Circle (Trans): Arc goes live on Sep 16; other rev. guidance doubles

Below is Dolphin Research's $ Circle.US FY26Q2 earnings call transcript.

I. Key Takeaways

1. Shareholder returns: no quarterly dividend

a. Management directly addressed whether a quarterly dividend is coming soon. It will not.

b. The rationale is to preserve a strong balance sheet to invest through cycles, and to stay opportunistic when chances arise. This underpins sustained reinvestment.

c. The company sees itself as a future high-growth name rather than a cash-return story. It believes returns from reinvesting into the platform far exceed dividends.

2. FY guide: other revenue doubled, margins raised, opex unchanged but to the high end

a. Other revenue was raised from $150–170 mn to $310–330 mn. All the uplift comes from Arc.

b. Arc token presale revenue recognition: $242 mn of presales were completed in Q2 and will be recognized based on product milestones. Mgmt expects ~75% of milestones to be hit in 2026, implying $180 mn baked into the revised guide, and this drops through to profit.

c. Remaining other-revenue products are expected to contribute $130–150 mn, below prior, as resources shift from new L1 partnerships to Arc. A softer digital-asset market also tempered new-chain opportunities.

d. RLDC margin was raised from 38%–40% to 41.7%–43.7%. Ex-Arc, it should land near the prior midpoint.

e. Adj. opex remains $570–585 mn but is now expected at the high end. With a strong balance sheet and attractive long-term platform returns, mgmt sees now as the right time to sustain investment.

3. Quarter highlights

a. Circulation: USDC ending circulation was $73.3 bn, up 19% YoY. While end-of-quarter circulation eased, Avg. circulation hit a record $76.5 bn.

b. On-platform balances: USDC held within Circle infra rose 106% YoY to $12.4 bn, or 17% of circulation. On Coinbase, USDC accounted for 30% at quarter-end, with Hyperliquid contributing roughly 6 ppt of that 30%.

c. Revenue and yield: reserve yield was 3.48%, down 66 bps YoY, reflecting lower SOFR. Total revenue plus reserve revenue was $701 mn, up 7% YoY as circulation and other revenue growth were partly offset by lower yields; QoQ, higher Avg. circulation was partly offset by lower rates and other revenue.

d. Other revenue mix: other revenue was $34 mn, up 1.4x YoY on blockchain partnerships. It fell $8 mn QoQ on weaker digital-asset markets and a proactive pivot to Arc over new-chain deals; within that, subscription & services fell $7 mn QoQ on fewer chain integrations, and transaction revenue fell $1 mn on lower validator rewards.

e. Margin and profitability: RLDC margin was 41.2%, up 300 bps YoY, driven by a higher on-platform USDC mix and scaling higher-margin other revenue. It fell 21 bps QoQ as platform execution and mix partly offset the decline in other revenue; revenue plus reserve revenue after distribution, trading and other costs rose 15% YoY to $289 mn.

f. Expenses and EBITDA: Adj. opex was $146 mn, up 23% YoY on product dev., GTM infra and AI, and up $11 mn/8% QoQ on marketing, infra expansion and G&A. Adj. EBITDA rose 8% YoY to $143 mn, with a 50% margin.

4. Mid/long-term growth: 40% CAGR through cycles

a. Mgmt targets ~40% cross-cycle CAGR for USDC over the next years, supported by regulation, Intl adoption, enterprise use cases, agentic finance, and broader acceptance of digital assets. It also cites its historical trajectory and internet platform scaling dynamics.

b. Third-party work pegs the stablecoin market at $1–4 tn by 2030, implying 27%–77% CAGR. The company’s 40% target sits within that range.

5. Hyperliquid economics and disclosure

a. The new Hyperliquid USDC setup had minimal impact in Q2, as the shift to Coinbase’s platform ramped only at quarter-end. Effects should show from Q3.

b. On-chain data transparently shows fund locations. About 90% of Hyperliquid’s USDC sat on Coinbase and ~10% on Circle at quarter-end.

c. The arrangement involves Circle, Coinbase and Hyperliquid. Specific revenue-share terms between Circle and Coinbase will not be disclosed.

II. Call details

2.1 Management remarks

1. Industry and competitive posture

a. Gov.s, financial institutions and enterprises globally are adopting the digital dollar. In the U.S., stablecoins are becoming a federally regulated digital-dollar form, with similar frameworks emerging in major markets.

b. Competition is intense, but management believes Circle has built durable moats in trust, liquidity, regulatory status, technology and network scale. It sees its position as the strongest ever.

c. On recently announced 'consortium stablecoin' efforts: roughly 70% of the firms expressing interest are already participants in the Circle network. Regardless of any future role in such efforts, they are already building, distributing and supporting on USDC today.

2. Three-layer USDC network infrastructure

a. Distribution: the strategic pact with Coinbase has been renewed under existing terms, ensuring USDC remains core across Coinbase products. The network also widens via distribution agreements with strategic allies.

b. Regulatory: Circle holds 55+ licenses/registrations across key jurisdictions, the broadest regulatory footprint among stablecoin infra providers. This took years to build and underpins global legal usability.

c. Technology: software infra runs across 35 chains, reaching users in 185 countries. It provides key protocols and on-chain smart contracts.

d. Financial layer: over 15 partner banks, spanning G-SIBs and critical fintech banks, support network liquidity. This diversified base anchors stability.

e. Ecosystem scale: 150+ economically aligned distribution partners embed, grow and support USDC on their platforms, with thousands more integrating USDC and Circle infra across wallets, DeFi, payments, banks, neobanks, AMs, exchanges, custodians, trading firms, brokers and large enterprises.

3. Liquidity and usage metrics

a. Primary market: Q2 Avg. daily mints and redeems were $1.9 bn, up 105% YoY. Total Q2 gross mint/redeem volume reached a record $170 bn, underscoring USDC’s role in fiat-to-fiat payment and settlement flows.

b. Secondary market: several bn dollars of USDC trade daily. It is among the most liquid digital currencies globally.

c. On-chain: Q2 Avg. daily on-chain volume was $163 bn, up 151% YoY; total Q2 USDC volume rose 151% YoY to nearly $15 tn. It was below Q1, which had heavy market-making, but transactional utility is steadily rising.

d. Share: per Visa, USDC’s share of stablecoin transaction value hit nearly 70% in Jun., a record high vs. 36% in Q2 last year. This highlights rising dominance.

e. Real-world payments: digital-dollar payments rose 84% YoY. Adoption is broadening beyond crypto-native use.

4. Other digital assets

a. EURC rose 2.2x YoY and remains the largest digital euro. Growth momentum continues.

b. USYC rose 10x YoY with AUM above $3 bn, remaining the largest tokenized money market fund. Institutional interest is strong.

5. Structural shifts in trading

a. Perpetuals have become a key global instrument, with markets evolving from spot crypto to global-scale perps. On Binance and Hyperliquid, USDC now funds about 40% of OI margin.

b. Trading is shifting from speculative tokens toward open global markets for tokenized stocks and commodities. Last week on Hyperliquid, real-world assets topped digital commodities and crypto for the first time, nearing 75% of volume.

c. Prediction markets are a rising source of activity: Polymarket’s spot volumes rose 8x+ YoY and OI rose 4x+ YoY. It is a strategic distribution partner for USDC.

6. Arc (new L1/OS layer launched this quarter)

a. Mainnet will go live on Sep. 16 this quarter. The testnet has processed 500 mn+ transactions across nearly 3 mn wallets and is operating near full capacity; 100+ partners are active on a private mainnet preparing for public launch.

b. It is positioned as financial infra operated by leading global financial institutions, with deterministic finality and configurable privacy. The network is run by financial infra providers.

c. First validator cohort alongside Circle includes the largest global asset manager, the largest equities and securities clearinghouse, leading digital-asset firms, the largest exchange group, the two largest retail payment networks, leading global banks and top payment processing and remittance firms.

d. Partnership 1: DTCC will work with Circle to bring tokenized securities onto Arc, starting with tokenizing DTC-custodied assets. It will expand to tokenized repo, collateral mobility, corporate actions, securities lending, dividend distribution and participant reporting; DTCC will help operate Arc L1 and DTC-tokenized assets will enjoy equal protections and rights as traditionally held assets.

e. Partnership 2: BlackRock plans to deploy on Arc with native USDC integration, enabling institutional investors to subscribe, redeem and allocate fund shares on a single chain. This removes frictions that historically limited tokenized funds at scale.

f. Payments synergy: Visa and MasterCard announced expanded partnerships to become key infra partners of Arc. Arc’s transaction and settlement rails are USDC-native.

7. Circle Payments Network (CPN)

a. As of Q2-end, rolling 30-day annualized TPV was nearly $15 bn, with strong YoY and QoQ growth; by Jul. 31 it reached $23 bn, up 130% since the last earnings. Scale-up is tracking well.

b. Onboarded FIs rose nearly 30% QoQ to 175. Momentum continues into Q3.

c. Product and market expansion: CPN and related payment products now cover 58+ countries. Infra improvements ease FI onboarding and are being integrated with Arc, Circle Mint and new stable-FX venues for a full stack.

d. The company has begun commercializing CPN. Monetization ramps in 2H.

8. Agentic finance

a. External: the USDC network plus x402 handles 99.3% of agentic payments. The curated agent marketplace now offers 900+ paid services, with a whitepaper and near-term roadmap to be released in days.

b. Narrative shift: from ‘blockchain, stablecoins and wallets are payment rails for agents’ to ‘agents can earn and monetize.’ Developers can build and deploy agents in minutes; agents have identities, are discoverable by other agents and can monetize on-chain; reputation, trust and discovery are key and will roll out in 2H.

c. Internal (1H ‘scale adoption’): 86% of employees are WAU of AI tools, delivering 1,100+ AI apps YTD, mostly in Q2 and often by non-tech staff. Hundreds of agent skills are published into the company-wide Circle AI toolkit, and agent-driven software development is continuous, lifting product velocity by several 100% vs. early 1H.

d. Internal (2H ‘scale orchestration’): building infra for human–AI team collaboration, anchored by a memory-and-orchestration ‘company brain’ connecting humans and AIs via a messaging layer. Self-serve agent authoring tools will be opened to all teams, with model infra to optimize across models for performance, cost and capability under robust policy, security, governance and risk.

9. National Trust Bank charter

a. Circle obtained an OCC national trust bank charter this quarter, followed by a limited-purpose trust charter from New York State. These are major regulatory milestones.

b. Circle National Trust will serve as an ‘infra bank’ for the internet financial system, providing federally supervised foundations for enterprises and FIs to build digital-asset services.

c. This brings core elements of USDC under a federal framework and projects Circle’s infra into global payments, capital markets and enterprise digital-dollar use. It is foundational to the strategy.

d. Another milestone: a G-SIB has begun directly offering USDC mint/redeem services to its institutional clients. Bank-grade access is expanding.

10. Market backdrop

a. Digital-asset markets remained notably weak, with total market cap down ~40% YoY, weighing on trading, DeFi, collateral demand and MM balances. Activity contracted across segments.

b. USDC circulation still rose 19% in the same period, which mgmt sees as decoupling usage from crypto market volatility and as rising non-crypto adoption. That is the true target market being built.

2.2 Q&A

Q: Thoughts on the Clarity Act (market structure bill) being delayed?

A: The Clarity Act is being actively negotiated, with the final issues now in the Senate between Democrats and Republicans. The goal is to secure a motion to proceed this week to advance it on the floor, though timing is uncertain; there is genuine bipartisan effort and those key issues could be resolved, whether this week or next session.

Second, the more critical law for Circle is the Genius Act passed a year ago. It has completed the rulemaking proposal process and we know it becomes effective Jan 2027; establishing a ‘lawful digital dollar’ in the U.S. and globally is the cornerstone of everything we are building.

Third, across bank regulators and securities/capital markets regulators, agencies are proactively clarifying rules in their domains to mature the market structure. We track these developments closely and plan accordingly.

Q: Any plan to introduce a quarterly dividend soon?

A: The short answer is no. We have a massive opportunity to become a leading internet platform as finance migrates from legacy rails to blockchain-based internet financial services, and we intend to keep a strong balance sheet to invest through cycles and pounce on opportunities.

We therefore prefer to retain capital, believing reinvestment in the platform will deliver higher shareholder returns than a quarterly dividend. In essence, we are a growth stock for a huge future market, not a near-term capital return story.

Q: Beyond passive reserve income, what is the platform revenue roadmap for 2026 and beyond?

A: We have three pillars: digital assets with USDC at the core expanding to others; payments centered on CPN; and developer infra/OS centered on Arc. Other revenue has scaled meaningfully, from near zero at the start of 2025 to an FY26 guide of roughly $300 mn.

It includes infra partnerships that expand the stablecoin network, transaction fees from platform use, and Arc-native revenues. Beyond the token and presale, Arc also carries staking income and on-network transaction economics shared by Circle, validators and other stakeholders, plus partnership and incentive-aligned revenues with Arc builders.

On CPN, we prioritized scale at launch and have reached a $23 bn annualized TPV run-rate by Jul. 31 from a fully in-house product. Monetization begins in earnest in 2H, with aggressive growth and long-term revenue ambitions.

Finally, our product velocity is very high thanks to productivity gains in infra and software dev. As the product surface expands, so do monetization opportunities across the stack.

One more point on ‘passive’ reserves: at >$70 bn scale, we still see USDC product and reserve income as very early. The addressable market for money is ~$120 tn, about half of which is non-interest-bearing; internet platforms can scale into enormous markets rapidly, driven by what we build and by the broader ecosystem building on USDC.

So the activity driving USDC and reserve income is massive and ecosystem-wide, not just ours. We believe this market is only beginning and remains wide open.

Q: If sharing reserve income equally with all distributors becomes a standard via consortium-stablecoin ‘open standards,’ how will Circle compete, given your existing Coinbase economics? Hyperliquid’s three-party split suggests room to maneuver.

A: We already have a very large base of distribution, incentives and builders on the network, with thousands of companies in the ecosystem and 150+ with distribution agreements to grow, build on and distribute USDC. We have done this for a long time, often jointly with Coinbase.

So we are fully capable of forming strong, win–win distribution deals with large partners; Hyperliquid is one example among others. Additionally, Coinbase emphasized on its call that its focus is making USDC the No.1 stablecoin globally, and we share that goal.

Some firms mentioning consortium participation have also stated neutral, multi-coin, multi-chain stances, while our ties with them are expanding; today we announced expanded work with Visa and MasterCard as key Arc infra partners, and Arc is USDC-native at the transaction and settlement layer. Roughly 70% of those involved in such efforts are already building with us.

Most importantly, large companies worldwide show strong interest in joining the USDC network, and together with Coinbase we can partner where it most advances USDC growth and adoption. We feel confident in our position and toolkit to grow with the best firms globally.

Q: Is Hyperliquid a one-off, or a repeatable model?

A: Notably, a fast-growing platform like Hyperliquid had considered another stablecoin but concluded USDC’s liquidity, network effects, institutional preference and regulatory usability make it indispensable. That underscores winning via established network effects.

Some distribution platforms act as ‘liquidity supernovas,’ with liquidity that spills over and shapes adoption elsewhere. When we evaluate pillar-level distribution deals, we focus on how the network effects will propagate preference and adoption into many applications.

That logic drove the joint decision with Coinbase to build this arrangement and partner with a high-growth venue. As noted, nearly 75% of Hyperliquid volume is now tokenized RWAs, the convergence of TradFi and on-chain markets, aligning with our strategy.

Q: Can you share the economic terms, e.g., split ratios?

A: The arrangement involves Coinbase, Circle and Hyperliquid, and the exact on-platform fund locations are visible on-chain, whether on Circle or Coinbase. At quarter-end, roughly 90% of Hyperliquid’s USDC was on Coinbase and ~10% on Circle.

As for revenue sharing specifics between Circle and Coinbase, we will not comment further. Those terms remain confidential.

Q: Strategic rationale for prioritizing Arc over other chains?

A: Arc is one of the largest opportunities we have seen and may rival or exceed USDC itself. It represents an OS layer for global economic activity, where we expect massive financial, economic and agentic activity to migrate over the next 3–5 years into large-scale internet infra.

We own 25% and operate key infra on the network, and adoption compounds RWA usage, stablecoin adoption, stablecoin transaction fees and stablecoin settlement. That creates a highly attractive investment with strong margin characteristics and diverse product/SKU options.

It is precisely the kind of other revenue we aim to build, and it is strategic infra that compounds Circle’s value across vectors. The optionality is significant and aligned with our core.

Q: What does this mean for subscription & services revenue beyond 2026?

A: Subscriptions & services are grounded in partnerships to bring USDC and Circle infra onto other chains, with both upfront and recurring components. The pipeline was actively executed late last year and in early quarters, and given upfronts, the line is naturally lumpy.

We continue to prioritize it as a service, as having USDC present wherever builders are active is critical. For the rest of this year, our other revenue guide implies the shape of 2H contributions.

Q: Can you expand the 2H agentic roadmap and when it becomes economically meaningful?

A: We will publish more detail in days. The first product set enables agents to hold wallets with policies and guardrails, pay/receive via open-standard protocols, and access a curated agent marketplace with 900 services.

We are seeing organic adoption across the payments stack, service providers, data providers and other agent markets, with near-daily progress. For instance, Cloudflare just made x402- and USDC-enabled agentic wallets a core product component, reaching a vast share of internet traffic.

For 2H and ‘meaningful’ revenue, our vision is that agents undertake more cognition and directly deliver and execute services and labor. To do so, agents need identity, auto-discovery to find other agents and capabilities, reputation akin to internet platforms and a simple way to earn and monetize their work.

We are building all of these on open standards, collaborating with the ecosystem. As this runs, stablecoin balances and transaction velocity in applications should rise, and Arc is designed as the economic OS to work with these intelligent systems.

Thus, scaling utility, volumes and AUM on Arc directly drives Circle revenue; the agentic stack can also yield protocol-level revenues. Fundamentally, it accelerates stablecoin and Arc infra adoption.

Q: Did USDC distribution and transaction costs on-platform fall materially from Q1 to Q2, and what changed in the on-platform USDC mix (incl. CPN)?

A: We do not disclose profitability and mix at that granularity between the on-platform and total USDC base. Directionally, our guide and 1H results show the overall margin path with many puts and takes.

Across the digital-asset ecosystem and the growing off-crypto use cases, some segments are highly incentivized while others are large and fragmented with minimal incentives. These segments shift every quarter, making margin forecasting difficult.

We are confident in the FY outlook. Ex the expected $180 mn Arc revenue, trends still point near the midpoint of our prior margin range, as discussed.

Q: With USDC >99% on x402, do you have a natural ‘right to win’ in that stack, or simply benefit from overall channel adoption?

A: We were an early design partner and founding member of the x402 foundation, alongside many strong firms. x402 is optimized for on-chain payments and settlement where agents need real money, i.e., a true digital dollar with sub-second processing, sub-cent costs and micro-transactions of just a few cents.

We see this in our agent marketplace and in x402 behavior. These characteristics align tightly with USDC and the blockchain infra we and partners provide, so we absolutely have a right to win and are visibly winning.

As elsewhere in the market, e.g., USDC at 70% of real-world stablecoin payments in late Jun., network effects are powerful. Even foundation models exhibit network effects as agents discover what is usable and widely used, shaping the intelligent layer itself.

We like our strong position and the product stacks being launched by many firms including Circle, where we are investing heavily in the agent stack. We expect this advantage to persist with USDC as the default currency for the agentic economy.

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