Three fatal problems of Circle, the leading compliant stablecoin

Here's the English translation: After reviewing Circle's IPO prospectus, it can be discovered that Circle has three fatal problems **Author:** Yue Xiaoyu **Cover:** Circle Introduction: The Web3 industry is developing so fast that new things emerge every day. Therefore, many daily thoughts are worth recording. These thoughts will be updated in real-time on the Twitter account and periodically summarized and published on the WeChat public account. Welcome to follow my Twitter account: Yue Xiaoyu (ID: @yuexiaoyu111). Circle's IPO has ignited market attention on stablecoins. Circle has become the first stock of compliant stablecoins, but there are hidden crises behind the glamorous appearance. After reviewing Circle's IPO prospectus, it can be discovered that Circle has three fatal problems: **First, single revenue, with 99% coming from reserve fund income and only 1% from other income;** **Second, high costs, with 60% of revenue going to Coinbase, and a net profit margin of only 9%;** **Third, profit volatility, with unstable earnings, a net loss of $770 million in 2022, a profit of $270 million in 2023, and a decline to $160 million in 2024.** We will now examine the causes behind these three problems and the efforts Circle is making to solve them. [The rest of the translation follows the same pattern, maintaining the original structure and translating all text while preserving HTML tags]

In 2023, the profit of $267.6 million was due to cost control and rising interest rates;

By 2024, it will drop to $155.7 million due to a surge in distribution costs.

Let's review the key nodes of USDC's issuance volume changes:

The first node is the DeFi summer of 2020, when USDC's issuance volume reached $55 billion;

The second node is the UST collapse in 2022, with a large amount of funds flowing into USDC, maintaining its market value for a long time during the crypto industry bear market;

The third node is the strong rise of Solana in early 2023, which gave USDC good growth compared to USDT;

The fourth node is the Silicon Valley Bank collapse in March 2023, coupled with unfavorable regulatory policies from the US SEC, causing USDC's issuance volume to drop by around 30%, and by the end of 2023, it had dropped by about 50%.

The fifth node is Trump winning the election, and stablecoins began to increase again, with USDC growing to over $60 billion, an overall growth of 80%.

Therefore, we can see that the bull and bear markets in the cryptocurrency market are extremely important for stablecoin growth, and policy impact on compliance-focused stablecoins is also crucial, especially for compliant stablecoins like USDC.

To mitigate profit fluctuations, Circle needs to focus on income diversification to reduce interest rate dependence and optimize costs to stabilize profit margins.

More critically, Circle can use its compliance advantages to consolidate market position and respond to crypto market volatility.

In summary

Stablecoins can be seen as a transformation of the traditional financial system.

Stablecoins are a critical infrastructure for replacing SWIFT, bank clearing and settlement, and the foreign exchange system.

Circle's vision goes far beyond issuing stablecoins; Circle wants to build a new financial system, with USDC as the core of this new financial system.

However, Circle also faces many challenges, especially the three fatal problems mentioned above, which need to be addressed.

Regardless of the outcome, Circle's listing has set a benchmark for the crypto industry and is encouraging more people to pay attention to stablecoins. We can continue to follow this financial system transformation.

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