Just now, Circle released its Q1 2026 financial report.

The market was most concerned about two key figures: one was the USDC circulation, with analysts hoping to see $80 billion, a threshold that Allaire repeatedly mentioned during the IPO roadshow; the other was revenue, with Wall Street expecting $7.17 billion, a slight decrease from the previous $7.70 billion in Q4 of last year.

However, the Q1 financial report released by Circle showed that these two figures were $77 billion and $6.94 billion, respectively. In other words, Circle did not meet the expectations for these two key metrics.

This is the first noticeably below-expectation financial report since Circle went public.

Looking deeper into the report, there are many points to discuss, not just the simple conclusion that "Circle's growth is starting to slow down."

Firstly, the year-over-year growth rate of USDC circulation was 28%, with a 39% quarterly average circulation growth rate. However, the reserve income only increased by 17%. The reserve yield, which is the interest rate that Circle can earn for holding one USDC, decreased by 66 basis points year-over-year.

In other words, there is more and more USDC in circulation. But the revenue generated by each USDC held by Circle is decreasing.

This trend is not a one-off for the quarter. The FY25 annual reserve yield was about 4.7%, which has already dropped to about 4% in Q1 2026. If we extrapolate based on the current path that the Fed is expected to cut rates by 50 to 75 basis points in 2026, it may slide to 3.5% within the year.

In its prospectus, Circle defined itself as a "stablecoin infrastructure company." However, the financial structure of FY25 revealed another story: out of the total revenue of $27.5 billion for the year, around 90% came from reserve income. The remaining 10% came from transaction fees, subscription services, and other platform businesses.

In other words, Circle is a company disguised as a stablecoin, highly sensitive to short-term U.S. bond rates.

During the rate-hike cycle from 2023 to 2024, this was the best business in the world.

Circle holds customers' money, invests it in short-term U.S. bonds, and earns an interest differential of 4 to 5 percentage points per year. Customers do not receive this interest because USDC is a non-interest-bearing stablecoin. This difference is all retained in Circle's accounts.

But when the rate-cutting cycle arrived, business wasn't as rosy.

On the day of the Q1 earnings report disclosure, CRCL was trading near $115 pre-market, up 3% pre-market, but a far cry from the post-IPO high of $298.99. Short interest accounted for 12.2% of the float. Over the past 12 months, funds shorting Circle had increased by 579%. The market's divergence was so significant, far exceeding that of its peers.

Circle CEO Allaire was well aware of this. So, in this Q1 earnings report, the most crucial part wasn't revenue or circulation volume. Instead, it was the two major weapons he unveiled alongside the financial report:

The ARC Token presale raised $2.22 billion, valuing the network at $30 billion; the Agent Stack was officially launched, including Circle CLI, Agent Wallets, and Agent Marketplace.

The Ceiling of the Interest Rate Spread Business

To understand why Allaire decided to unveil Arc and Agent Stack at this juncture, one must first grasp the kind of money Circle is currently making.

USDC is a non-interest-bearing stablecoin. Users give dollars to Circle, and Circle gives them a 1-dollar token. This token circulates freely on the blockchain but does not accrue interest. The majority of the dollars behind it are used by the Circle Reserve Fund, managed by BlackRock, to purchase short-term US Treasuries and repurchase agreements. The interest on these Treasuries goes to Circle.

This is an interest rate spread business. Essentially, it is no different from a bank's demand deposit. The difference lies in the fact that banks are constrained by reserve requirements, capital adequacy ratios, and deposit insurance premiums, while Circle is unconstrained.

From 2022 to 2024, this business entered its most lucrative phase in history. The Federal Reserve raised the federal funds rate from 0% to 5.5%, and the 3-month Treasury yield once exceeded 5.4%. The supply of USDC surged from $44.2 billion at the end of 2022 to $437 billion by the end of 2024 (experiencing a retreat during the Silicon Valley Bank turmoil) and then to $753 billion by the end of 2025. For every extra dollar issued, Circle gained an additional percentage point of annualized interest rate spread.

This was the foundation for Circle to restart the IPO process in the second half of 2024 and the core narrative that enabled it to price at $31 per share in June 2025 and triple on its listing day.

But the rate hike cycle will not last forever.

In September 2024, the Fed began cutting rates. By May 2026, the federal funds rate had returned to the 3.75% to 4.00% range. The -66 basis point Reserve Return Rate decay in the Q1 financial report was the first clear mark of this easing cycle on Circle's balance sheet. It signaled to the market that the rapid growth in USDC circulation could no longer fully offset the unit revenue collapse from rate cuts.

According to an unofficial estimate, if the Fed cuts rates by another 50 to 75 basis points in 2026, the Reserve Return Rate could slide to 3.5%. Even if circulation grows to $90 billion, it would be difficult for annual reserve income to exceed $3.15 billion, showing limited growth compared to FY25. Allaire's vision of USDC circulation reaching $500 billion, as mentioned in roadshows, is no longer a simple linear story in the 2026 interest rate environment.

This is why all focus in the Q1 financial report must shift from "revenue figures" to "revenue structure."

Tether has chosen a different path.

As the world's largest stablecoin issuer, USDT's circulation has long been more than double that of USDC. However, Tether has not gone public to date, and its financial disclosure is limited to quarterly audit reports. CEO Paolo Ardoino has expressed the same idea on multiple public occasions: Tether does not need to go public because doing so would expose a "quietly making money" business to the public market's discount mechanism. Tether reported a net profit of $13 billion in 2024, most of which comes from the same interest differential structure as Circle. However, its profit distribution is only accountable to a few shareholders, and it does not need to explain the decay of the reserve return rate to the public market, answer analysts' questions quarterly about the Fed's path, or transparently account for the accounting impact of employee stock incentives. Ardoino's strategy can be summarized in one sentence: In an interest-sensitive business, the less transparent it is, the more sustainable the valuation.

Allaire chose the opposite path. Going public, disclosing information, and accepting the public market's PE discount for a "quasi-bank" business. The cost of this path is that every -66 basis points will be amplified into market sentiment swings. However, the benefit is that Circle has achieved something Tether can never achieve: the ability to integrate with the TradFi world using stocks and tokens.

There is also another aspect to consider. The distribution and transaction costs disclosed in the Q1 financial report amounted to $407 million, a 17% year-on-year increase. The vast majority of this money flowed to Coinbase.

According to the agreement structure disclosed in Circle's prospectus, Coinbase takes 100% of its platform's USDC reserve revenue, plus a fixed percentage of all USDC reserve revenue. A rough estimate indicates that of the $653 million in reserve revenue in Q1, approximately 60% was distributed back to Coinbase through the distribution agreement. The net amount of reserve revenue that Circle truly kept in its own account is approximately between $250 million and $270 million.

This is a fact that cannot be avoided in any discussion of Circle's financial structure.

When the market values Circle as the "Stablecoin Leader," it is essentially valuing a company that receives 60% of reserve revenue to be distributed to the largest channel partner. Allaire has very limited maneuvering room in this matter. Coinbase is the early major distribution channel for USDC, launching the Centre Consortium together in 2018. The cost of the agreement in 2023 when Circle regained full control of USDC was to permanently enshrine the distribution split in the contract.

As the spread narrows, distribution costs are rigid, and employee stock incentives drove a 76% increase in operating expenses in Q1. These three factors combined are the true reasons for the 15% year-over-year decline in Q1 net profit and why Allaire must present something new to the market in this earnings report.

Arc with a $30 Billion Valuation

Let's now look at Circle's first ace in the Q1 earnings report, its new native blockchain token ARC.

The ARC Token presale raised $222 million, valuing it at a fully diluted $30 billion.

The number itself is not particularly large. After all, similar-scale L1 network fundraisings for 2024-2025 are not uncommon in the crypto market. What is truly exceptional is the impressive list of investors and buyers.

a16z crypto, Apollo Funds, ARK Invest, BlackRock, Bullish, General Catalyst, Haun Ventures, Intercontinental Exchange, IDG Capital, Janus Henderson Investors, Marshall Wace, SBI Group, Standard Chartered Ventures.

First, BlackRock is the manager of the USDC Reserve Fund. It oversees the batch of short-term U.S. Treasuries that underpin the USDC value. In the ARC Token presale, it transitioned from being the "asset-side service provider" to the "network-layer token holder." This marks the first time BlackRock, outside of its management of a stablecoin reserve ecosystem, directly holds equity in this network-layer system.

Next, Intercontinental Exchange is the parent company of the New York Stock Exchange. Circle, the company, is listed on the NYSE. In a way, it is Circle's "landlord." It now holds Arc's tokens.

Additionally, Standard Chartered Ventures is the strategic investment arm of Standard Chartered Bank. Standard Chartered is a top-ten global U.S. dollar clearing bank and one of the most significant banking partners for USDC in Asia and the Middle East.

Moreover, Apollo Funds, Janus Henderson, and Marshall Wace are three traditional asset management and hedge funds with a combined AUM exceeding $1 trillion. a16z crypto, ARK, Haun Ventures, and Bullish are native crypto capital firms. SBI Group is one of Japan's largest financial groups and a distribution partner for Circle in Japan. IDG Capital is a well-established tech investment firm in Asia.

In essence, this list is notable because it represents the first substantial entry of TradFi asset management and clearing systems into Circle's ecosystem at a token level. It's not equity, it's not debt, it's a network governance token. In the ARC Token whitepaper, Allaire positions this token as the "Coordination Asset of the Arc Network," with responsibilities for governance, security staking, and network operation. From a financial structure perspective, it represents a claim on future cash flows of the Arc Network independent of Circle company equity.

Circle, the company, had a market capitalization of approximately $28 billion on the day of the financial disclosure. The Arc Network had a fully diluted valuation of $3 billion at the presale stage. The market is pricing the two business segments of the same company separately. The stock corresponds to past arbitrage business, and the token corresponds to future network business.

To understand why Allaire took this step, we need to go back to who he is.

Allaire is a serial entrepreneur, 53 years old this year. In 1995, he co-founded Allaire Corporation with his brother J.J. Allaire, developing the ColdFusion web development platform. The company was sold to Macromedia in 2001, where he served as CTO for three years. In 2004, he founded Brightcove, a company focused on enterprise video cloud services, and took it public in 2012. In 2013, he started Circle with a focus on digital currency. In 2018, he co-founded the Centre Consortium with Coinbase, and in 2023, Circle took back full control of USDC.

The key word for this resume is not "fast," but "slow." Each company Allaire has been involved with has taken 7 to 10 years to develop. In an interview with Fortune, he mentioned that when he started Circle, he was clear that "to achieve this vision, you have to change global policy. Change the laws of some of the largest countries in the world. This is not typically what an entrepreneur signs up for, but I felt like that's what I was signing up for." He has repeatedly stated on LinkedIn that Circle needs another 10 to 20 years of infrastructure building to fulfill its original vision.

This reflects a specific management style. Allaire is not a CEO who habitually jumps around in quarterly earnings reports. In an Art of Leading interview in 2023, he mentioned that he leads with optimism and deep conviction, believing that "the best entrepreneurship comes from deep conviction because you will face extraordinary challenges." Circle's company culture is 100% remote, anchored in values-driven collaboration. He has testified multiple times in the U.S. Senate and serves as a senior advisor on financial technology for the IMF. In the 2026 TIME 100 list, he was listed alongside another figure from the crypto industry: Coinbase CEO Brian Armstrong.

This style has shaped how Circle operates. It has never been a company chasing short-term growth. After the Silicon Valley Bank incident in 2023, where USDC circulation plummeted from 560 billion to 240 billion, Allaire did not resort to aggressive incentives to quickly boost the circulation. Instead, he took two years to focus on compliance, policy-making, and institutional client onboarding. By FY25, the circulation climbed back to 753 billion, driven by a compliance narrative, the passage of the GENIUS Act, and endorsements of the USDC reserve system by BlackRock and the NYDFS.

However, Allaire also recognizes that this approach has its limits during an interest rate cycle. Interest spreads are passive income and cannot hedge against the Fed's policy direction even with compliance. To move Circle's valuation anchor from the "US Treasury bond interest rate" to somewhere else, there must be an independent network layer. This is the reason for Arc's existence.

Arc is not something that Circle just started thinking about in 2026. The Arc testnet was launched in Q4 2025, with over 100 institutional participants in the public testnet, covering banking, capital markets, digital assets, payments, and technology. In the Q1 financial report, the Arc public testnet has completed over 166 million transactions, with uptime close to 100%. The Circle Payments Network (CPN) annualized transaction volume grew from $57 billion in Q4 to $83 billion in Q1.

The ARC Token presale is completed, marking Allaire's first "network valuation" certificate presented to the market. The implicit message is: Circle is not just a company that earns interest spreads; it has its own chain.

Circle is Embracing AI

In the first part of the Q1 financial report, Allaire juxtaposes Arc and the Agent Stack. The former is infrastructure, and the latter is the application layer narrative.

The Agent Stack consists of three things. Circle CLI, a command-line tool that allows developers to directly access Circle's wallet, smart contract, and payment capabilities. Agent Wallets, wallet infrastructure for AI agents. Agent Marketplace, a market for automatic settlement between agents and between agents and merchants. The three sets are all built on top of Circle's existing infrastructure, including Gateway, Nanopayments, and CCTP.

There is no revenue data for the Agent Stack in the financial report, indicating that these products may not have fully launched yet.

It can be inferred that Allaire is betting on one thing: the rise of the AI agent economy.

When AI agents need to pay each other, pay for computing power, pay for data, and pay for services, traditional credit card and bank account systems fail. AI agents have no ID, no SSN, and no bank willing to open an account for them. Stablecoins are the only payment medium in the AI agent era that does not require KYC adaptation. This is a structural advantage exclusive to Circle.

But the other side of the gamble is time.

If the AI agent economy does not scale by 2027, Circle's two key weapons (Arc + Agent Stack) will not have time to materialize. Meanwhile, the base has been thinned by interest rate cuts to below 3.5%. During this period, what will support Circle's $28 billion market capitalization.

At the same time, there are things not clearly explained in the ARC Token whitepaper, including the interest distribution mechanism between token holders and Circle company shareholders. If the Arc Network really takes off, how will validator rewards, network fees, and application revenue be divided between these two types of stakeholders. In the Q1 earnings call, the management reiterated the existing full-year guidance, but clearly stated that it "does not include the impact of ARC Token presale, Arc incentive programs, and Arc future revenue." This is a typical omission.

Allaire presents Arc as a story that is separate from Circle's company valuation, but he is not yet ready to tell the market how these two stories will ultimately be reconciled into one balance sheet.

We will slowly see what kind of answer Circle will provide to these remaining questions.

Welcome to join the official BlockBeats community:

Telegram Subscription Group: https://t.me/theblockbeats

Telegram Discussion Group: https://t.me/BlockBeats_App

Official Twitter Account: https://twitter.com/BlockBeatsAsia