
As a reminder, The DeFi Report will never raise prices on customers who keep their accounts active with us (base rates may increase next year due to rising operating costs on our end).
Back to business.
With the passage of the GENIUS Act last year, Stablecoins have emerged as one of the cleanest long-term opportunities in crypto.
For public-market investors, however, there are still relatively few direct ways to gain exposure to that growth. Circle is the most obvious pure play today. But with the stock trading 65% off its high last year, the market may be discounting Circle’s current business while overlooking an “infrastructure moat” the company has quietly been building towards.
In this week’s edition of The Watch List, we explore that idea.
Let’s go.
Circle generated $2.75b in revenue in 2025, up 64% y/y with a 3-year CAGR of 53%.
Through the first two quarters, 2026 revenues are largely tracking last year’s performance ($2.75b).
In Q2, Circle generated $701.3m in revenue, up 1% q/q and 6.6% y/y.
Reserve-based revenues (interest earned on USDC) accounted for 95.21% of Circle’s revenue in Q2, up 2.3% q/q, and 5.3% y/y. Investors should note that rising Treasury yields are a tailwind for Circle, as it does not share yields with stablecoin holders.
Subscription and service-based revenues accounted for 4.01% of Q2 revenue, down 19.2% q/q, but up 58.3% y/y. These revenues comprise integration services, software fees, and maintenance services.
Transaction-based revenues accounted for 0.76% of Q2 revenue, down 20.8% q/q and 8.5% y/y. These revenues comprise blockchain rewards, usage of Circle’s transaction infrastructure, and CCTP (interoperability across chains) related activity.
Other revenues (non-recurring services) accounted for 0.01% of Q2 performance, up 182.4% q/q, but down 50.8% y/y. Other revenue represents non-recurring services and discontinued legacy products.
Reserve-based revenues are Circle’s cash cow. With that said, Circle paid 48.6% of its reserve income ($324m) to Coinbase in Q2, per their partnership terms. It paid an additional $85m in transaction costs to other distribution partners (Binance and others). As such, roughly 60% of Circle’s top-line reserve income was paid out to partners (essentially a marketing/distribution expense).
Where might new lines of revenue/revenue growth emerge from? We see a few channels. 1) Higher interest rates + USDC growth, 2) CCTP transactions, 3) Circle Payments Network, and 4) Arc chain. We share more on these (lesser-known) areas of the business later in the report.
Circle had an operating margin of 63.8% in Q2, down from 65.1% in Q1.
However, when we factor in distribution expense, margins dropped to 5% in Q2, down from 6.5% in Q1.
52.65% of Circle’s OPEX comes from Compensation Expenses in Q2, down 3% q/q and 73.4% y/y. The massive y/y drop is largely due to $424m of stock-based compensation related to RSU vesting in connection with the 2025 IPO (an accounting story rather than layoffs/restructuring).
26.04% in Q2 can be attributed to General & Administrative, up 15.7% q/q and 53.6% y/y.
11.75% of Circles OPEX came from Depreciation & Amortization in Q2, up 11.7% q/q and 110.4% y/y.
6.43% of OPEX came from IT Infrastructure Costs in Q2, up 28.6% q/q and 86.7% y/y.
Marketing accounted for 3.4% of Q2 OPEX, up 30.8% q/q and 9.4% y/y.
-0.27% of Circle’s OPEX comes from Digital Assets Losses (Gains), down 181.5% q/q, but up 0.7% y/y.
USDC stablecoin supply is currently $74.3b, down 5.9% in Q2, but up 7.9% y/y.
This represents 24.7% of all stablecoins (up 0.5% over the last year), behind only Tether (61% market share).
66.8% of USDC is on Ethereum L1. 10.3% is on Solana. 7.5% is on Hyperliquid, and 5.6% is on Base.
Via CCTP, USDC can be issued natively on 34 chains and transacted across them. This makes USDC the most interoperable crypto asset today.
USDC velocity averaged 0.398 during Q2 (roughly 40% of USDC supply moved onchain each day), up 11% q/q and 99% y/y.
There are currently 5.64m onchain wallets holding > $10 USDC, up 4% q/q and 27% y/y.
37% of these wallets are on Ethereum. 24% are on Solana, and 16% are on Base.
Circle Payments Network (CPN) is Circle’s attempt to build a global payments network atop its USDC liquidity moat. This is essentially a stablecoin-native alternative to correspondent banking networks such as SWIFT.
We compare it to SWIFT because CPN is a network of “vetted financial institutions” that can use it to transact with one another, settle payments in USDC, and deliver local fiat to recipients. In many ways, it’s what the new Open USD consortium is trying to replicate.
As of 6/30/26, Circle reported:
175 financial institutions enrolled, up 29% q/q.
Annualized transaction volume on CPN was $14.7b in Q2, up 77% q/q.
Suppose a U.S. business wants to pay a supplier in Mexico. The traditional flow would look something like the following:
U.S. bank —> correspondent bank (s) —> Mexican Bank —> supplier.
On CPN, it might look like this:
USDC payment via CPN —> Mexican BFI (Beneficiary Financial Institution) converts to fiat —> supplier (with instant settlement rather than 1-2 days, at lower cost).
Circle charges a variable 1 bp fee on transactions.
The key takeaway for us is that CPN allows Circle to leverage its USDC liquidity within global payment infrastructure, on which it can collect a small fee on the volumes (in addition to reserve income). While the network has relatively low volume today, if it can ultimately onboard major remittance networks, e-commerce, and payroll solutions with FX on and off-ramps, CPN could become a valuable core asset for Circle.
CCTP = Cross-Chain Transfer Protocol. This is Circle’s native interoperability rail for moving USDC between blockchains without using “wrapped assets” or 3rd party liquidity pools. For example, instead of locking USDC on chain A and issuing a synthetic version on chain B, CCTP burns native USDC on the source chain and mints native USDC 1:1 on the destination chain.
This makes USDC the most interoperable crypto native asset today.
We think it’s Circle’s most underappreciated asset.
CCTP transaction volumes in Q2 were $2.73 billion, up 6% q/q and 140% y/y.
40% of these volumes came from Base, with 35% from Ethereum L1, and 20% from Solana.
Regarding the business model, Circle currently does not charge for standard CCTP transactions (though it could in the future). Currently, they charge 1 bp only for “Fast Transfer,” which provides faster-than-finality settlement by allowing Circle to attest before normal blockchain finality has elapsed.
CCTP also offers “hooks” that trigger automatic custom smart contract logic to route stablecoins to user-defined destinations.
Arc is Circle’s own Layer-1 blockchain, purpose-built for stablecoin payments and financial applications. The chain is currently on testnet (mainnet launches 9/16), with Circle positioning it as a settlement/computing layer for its broader ecosystem spanning USDC, CCTP, CPN, wallets, tokenized assets, and possibly additional institutional finance use cases.
Circle raised $222m in a presale of the ARC token in Q1 at a $3b valuation. Investors include a16z, BlackRock, Haun Ventures, Intercontinental Exchange (which owns the NYSE), Marshall Wace, etc.
For CRCL investors, the value of Arc Chain will ultimately feed into Circle’s market cap via the ARC token (possibly with a discount for lock-ups/liquidity). Circle owns 25% of the supply. We think transaction fees will accrue to Arc Chain validators (of which Circle may be a large operator).
When you add it all up, with Arc Chain, Circle now has 4 key assets for the wave of stablecoin growth we expect to see over the next 5-10 years.
USDC liquidity moat, aka “the money”
CCTP: moves the money between chains
CPN: moves the money between financial institutions and countries
Arc: payment infrastructure for 3rd-party apps, while serving as the settlement layer for “the money”
It’s our opinion that, if the USDC liquidity moat is as strong as we think it is, Circle’s most valuable assets (the infrastructure) may not be properly priced by the market today.
Let’s move on to Arc’s testnet performance, which includes institutional participation from BlackRock, Goldman Sachs, HSBC, Deutsche Bank, NYSE, Visa, and Mastercard. This comes alongside crypto native participants such as Aave, Uniswap, Morpho, Chainlink, LayerZero, Blockdaemon, etc.
Arc chain averaged 292k daily active accounts in Q2, up 27% q/q.
Average daily transactions in Q2 were 2.6m/day, up 9% q/q.
Arc Chain averaged 9.8k verified contracts in Q2, up 309% y/y.
Circle has a price-to-sales ratio of 6.2x today ($700m Q2 revenue). For comparison, Coinbase has a price-to-sales ratio of 6.6x ($1.2b Q2 revenue). Robinhood is 17.8x ($1.3b Q2 revenue).
In our view, the wrong way to value Circle is as a stablecoin issuer, with a multiple on its reserve revenue. Rather, we think Circle is evolving into a “sum of all the parts” business, in which USDC liquidity can be leveraged to build an “infrastructure moat” for global payments.
Ultimately, for Circle to become a major success story, it’s our view that CPN, CCTP, and Arc Chain will have to become default infrastructure for moving, routing, and settling digital dollars globally.
Competition: Tether currently dominates the stablecoin sector in “emerging markets” and may be preparing for an IPO. Meanwhile, new consortiums backed by powerful fintech businesses (Open USD) are entering the market. And stablecoin-focused chains such as Tempo (Stripe) and Plasma (Tether), with “built-in distribution,” pose further competition.
Interest Rates: Circle’s business model requires high interest rates. We believe that interest rates are in a structural uptrend, but that doesn’t mean rates cannot drop for extended periods, thereby impairing Circle’s “cash cow” business today (reserve income).
Execution: Circle needs to build a network effect around the USDC liquidity via CCTP, CPN, and Arc. This includes payroll solutions, e-commerce, global remittances, and FX on- and off-ramps. This is ultimately how Circle wins in the long run, in our opinion, because it is our view that stablecoin issuers will ultimately have to share yield with stablecoin holders.
Monetization: Circle is currently sharing too much revenue with Coinbase. It is our view that they were happy to sign up for this deal, under the assumption that it would ultimately lead to a “liquidity moat” that could be expanded into the “infrastructure moat.” Phase 2 is in process and has yet to be realized.
CRCL is down 65% from last year's highs and is currently trading just above our “fair value” zone.
It’s our impression that the market today views Circle’s business as largely “USDC.” Given the distribution relationship with Coinbase, in which roughly 60% of top-line revenue is paid to 3rd parties, that business does not look that interesting.
But what if Circle has already established a “liquidity moat” via USDC? That it can now expand into an “infrastructure moat” via CCTP, CPN, and Arc Chain?
From that perspective, paying for distribution makes a lot of sense. And Circle’s business looks far more interesting, given the ultimate trajectory for stablecoins as new payment infrastructure for the internet.
That’s why we’ve initiated a position in CRCL.
If you’d like to check the allocation, “fair value” range, and receive weekly “cycle awareness” reports and portfolio management alerts when we make changes, you can sign up for TDR Pro and get one month free here.
If you’re an existing Pro member and would like to lock in at a 30% discount to the monthly rate ($16.67), you can do so here.
As a reminder, we will never raise our prices on existing Pro members who keep their accounts active with us.
Take a Report.
And Stay Curious.
Disclaimer: Individuals have unique circumstances, goals, and risk tolerances, so you should consult a certified investment professional and/or do your own diligence before making investment decisions. The author is not an investment advisor and may hold positions in the assets covered. Certified professionals can provide individualized investment advice tailored to your unique situation. This research report is for general educational purposes only, is not individualized, and as such should not be construed as investment advice. The content contained in the report is derived from both publicly available information as well as proprietary data sources. All information presented and sources are believed to be reliable as of the date first published. Any opinions expressed in the report are based on the information cited herein as of the date of the publication. Although The DeFi Report and the author believe the information presented is substantially accurate in all material respects and does not omit to state material facts necessary to make the statements herein not misleading, all information and materials in the report are provided on an “as is” and “as available” basis, without warranty or condition of any kind either expressed or implied.