Tiger Research: Deep Dive into Circle’s Earnings Report – Where is the Next Phase of Crypto Headed?

This report was written by Tiger Research. Circle released its Q1 2026 financial results. Interest income from USDC reserves still accounts for over 90% of total revenue. To break this highly concentrated structure, Circle is advancing multiple initiatives, including the Ark network. Where is the next phase headed?

Executive Summary

• With the Q1 2026 results as an inflection point, Circle is accelerating a paradigm shift—from a pure stablecoin issuer to a comprehensive infrastructure operator in the digital asset industry. Its forward-looking business strategy is built around three core pillars.
• Maximizing USDC Profitability and Circulation: Reserve interest is accumulated both on external platforms and on proprietary platforms. This quarter, increased usage of USDC on Circle's proprietary channels (CPN) pushed the RLDC margin to a record high of 41.4%. To expand issuance, Circle partnered with the DEX platform Hyperliquid.
• Launching Proprietary L1 Network "Ark" to Diversify Gas and Fee Revenue: Currently, 94% of Circle's revenue comes from USDC reserve interest. Once Ark scales Circle's platform business and generates platform fee income, the structural over-reliance on reserve interest will be fundamentally addressed.
• Seizing the AI Payment Gateway via Agent Stack: Circle is vying for the standard-setting power in autonomous micro-payments between AI agents. Based on infrastructure development progress and the effective date of the GENIUS Act, full commercialization is targeted for 2028.

In summary, Circle's near-term focus is aggressively expanding USDC issuance through anchor platforms like Hyperliquid, while simultaneously pursuing vertical integration of the financial stack around its own L1 (Ark), payment network (CPN), and AI nano-payments (Agent Stack). The key is that USDC circulation growth and infrastructure diversification are forming a mutually reinforcing positive cycle.

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

Q1 2026 Review: Profitability is Recovering

I. Revenue Growth & Margin Improvement - Increased Proprietary Platform Share Enhances Profit Quality

Q1 2026 revenue reached $694 million (+20% YoY), adjusted EBITDA was $151 million (+24% YoY), and the adjusted EBITDA margin was 53%, indicating improved profitability. Currently, 94% of Circle's total revenue depends on reserve interest income.

The reserve yield fell 31 basis points quarter-over-quarter (from 3.81% to 3.50%), directly pressuring revenue. Despite this, the RLDC margin rose for the third consecutive quarter, hitting a record high of 41.4%. Even as interest-rate-dependent income faced headwinds, Circle successfully improved its core profit quality.

The key driver of margin improvement is the rising proportion of USDC usage on Circle's proprietary platforms. This quarter, the on-platform share surged from 6% to 17.2% (+1,149 bps YoY), while the off-platform share narrowed to 55%.

This change reflects the results of institutional client onboarding onto Circle's proprietary payment network, CPN (Circle Payments Network). Member financial institutions grew to 136 in the quarter (+36% QoQ), and annualized total payment volume (TPV) expanded to approximately $8.3 billion (+17% QoQ).

The phased rollout of the CPN payment product line supports this trend.

• Fiat Payments (Launched Q2 2025): Cross-border payments covering over 50 countries, supporting local currency send and receive.
• Stablecoin Payments (Launched Q3 2025): Direct payments and settlements in over 180 countries using compliant stablecoins (USDC, EURC).
• Custody-as-a-Service Payments (Q2 2026, launched in April): Circle provides licensing, custody, compliance, and USDC liquidity via a single integrated API. The partner only needs to handle fiat currency, without the burden of digital asset custody, operations, and compliance.

This is crucial for long-term profit quality because revenue attribution differs significantly based on the deposit location. Balances held on external platforms like Coinbase necessitate sharing reserve interest with the platform, whereas balances held on Circle's proprietary platforms like Circle Mint and CPN allow Circle to retain the full interest.

In other words, the higher the on-platform share, the lower the partner revenue share cost, and the higher the RLDC margin. At the same revenue scale, Circle's actual profitability strengthens accordingly.

Of course, usage fee revenue from CPN itself has not yet scaled. As CFO Jeremy Fox-Geen noted in the previous quarter's earnings call, the current priority is expanding the network's scale, not rapid monetization. CPN currently acts more as a channel to funnel capital onto Circle's proprietary platforms rather than a direct fee source. As a transitional strategy to defend against external distribution costs, the Q1 results confirm this path is effective.

II. Signals of Declining Net Profit Hide Behind Growth

However, there is a notable divergence between revenue growth/margin improvement and the trend in net profit. Q1 net profit was approximately $55 million, down 15% year-over-year.

The main causes are the amortization of post-IPO equity incentive expenses and a significant increase in infrastructure and R&D spending ahead of the Ark mainnet launch. Excluding one-time and non-cash items, the adjusted figures remain robust. Nonetheless, the net profit trend warrants continued attention.

Circle Moves Towards Full Vertical Integration

I. USDC: Strengthening the Core, Expanding Issuance

In Q1 2026, reserve interest income reached $653 million, accounting for 94% of total revenue. Circle's core business is highly concentrated on reserve interest, meaning revenue growth is predicated on the continued expansion of USDC circulation.

Current USDC circulation stands at approximately $77 billion. The core proposition for Circle's structural growth is how far this circulation ceiling can be pushed. USDT's previous rapid expansion was fueled by securing early positions in Binance trading pairs.

Circle plans to replicate this "preemptive capture" strategy with the DEX platform Hyperliquid. A typical case study is Coinbase's recent acquisition of Hyperliquid's native stablecoin, USDH—Hyperliquid did not deploy USDH as its platform-native trading pair but sold it, registering USDC as the official base trading pair.

Deposit growth on Hyperliquid directly drives USDC issuance. Hyperliquid's TVL grew from $2 billion in Q1 2025 to $4 billion in Q1 2026, peaking at $6 billion. Since Hyperliquid uses USDC as its base deposit asset, platform growth directly translates into new USDC issuance. The circulation outlook based on this is projected below.

In this scenario, just Hyperliquid alone could potentially boost total USDC circulation from $77 billion to $84 billion within three years. This single platform would contribute over 10% of total circulation, becoming a critically important issuance channel.

Conceding up to 90% of reserve interest income to the platform indeed compresses near-term margins. However, the reward gained is an irreplaceable scale—approximately 15 trillion KRW (about $11 billion) in daily transaction volume and a 17% market share in DEX derivatives. This deal is nearly acceptable.

Should Hyperliquid's derivatives product line further materialize, the positive cycle will become even more robust. For Circle, which prioritizes circulation expansion over margins, Hyperliquid is a strategic stronghold worth capturing, even if it means sharing profits.

II. Ark: How Circle Can Escape Interest Rate Dependency

As mentioned, Circle's revenue is highly concentrated on reserve interest, making its business structure vulnerable during rate-cutting cycles. Ark is still in the testnet phase and has not generated visible revenue. Backed by its recent ~$222 million institutional funding round, Ark has emerged as the core infrastructure to fundamentally sever this interest rate dependency.

Ark's primary target market is global cross-border payments. According to the World Bank (Remittance Prices Worldwide, Issue 54), the global average cost of sending remittances is 6.36%, with bank remittance costs as high as 14.99%. This high-cost structure stems from SWIFT's multi-tiered intermediaries, opaque FX spreads, and weekend settlement delays.

Targeting these inefficiencies in traditional financial rails, Circle aims to build platform business revenue on Ark. The infrastructure fee income to reduce interest rate dependency rests on two pillars.

Circle Payments Network (CPN): Connecting global institutions and enterprises to Ark for cross-border payments and settlements, charging processing fees on the flow. Q1's institutional onboarding sets the stage for transaction revenue post-Ark mainnet launch.

On-Chain FX Engine (StableFX): Enabling on-chain stablecoin swaps, replacing traditional FX's high intermediary spreads. Upon execution, the smart contract collects a preset fee from each currency in the transaction.

StableFX uses an RFQ (Request for Quote) model, unlike SWIFT's fixed cost structure. Market makers compete in real-time to offer the best wholesale spreads. Large transfers can settle 24/7 without SWIFT fixed fees or slippage.

The greater the CPN traffic and StableFX volume on Ark, the higher the direct infrastructure and fee income. A non-interest income structure thus forms a closed loop.

This transition is already being validated by testnet activity and participating companies. According to Arcscan data, the public testnet has recorded approximately 430 million transactions since its launch, with around 3.26 million in the last 24 hours. Over 100 global institutions have participated, including BlackRock, HSBC, Visa, and AWS.

Beyond traditional financial institutions, the blockchain prediction market Polymarket has also joined the ecosystem.

This is more than just a product and platform pilot. Ark is attracting real enterprises and driving genuine transaction flow. If Ark performs as expected, Circle's revenue structure will expand from USDC reserve interest to infrastructure operation income. Ark is the first step in decoupling from interest rates.

According to the roadmap, the Ark mainnet is scheduled to launch this summer. Meaningful revenue from Ark is expected to gradually materialize after the mainnet goes live.

III. Agent Stack: A Blueprint for Autonomous AI Payments

The "agent economy," where AI agents make decisions and execute transactions autonomously on behalf of humans, is approaching. Global tech giants like Google and OpenAI have begun actively deploying such autonomous systems.

The bottleneck is payment infrastructure. Fees incurred by AI agents calling APIs are priced at sub-penny (sub-cent) levels, which traditional payment systems cannot handle. Routing such micro-payments through credit card networks would render fees higher than the principal—making every transaction a loss. Agent payments are structurally incompatible with existing card rails.

Circle targets this gap with its "Circle Agent Stack," settling in USDC, along with a toolkit for building the supporting environment.

• Agent Wallets: AI agents autonomously hold and send USDC within rules set by humans (e.g., spending limits).
• Agent Marketplace: A store for AI agents to procure API services and settle on a per-call basis.
• Agent Nanopayments: Instant USDC settlement as low as ~$0.000001 with zero gas fees.
• Circle CLI: A command-line tool for creating wallets and connecting agents.
• Circle Skills: Functional modules allowing AI agents to directly invoke Circle's financial product components.

Currently, this segment also hasn't reached a visible revenue stage. The path to market adoption and revenue recognition is expected to follow this phased roadmap.

2026 (Infrastructure Phase): Building the technical foundation to stably process nano-payments at scale. Ark mainnet activates this summer, anchoring partner integrations with Circle CLI and Financial Modules.

2027 (Regulatory Anchoring Phase): The GENIUS Act goes into effect, providing institutional certainty for enterprise adoption. The stablecoin securities exemption and 100% safe asset backing become legally established, allowing even conservative corporate legal teams to pilot USDC payment systems internally without risk.

2028 (Commercialization & Monetization Phase): Technical foundation and regulatory legitimacy fully align. The agent economy becomes fully commercialized. Enterprises grant AI agents real spending authority, leading to massive transaction volumes. Agent Stack's contribution formally reflects in financial statement revenue.

Therefore, until the traffic-driven revenue materializes fully in 2028, Agent Stack will primarily be priced into the stock as a "premium on future expectations"—this is the capital market's valuation of future market positioning, not a realization of current income.