The dynamics between Coinbase and Circle, the two primary entities behind the USDC stablecoin, represent one of the most intriguing strategic relationships in the crypto industry. While their partnership has successfully positioned USDC as a leading dollar-backed digital currency, underlying tensions and structural incentives suggest a deeper power game is at play—one that might culminate in a full acquisition.
This analysis is based entirely on public data, including Circle’s S-1 filing from April 2025 and Coinbase’s financial disclosures. No insider information is used—only insights that any attentive observer could gather.
Understanding USDC’s Supply Structure
The total supply of USDC can be broken down into three segments:
- Coinbase’s USDC: This includes USDC held within Coinbase Prime and on the main exchange.
- Circle’s USDC: Refers to USDC held within Circle Mint.
- Other Platforms: Encompasses USDC on decentralized platforms like Uniswap, Morpho, Phantom, and other non-custodial wallets or DeFi protocols.
By Q1 2025, Coinbase’s share of the total USDC supply reached approximately 23%, a significant increase over previous years. In contrast, Circle’s share has remained relatively stable. This trend underscores Coinbase’s stronger influence across retail, developer, and institutional markets.
How USDC Revenue Is Shared
The revenue-sharing model between Circle and Coinbase depends on where the USDC is held:
- For USDC held on their respective platforms, each company retains 100% of the reserve interest income.
- For USDC held on "other platforms," the revenue is split 50/50 between Circle and Coinbase.
Notably, Circle benefits more from the off-platform USDC pool. Even though Coinbase holds nearly four times more platform-USDC than Circle, its net revenue advantage is only about 1.3 times greater than Circle’s. This structural nuance highlights a strategic imbalance.
Circle’s Strategy: Betting on Market Scale Over Control
Circle’s primary objective is clear: drive the growth of the total USDC circulating supply—even if those coins aren’t held on its own platform. Circle’s ideal outcome is for USDC to become the dominant dollar stablecoin, a result that would be defensible and highly profitable on its own.
As the protocol provider for USDC, Circle holds several key advantages:
- It maintains and issues USDC across more than 19 blockchains.
- It controls the Cross-Chain Transfer Protocol (CCTP), native bridging, and the minting/burning processes.
Although platform-held USDC is more profitable, its growth has plateaued. Circle’s business development capabilities are often outmatched by Coinbase’s extensive reach. Still, if USDC becomes the number one stablecoin, Circle wins by virtue of total addressable market (TAM), not just margins.
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Coinbase’s Dilemma: Driving Growth Without Full Control
The Macro View
USDC is Coinbase’s second-largest revenue source, accounting for about 15% of its Q1 2025 revenue—surpassing even staking income. It is one of Coinbase’s most stable and scalable infrastructure-level revenue streams. As USDC expands globally, its potential returns are asymmetric.
In the long run, USDC could become a core business and a competitive moat for Coinbase. While trading fees from its central exchange (CEX) remain the primary income source, USDC offers a more predictable revenue model that grows with the broader crypto economy.
The Micro View: Structural Limitations
Despite being the main driver of USDC adoption, Coinbase operates under a structural revenue constraint. Every product decision must be weighed against income and profitability. The core issue: when USDC circulates outside of Coinbase’s custody, the company must share 50% of the revenue with Circle.
This creates a built-in “tax” on growth. For example:
- Coinbase Wallet: As a non-custodial wallet, it may not qualify as “platform USDC” under the S-1 definitions—even with advanced smart wallet features.
- Base L2 Network: Since Base is non-custodial, USDC on Base likely does not count toward Coinbase’s platform share, despite Coinbase being the primary gateway.
The conclusion is clear: unless Coinbase gains control over the USDC protocol layer, it will continue to face revenue ambiguity. The most definitive solution is to acquire Circle and redefine the rules.
Benefits of a Coinbase Acquisition of Circle
- Full Revenue Attribution: Coinbase would retain 100% of all interest income generated by USDC—regardless of where it is held.
- Protocol Control: Ownership of USDC’s smart contracts, multi-chain integrations, and CCTP would fall entirely under Coinbase.
- Product Strategy Flexibility: Native monetization of USDC across wallets, Base, and future on-chain products would no longer require third-party coordination.
- Regulatory Influence: Controlling a leading stablecoin would strengthen Coinbase’s hand in shaping future regulatory frameworks.
Challenges and Open Questions
- Growth Potential: USDC’s current market cap is around $60 billion, but it has a plausible path to $500 billion. At that scale, it could generate approximately $20 billion in annual reserve income.
- Regulatory Developments: The advancing GENIUS Act in the U.S. could further legitimize stablecoins but may also attract competition from TradFi and FinTech firms.
- Operational Risks: USDC was originally designed around a consortium model. Untangling this legal structure may present challenges, though likely not insurmountable ones.
What Would Circle Be Worth?
While market valuations are inherently uncertain, several reference points exist:
- Circle is seeking a $5 billion valuation through its IPO.
- Ripple is targeting a $100 billion valuation.
- Coinbase is currently valued at approximately $70 billion.
- USDC contributes about 15% of Coinbase’s revenue—a share that could exceed 30% post-acquisition.
A reasonable valuation range for Circle, based on revenue contribution and strategic value, could be between $10 billion and $20 billion.
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Frequently Asked Questions
What is USDC?
USDC is a fully reserved dollar-backed stablecoin issued by Circle and widely used across crypto exchanges, DeFi applications, and as a digital dollar alternative.
How does Coinbase benefit from USDC?
Coinbase earns interest on USDC held in its custody and shares revenue with Circle for USDC used off-platform. It is currently the second-largest revenue source for the company.
Why would Coinbase want to acquire Circle?
Full ownership would allow Coinbase to capture all revenue generated by USDC, control its technological development, and better align its product strategy with stablecoin growth.
What is the Cross-Chain Transfer Protocol (CCTP)?
CCTP is a permissionless protocol developed by Circle that enables USDC to be transferred seamlessly across different blockchains without wrapping or asset bridging.
How does USDC compare to USDT?
USDC is known for its regulatory compliance and transparency, with regular attestations of its reserves. USDT (Tether) is larger by market cap but has faced more scrutiny over its backing and transparency.
What are the regulatory risks for stablecoins?
New legislation like the GENIUS Act could impose stricter rules on issuance and redemption, interest distribution, and operational requirements for stablecoin issuers.
Conclusion
All signs point toward a logical conclusion: Coinbase should, and likely will, acquire Circle. While the current partnership functions adequately, the structural and strategic conflicts are too significant to ignore long-term. Market forces will determine the final valuation, but both parties understand the mutual value of a unified structure.
Such a move would position Coinbase as a fully integrated leader in both crypto trading and the future of digital dollar circulation.