Tiger Research: In-depth analysis of the Circle financials, where will the next phase of encryption take place

The report was written by Tiger Research. Circe published the first quarter of 2026. The interest income on the reserve of UNDC continues to represent more than 90 per cent of total operating income. To break this highly centralized structure, Circle is advancing a number of initiatives, including the Ark network. Where will the next phase go

Summary

• With Q1 performance in 2026 as a turning point, Circle is accelerating the paradigm shift from a mere stabilizer to an integrated infrastructure operator in the digital asset sector. Its forward-looking business strategy revolves around three core pillars。
• MAXIMIZE USDC PROFITABILITY AND CIRCULATION:Interest on the reserve accrues on both external and own platforms. During the current quarter, the increased use of USDC on the Circle-owned channel (CPN) contributed to a record high of 41.4 per cent for RLDC. In order to scale up the distribution, Circe worked with the DEX platform Hyperliquid。
• Launching the L1 network "Arc" to diversify Gas and fees:At present, 94 per cent of the cost of the firm is from interest on the USDC reserve. Once Arc expands the Platform ' s operations and generates Platform fees revenue, the structural problem of overdependence on reserve interest will be fundamentally addressed。
• Take over AI payment portal through Argentina Stack:Circe is fighting for a standard voice for AIS autonomy micropayments. Based on progress in infrastructure development and the entry into force of the GENIUS Act, the goal of full commercialization is to be achieved by 2028。

Taken together, Circe will dramatically expand the distribution of USDC through anchoring platforms such as Hyperliquid as a focus for the immediate future, while vertical integration of financial vaults around its own L1(Arc), payment networks (CPN) and AI Naut payments (Agent Stack). The key is that the growth of flows and the diversification of infrastructure of the USDC have developed a mutually driven positive cycle。

Circle is moving from a purely interest income business to a platform business driven by traffic and transaction fees。

2026 Q1 REVIEW: PROFIT MARGIN IS BEING REPAIRED

I. Growing revenue and increasing profit margins — the ratio of owned platforms to improve the quality of profits

Q1 received $694 million (+20 per cent) in 2026, after which EBITDA received $151 million (+24 per cent) and after which the EBITDA profit margin was 53 per cent and profitability increased. At present, 94 per cent of the total amount collected by the Kircle battalion is dependent on interest income from reserves。

The reserve rate of return decreased by 31 basis points (from 3.81 per cent to 3.50 per cent) and placed direct pressure on revenue collection. Nevertheless, for the third consecutive quarter, the profitability of the RLDC rose to a record high of 41.4 per cent. Circle has been successful in improving the quality of core profits in the context of income pressures based on interest rates。

The key driver for the increase in profitability is the continued increase in the share of USDC in the use of its own platform in Circle. This quarter, the share of the platform jumped from 6 per cent to 17.2 per cent (+1,149 basis points for the same period), while the share outside the platform narrowed to 55 per cent。

This change mirrors the results of the presence of clients of the Circle own payment network CPN (Circle Payments Network). The number of member financial institutions increased to 136 (ring + 36 per cent) in a single quarter, and the annualized total payments (TPV) expanded to approximately $8.3 billion (ring + 17 per cent)。

THIS TREND IS UNDERPINNED BY THE PHASED ROLL-OUT OF THE CPN PAYMENT PRODUCT LINE。

• French currency payments(ONLINE 2025 Q2: CROSS-BORDER PAYMENTS COVERING MORE THAN 50 COUNTRIES TO SUPPORT LOCAL CURRENCY COLLECTION
• Stable currency payments(ONLINE 2025 Q3): DIRECT PAYMENTS AND SETTLEMENTS IN MORE THAN 180 COUNTRIES IN COMPLIANCE STABILIZATION CURRENCY (USDC, EURC)
• Host payments(Q2 in 2026, online in April): Circe provides license plates, hosting, compliance and USDC liquidity through a single integrated API, which requires only the processing of French currency and no pressure on digital asset hosting, operation and compliance

This is critical to the quality of long-term profits, as the way income is attributed to different deposit locations is quite different. The balance of the external platform, such as Coinbase, is to be shared with the platform for interest on the reserve, while the balance of the own platform, such as Circle Mint, CPN, is to be held in full at Circle。

In other words, the higher the ratio within the platform, the lower the cost of sharing the partners, the higher the profitability of the RLDC. On the same scale of collection, the real profitability of the Circle increases。

Of course, the CPN itself has not yet released its revenue from usage fees. As noted by the Chief Finance Officer, Jeremy Fox-Geen, at the teleconference on the last quarter of the financial statements, priority is given at this stage to the expansion of the network rather than to its rapid realization. The CPN is now more about introducing funds into the channel of the Circle-owned platform than about direct fees. As a transitional strategy to defend the costs of external distribution, Q1 performance confirms the effectiveness of this path。

The signal of a decline in net profits is hidden behind growth

HOWEVER, A CLEAR DEPARTURE FROM GROWTH IN REVENUE AND IMPROVED PROFITABILITY IS A MOVEMENT TOWARDS NET PROFITS. THE NET PROFIT OF Q1 WAS APPROXIMATELY $55 MILLION, A DECLINE OF 15 PER CENT OVER THE SAME PERIOD。

The main reasons for this are the amortization of the cost of post-IPO equity incentives and the significant rise in pre-Arc infrastructure and R & D expenditure. With the elimination of one-time and non-cash items, calibration data remained robust. However, the trend in net profits remains of continuing concern。

Circe Towards full vertical integration

I. USDC: STRENGTHENING THE CORE, EXPANDING DISTRIBUTION

In 2026, Q1, interest income on reserves amounted to $653 million, or 94 per cent of total operating income. The core business of Circle is highly focused on reserve interest, and the growth in revenue is premised on the continued expansion of the distribution of USDC。

The current flow of USDC is approximately $77 billion. The central proposition of the Circle structural growth is that this cap on circulation can be pushed up to the limit. USDT's previous high-speed expansion was based on the predominance of Binance trading。

Circle plans to copy this "jacking" to the DEX platform Hyperliquid. Coinbase's recent acquisition of the Hyperliquid original stability currency USDH is a typical case in which Hyperliquid did not deploy USDH as a platform original transaction, but sold it and registered USDC as an official base transaction。

The growth of deposits in Hyperliquid directly leads to USDC distribution. Hyperliquid TVL grew from $2 billion in Q1 in 2025 to $4 billion in 2026, peaking at $6 billion. As Hyperliquid uses USDC as the underlying deposit asset, the platform growth is translated directly into new USDC distributions. The projected traffic prospects based on this construction are as follows。

In this scenario, the increase of a single platform alone is expected to push total USDC flows from $77 billion to $84 billion in three years. A single platform would contribute more than 10 per cent of total traffic and become an important distribution channel。

THE TRANSFER OF 90 PER CENT OF THE INTEREST INCOME FROM THE RESERVE TO THE PLATFORM DID REDUCE THE PROFIT MARGIN IN THE NEAR FUTURE. BUT THE RETURNS ARE IRREPLACEABLE IN SCALE — ABOUT 15 TRILLION WON (ABOUT $11 BILLION) OF DAILY WATER TRADED AND 17 PER CENT OF THE MARKET SHARE OF DEX DERIVATIVES. THIS DEAL IS ALMOST ACCEPTABLE。

If the product line of Hyperliquid derivatives were to land further, it would be more stable to move towards circulation. Hyperliquid is a strategic stronghold for Circe, which places the expansion of circulation ahead of profit margins, even if it is to be divided。

ii. Arc: How to get out of interest rate dependency

As noted earlier, the Circe battalion is highly focused on reserve interest and has structural weaknesses in its operating structure during the interest-rate reduction cycle. Arc is still in the testing network and has not generated visible income. With recent institutional financing of some $222 million, Arc has emerged as a core infrastructure that fundamentally cut off interest rates。

Arc ' s main target market is global cross-border payments. According to the World Bank report (RPW No. 54), the global average cost of remittances is 6.36 per cent and the cost of bank remittances is 14.99 per cent. The high-cost structure is due to multiple SWIFT intermediaries, non-transparent foreign exchange points and late weekend settlement。

In response to these inefficiencies in the traditional financial track, Circle aims to build Platform business revenues on Arc. Reducing the infrastructure fees revenue on which interest rates depend is based on two pillars。

Circle Payments Network:Access global institutions and enterprises to Arc for cross-border payments and settlements and processing fees from traffic. The presence of Q1 institutions is laying the groundwork for trading income after the formal posting of Arc main network。

StableFX:Support for chain stabilization of currency exchange to replace high-intermediaries in traditional foreign exchange. At the time of execution, a pre-set fee is charged for each transaction。

StableFX uses the RFQ quote model rather than the fixed cost structure of SWIFT. Make a real-time bid for the market, giving the best wholesalers a difference. Large transfers can be settled 7x24 hours without SWIFT fixed costs and no slide points。

The greater the volume of CPN flows and StableFX transactions, the greater the revenue from direct infrastructure and fees. The structure of non-interest income is thus closed。

This transformation has been validated through testing networks and participating enterprises. According to Arccan data, since its opening, the Open Test Network has recorded a cumulative number of transactions of approximately 430 million, or about 3.26 million within the last 24 hours. More than 100 institutions worldwide have been involved, including Belet, HSBC, Visa and AWS。

In addition to traditional financial institutions, Polymarket, the market for block chain forecasting, has also joined the ecology。

This is not just a pilot of products and platforms. Arc is attracting real businesses and driving real trade flows. If Arc operated as expected, the income structure of Circle would be extended from interest on the USDC reserve to infrastructure operating income. Arc is the first step towards untieting interest rates。

According to the road map, Arc Main is scheduled to go online this summer. Meaningful Arc revenue is expected to be gradually reflected after the main online line。

Agent Stack: A blueprint for autonomous AI payments

AI's "smart economy" that replaces human decision-making and trades independently is approaching. Global technology giants like Google and OpenAI have begun to actively deploy such autonomous systems。

THE BOTTLENECK IS THE PAYMENT INFRASTRUCTURE. THE FEES GENERATED BY AI ' S SMART BODY CALL API ARE PRICED AT A DIFFERENTIAL (SUBGRADE) LEVEL AND CANNOT BE HANDLED BY THE TRADITIONAL PAYMENT SYSTEM. THE ROUTE OF SUCH MICROPAYMENTS TO THE CREDIT CARD NETWORK WOULD RESULT IN HIGHER FEES THAN THE PRINCIPAL - EACH TRANSACTION WOULD BE IN LOSS. SMART PAYOUTS ARE STRUCTURALLY INADEQUATE FOR EXISTING CALCULUS TRACKS。

Circle aimed at this gap by launching USDC as the "Circle Agent Stack" for the settlement of assets and by providing a tool set for the construction of supporting environments。

• Agent Wallets:AI OWNERSHIP AND DISPATCH OF USDC WITHIN HUMAN-SET RULES (E.G. SPENDING LIMITS)
• Agent Marketplace:AI PROCUREMENT OF API SERVICES AND CLEARING OF STORES BY NUMBER OF CALLS
• Agent Nanopayments:Minimum approximately $.0.0001 immediate USDC settlement, zero Gas cost
• Circle CLI:A command line tool for creating wallets and connecting smart bodies
• Circle Skills:Enable AI smart bodies to directly call functional components of the Circle Financial Product Module

At present, this part of the income is also not yet visible. The market follows a path of revenue recognition and is expected to move forward along the following phased road map。

2026 (infrastructure phase):Build a stable technological base for handling large-scale nanopayments. Arc Main Web Activated this summer, anchoring the partnership integration of the Circle CLI and the financial module。

2027 (custody phase):THE GENIUS ACT CAME INTO FORCE TO PROVIDE INSTITUTIONAL GUARANTEES FOR BUSINESS ENTRY. AN EXEMPTION FOR STABLE CURRENCY SECURITIES AND 100 PER CENT ENDORSEMENT OF SECURE ASSETS ARE ESTABLISHED AT THE LEGAL LEVEL, AND EVEN THE LEGAL TEAM OF A CONSERVATIVE ENTERPRISE CAN TEST THE USDC PAYMENT SYSTEM INTERNALLY WITHOUT RISK。

2028 (Code of commercialization and transformation):The technical base is fully aligned with regulatory legitimacy. The intelligent economy is completely commercialized. Enterprises have granted real spending authorization to AI smarts, large-scale transactions have emerged, and the contributions of Agent Stack are duly reflected in the revenue of the financial statements。

So, until the flow drives the income to the ground in 2028, Agent Stack will be more reflected in stock prices in the form of an "expected premium" - This is the pricing of future market ranking values in capital markets, rather than the realization of current revenues。