By Telis Demos

Newly listed stablecoin company Circle Internet Group primarily makes money by earning yield on the cash people give it to create new coins.

But to live up to the market's soaring expectations, the issuer of USDC might actually be better off in the longer run if interest rates go down.

Shares of Circle, which started publicly trading on Thursday, have soared in trading from their issuance price of $31 per share, and are at around $100 on Friday morning. Based on the number of outstanding Class A and B common shares listed in its prospectus, that gives it a market value close to $22 billion, and puts its multiple of price-to-trailing 12-month earnings at more than 125 times.

For some investors, valuation metrics likely matter little, because Circle to them isn't a kind of newfangled bank. It is a bet on future possibilities. In the view of many crypto backers, stablecoins -- or digital tokens that are meant to represent a fixed amount of a traditional currency, such as dollars or euros -- can be a vital part of the day-to-day financial system for everyone, like in consumer payments.

But before things get to that degree of widespread daily use, one reason for individuals or institutions today to hold stablecoins is that they can get paid to do so. Coinbase Global, for example, advertises that people who hold USDC on its platform can earn 4.1% of that as USDC rewards.

So in that regard, higher interest rates can make it costlier to motivate people to hold stablecoins instead of plain-vanilla money-market funds or bank accounts that are also paying a high yield.

Still, thinking of Circle as a beneficiary of low rates is counterintuitive. After all, its primary revenue source is the yield earned on the reserves that back its tokens. Circle collects fiat money and exchanges it for USDC. It puts the majority of that cash in a government money-market fund.

The Circle Reserve Fund grew from over $22 billion in 2023 to over $37 billion in 2024, and the average yield rose from 4.89% to 5.09%. The rest of the reserves are in banks, which also earns a yield. Circle's overall reserve income in 2024 was almost $1.7 billion.

But growth of USDC in circulation and accompanying reserves can easily outpace lower yields. Already in the first quarter of this year, reserve income grew from about $360 million last year to $558 million in 2025, even though the average return rate on reserves fell from 5.13% to 4.16%. That is because USDC in circulation grew from $32 billion to about $60 billion.

Lower yields have another benefit. When people don't earn much for just holding cash, whether digitally or in a bank, they tend to move it around in search of higher returns elsewhere. There is also a higher propensity to spend it. That might generally encourage more use cases for crypto generally, and for stablecoins.

But for Circle, the broadening of where stablecoins go has another specific benefit, in the form of keeping more of its reserve income.

Reserve income doesn't drop straight down to Circle's bottom line. In 2024, it paid out over 60% of that in distribution and transaction costs. That includes payments to Coinbase, which worked with Circle to launch USDC and has helped expand its appeal and usage.

But as Circle relies less on Coinbase or other partners, it can reduce its distribution costs. In its initial public offering prospectus, Circle said that "if the proportion of USDC held on Coinbase's platform continues to increase in future periods, the growth in our distribution costs may exceed the growth of our reserve income."

As relatively more USDC lives outside of Coinbase, Circle will be able to keep a higher proportion of reserve income. That could offset a decline in reserve yields.

Circle is also increasing its revenues earned outside of reserve income, including new products such as transaction services related to the flow of stablecoins. Those other revenues were about 3.6% of total revenue in the first quarter of 2025, up from about 1.5% a year prior.

Expanding the circle of users of USDC ought to be investors' top goal for Circle at its current valuation, especially with many other issuers also looking to take advantage of Washington's current friendliness to crypto, and to stablecoins in particular.

An environment of lower interest rates might actually help it get there faster.

Write to Telis Demos at Telis.Demos@wsj.com

(END) Dow Jones Newswires

June 06, 2025 11:13 ET (15:13 GMT)

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