Circle Q4 Shows $461M Payout As Platforms Capture Majority Of USDC Yield

TLDR

Table of Contents

Circle generated $733.4M in Q4 reserve income from USDC reserves
Distribution and transaction costs reached $460.6M in the quarter
USDC circulation increased 72% year over year to $75.3B
Circle retained about 37% of gross reserve yield after payouts

Circle’s latest earnings show strong USDC growth, yet most reserve income flowed to partners. The results frame a clear message. Circle’s $461M payout shows who captures USDC yield — and it’s not Circle.

USDC circulation reached $75.3 billion in the fourth quarter. That marked a 72% increase from a year earlier. Reserve income rose to $733.4 million. However, distribution and transaction costs consumed $460.6 million of that total.

Reserve income rises with USDC expansion

Circle earns revenue by investing customer reserves. These reserves consist mainly of short term US Treasury bills. The company reported a 3.8% reserve return rate in the quarter.

The return rate fell 68 basis points from last year. Yet reserve income increased because supply expanded. Average USDC in circulation doubled from $38.1 billion to $76.2 billion.

Total revenue and reserve income reached $770.2 million. Distribution costs represented nearly 60% of that amount. Circle reports a metric called revenue less distribution costs. This figure reflects income after partner payments.

After costs, Circle retained $272.8 million in net reserve income. That equals about 37% of gross reserve yield. The remaining share flowed to exchanges and platform partners.

Distribution partners take majority share

Distribution payments increased 52% year over year. Circle attributed the rise to higher partner payouts. The prior year included a one time $60 million payment.

Even excluding that fee, payments continued to grow. Distribution partners control access to users. These include exchanges, wallets, and fintech platforms.

Circle’s filings state that it depends on key distributors. The company warned it may face less favorable terms in future negotiations. It also tracks a metric called USDC on Platform.

USDC on Platform reached $12.5 billion at year end. That marked a 459% increase from the prior year. The daily weighted average equaled 17.8% of total circulation.

Where balances sit affects bargaining power. Platforms with large user bases can negotiate higher payouts. Circle’s margin depends on these agreements.

Rate pressure and margin risk

Stablecoin income depends on interest rates. Treasury bill yields remain in the mid 3% range. Market expectations suggest possible rate cuts in coming quarters.

If rates fall by 100 basis points, reserve income would decline. If distribution costs remain fixed, margins would compress sharply. Under a 200 basis point decline, issuer returns could approach zero.

Circle’s fourth quarter revenue less distribution costs margin was about 40%. Guidance signals some compression ahead. Distribution payments do not always fall in line with rates.

This structure places pressure on issuers during easing cycles. Partners may still seek competitive payouts. The remaining spread narrows as yields drop.

Market structure and control of access

Stablecoins operate through negotiated distribution agreements. Issuers provide the reserves and compliance framework. Platforms provide user access and liquidity.

Users supply the capital but rarely receive yield directly. Issuers earn reserve income and share it with distributors. Distributors do not hold reserve risk.

Competition often centers on placement rather than technology. Platforms can shift incentives toward rival stablecoins. Such moves can redirect flows quickly.

Circle’s balance sheet remains liquid and audited. The primary operational risk lies in distribution concentration. A major partner shift could alter economics.

The quarter illustrates the current structure. Circle generated $733 million in reserve income. It paid $461 million to reach users. The remaining share supported operations and profit.

As USDC scales, the allocation of yield remains central. The numbers show that access to users determines who captures value.