Coinbase vs. Circle: The Symbiotic Rivalry in the Stablecoin Arena

$Coinbase(COIN.US) $Circle(CRCL.US)

The first two articles in the cryptocurrency series ("Coinbase Business Logic", "Stablecoin Discussion") introduced by Dolphin Research covered Coinbase's business model, the stablecoin market size, and the scarcity issue of USDC. To prevent information overload, let's highlight the key points:

1. Currently, Coinbase primarily generates revenue through cryptocurrency transaction fees, mainly from retail investors. However, with increasing competition (regulation has both pros and cons, clearing low-compliance crypto trading platforms but encouraging traditional brokers to enter the market), fee reduction is a major trend.

Future growth will rely on non-transaction income— a. subscription-based (custody, staking, lending, stablecoins, etc.); b. data, cloud, and other on-chain infrastructure services. Among these revenue sources, stablecoins are the most imaginative business.

2. Regulatory recognition of stablecoins has opened up the value ceiling of cryptocurrencies, giving Coinbase greater growth potential; analyzing the prospects of stablecoins is essential to calculate Coinbase's steady-state value.

3. Stablecoins have essential use cases (such as cross-border payments), but not all real-world scenarios can be easily penetrated. Regulatory involvement has its own interests; the U.S. wants to increase short-term debt buyers, while Europe and China aim to resist dollar hegemony.

For the long-term supply space of stablecoins (2030), mainstream expectations are $2 trillion, with optimistic expectations at $3.7 trillion. Based on the essential demand for USD stablecoins, Dolphin Research adjusts the market space to a neutral/optimistic expectation of $1.4 trillion/$2.1 trillion, respectively.

4. USDC currently ranks second in market capitalization and trading volume in the USD stablecoin market, most compliant with the GENIUS Act requirements. This gives USDC some first-mover advantages; if it can leverage this compliance window to accelerate scenario penetration, USDC is expected to become one of the few leading mainstream USD stablecoins in the future. Dolphin Research, based on a relatively optimistic expectation, assumes USDC can capture 35% of the USD stablecoin market share.

This article will discuss the competition among various parties in the USDC ecosystem and provide value judgments on Coinbase and Circle.

I. How was the seven-year revolutionary friendship established?

Before valuation, it is necessary to review the changes in the cooperation agreement between Coinbase and Circle.

From 2018 to the present, it can be divided into three periods, briefly summarized as:

2018 to the first half of 2023 as equals, the second half of 2023 to 2024 with Coinbase having the upper hand, and post-2025 with alliance cracks.

(1) 2018-2023Q2: Equals

Before modifying the agreement, Circle and Coinbase were "joint issuers" of USDC, both having issuance rights. The two parties jointly issued USDC through a joint venture entity—Centre Consortium. Circle and Coinbase each held 50% voting rights, and all matters required unanimous consent from both parties to execute.

In terms of profit distribution, the parties divided income based on the average of their respective "cumulative issuance volume still in circulation/total circulation" and "platform custody volume/total circulation" ratios.

For example, in 2021, Coinbase's issuance volume accounted for 35%, and custody volume accounted for less than 1%. Averaging these two indicators resulted in 18%, allowing Coinbase to receive 18% of stablecoin income from reserve asset interest.

According to Coinbase's financial reports, it can be roughly calculated that before the agreement change from the second half of 2022 to 2023, Coinbase's USDC interest income accounted for 20% to 40% of the total reserve interest.

During this period, although the new USDC issued each year had a low proportion for Coinbase, and custody accounted for only a single-digit percentage, the cumulative issuance volume in circulation was still considerable, resulting in a relatively high income share.

(2) 2023Q3-2024Q4: Increased Coinbase Influence, but Hidden Risks

In 2023, the two parties negotiated a major revision of the profit-sharing agreement:

On one hand, Circle used $210 million, approximately 3% of the group's equity (2022 valuation of $9 billion, assuming a valuation decrease to $8 billion in 2023 due to the Silicon Valley Bank incident), to exchange for all of Coinbase's 50% shares in the joint venture entity Centre Consortium.

This clarified the roles, with issuance rights entirely belonging to Circle, and Coinbase responsible for channel distribution.

Profit distribution, as shown in the figure below, after deducting less than 1% of the basic issuance cost, the net interest is divided between Coinbase and Circle based on their respective platform-held and custodied USDC shares, with the remaining net income pool split 50:50.

For example, in 2Q24, Coinbase received a total of 16% (platform-held USDC share) + 40% (so-called "ecosystem incentive"; 50% of the remaining income pool after excluding Coinbase and Circle's own shares) = 56% of reserve asset interest income.

Clearly, under the new agreement, Coinbase essentially lost issuance rights but gained a. 2% Circle group equity; b. a more critical benefit for Coinbase, a dominant clause, allowing Coinbase to receive up to 50% of the remaining net income distribution—50% of the interest income generated from the remaining AUM after deducting each platform's own USDC holdings must be given to Coinbase.

This is equivalent to Coinbase using its platform's 16% AUM holding (compared to total circulation) to obtain 46% of the net income distribution, including a 40% "ecosystem incentive" fee, which seems unrelated to Coinbase and more like a net income mechanism that a shareholder would receive.

The underlying reason may be the collapse of Silicon Valley Bank, causing USDC to experience panic selling and redemption due to 8% of total reserves being held at Silicon Valley Bank, with the coin's value dropping to $0.88. At this time, Coinbase's "compliance label" was needed to help USDC regain investor confidence, leading to an imbalance in the status between Circle and Coinbase, allowing Coinbase to receive a larger share of the benefits.

This agreement is valid for three years, expiring in 2026. If neither party defaults and no agreement is reached on changes, it will automatically renew for three years until 2029.

However, Dolphin Research notes a potential issue: If one party proposes changes to the agreement but fails to obtain the other's consent, it may result in subjective default, thereby terminating the three-year renewal in 2026. This is crucial and will be discussed further.

(3) 2024Q4-Present: Third Party Joins, Alliance Cracks?

In November 2024, the parties agreed to approve Binance as an ecosystem partner for a two-year cooperation period. The core is that the income sharing pool between Coinbase and Circle must first exclude the channel costs of introducing Binance, which seems reasonable.

However, as an ecosystem partner in the USDC downstream scenario, Binance's incentives are vastly different from those of Coinbase (the first ecosystem partner to help USDC expand scenarios).

Circle provides Binance with channel fees in two parts:

a. A one-time incentive of $60.25 million, which can be seen as a one-time platform fee for USDC integration into Binance's platform;

b. A fixed monthly interest commission based on USDC holdings on Binance's platform (specifically, USDC holdings on Binance * discounted risk-free rate SOFR * 40%-90% interest share). The floating share portion requires Binance to maintain USDC holdings above $1.5 billion to receive this incentive. Dolphin Research estimates that the total channel fee given to Binance accounts for about 2% of Circle's total income.

In comparison, as channel partners, Binance and Coinbase are clearly treated differently by Circle:

a. Coinbase has a remaining net income distribution right, and this distribution right is as high as 50%; this is more like a shareholder with a 50% stake would receive.

b. For AUM within its own platform, when Binance receives interest income, the risk-free rate itself is discounted, and the calculated interest is only a portion (the share is only in the 40-90% range); but Coinbase directly receives the entire interest income for its platform's USDC holdings without a discount on the rate.

II. Unsustainable Imbalanced Alliance

The revolutionary friendship between Coinbase and Circle is both deep and shallow.

USDC's development to its current market second position is indispensable for both parties. Especially Coinbase, under high compliance, its platform has steadily developed until it became the leader in the U.S. market. With 120 million users and good government relations, who wouldn't love such a channel? When USDT was issued five years earlier and occupied the market, USDC's emergence was definitely thanks to Coinbase as a "founding hero."

But can a founding hero always overshadow the master? With only 20% of AUM, yet pocketing 55% of the income, can such a bizarre profit-sharing relationship last long?

Clearly not, at least in a steady state, the channel's profit-sharing ratio should either be based on labor or the conventional 30%. Allowing Coinbase to take advantage for a long time might make Circle's shareholders jump.

Unless they are family. But this brings us back to the 2023 agreement change, where Coinbase exchanged its 50% issuance rights in the joint venture for 3% of Circle's equity and a favorable profit-sharing agreement, seemingly a short-term gain but a long-term pitfall.

Holding only 3% of Circle's equity means no substantial shareholder-level constraints or substantial equity income. The short-term favorable profit-sharing agreement cannot be a long-term constraint. The agreement term is three years, and although it stipulates automatic renewal for three years if neither party defaults, if I were Circle, when USDC reaches a circulation of over $200 billion in three years, with a transaction scale of at least trillions, I would adjust this imbalanced profit-sharing agreement even if it means breaching the contract.

This is where Coinbase has dug a big pit. If the original 50% issuance rights in the joint venture were exchanged for 50% of Circle's equity, or even 30% of Circle's equity, the future would not be so passive.

This reminds Dolphin Research of the profit-sharing to equity conversion between Ant and Alibaba.

In 2011, Ant was spun off from Alibaba, agreeing to pay 37.5% of pre-tax profits as intellectual property and technology service fees to Alibaba, but retaining the potential right for Alibaba to acquire a 33% stake in Ant in the future.

In 2018, Alibaba exercised its retained right to acquire a 33% stake in Ant through a subsidiary, terminating the 37.5% profit-sharing arrangement.

Although Alibaba's income from Ant before and after 2018 did not differ significantly, a high proportion of equity investment means not only enjoying profit-sharing but also potential equity premium income and even participating in major business decisions. As a channel party, a 30% general profit-sharing ratio is not a loss.

But Coinbase and Circle are different; they are not family (shared management). When interests conflict, past sentiments are useless. Therefore, the 2023 agreement change, while seemingly unbalanced in favor of Circle in the short to medium term, actually puts Coinbase at a disadvantage in the long term.

1) Before USDC scales up, Coinbase's proportion is high but only in a thin income distribution.

2) After finally helping USDC grow, Circle's backbone strengthens, and by then, the three-year agreement term is up. Without strong contractual constraints, relying only on early revolutionary friendship and contractual spirit, how can Coinbase suppress Circle?

For example, at the end of last year, when preparing for listing, Circle immediately brought in Coinbase's competitor Binance to join the ecosystem. Although this also required Coinbase's consent to join, the actual channel fee given to Binance is not high, but having the largest virtual currency platform as an ecosystem partner means Circle may develop more scenarios in the future, reducing Coinbase's importance in its scenario expansion.

Other trading platforms, such as centralized platforms Kraken, OKX, or decentralized platforms Uniswap, Morpho, and other small platforms, since USDC has become a mainstream stablecoin, Circle's USDC integration into these platforms does not require any interest-sharing with these platforms.

Here, a trend is gradually emerging: As more scenarios develop, end-users become accustomed to using USDC, and service-providing platforms must introduce USDC as a standard digital currency tool based on user demand, regardless of whether Circle offers profit-sharing. By then, user mindset forms, Circle's downstream ecosystem barriers form, and the channel party's bargaining power significantly decreases.

Of course, it is still in the early stages, and it is conceivable that after Circle's listing, it will open up more convenient financing channels, besides Coinbase and Binance, to develop its own scenarios and ecosystem partners, expanding USDC's scenario coverage and penetration rate.

When downstream ecosystem barriers form, the profits from these new scenarios come from Circle's own business expansion, and fundamentally, one of the 3% equity channel parties, Coinbase, should not have net income distribution rights significantly exceeding its equity share.

Of course, the entire stablecoin market is still in its infancy,in the short to medium term, Circle will not sever its alliance with Coinbase, at least during the "compliance window bonus period," the key is to first grow the pie, as revenue is still difficult to improve.

Therefore, the changes in the alliance relationship between Coinbase and Circle provide us with investment insights:

1. In the short to medium term, Coinbase has a greater advantage and higher certainty, even if USDC does not succeed, at least the basic business can benefit from the overall value opening of cryptocurrencies. Circle is in the channel penetration bonus period, but regulatory opacity means it remains to be seen whether it can become the ultimate oligarch; currently, Circle does not have the confidence to "divorce" commercially from Coinbase.

2. In the long term, if USDC stabilizes its leading market position, Circle has greater potential, once ecosystem barriers are established, it can not only reverse the bizarre profit-sharing agreement with Coinbase but also cover more scenarios, potentially offering more business imagination beyond the current "interest income" business model.

3. The way for Coinbase to remedy this is to acquire more Circle equity as much as possible before the stablecoin competition ends and USDC secures its leading position. However, compared to before, the difficulty and cost have increased.

III. If USDC Prospers, Whose Future Value Flexibility is Higher?

After discussing so much, let's finally talk about valuation.

But first, a disclaimer: discussing valuation at this point is actually inappropriate, as both Coinbase and Circle are still in the logic-driven, storytelling stage. It is still early for performance realization, and if the logic cannot be falsified, unless it breaks the ceiling, it is difficult to determine whether it is overvalued in the short term.

Therefore, it is challenging to provide a rational price at this time. Although difficult, we can combine a relatively reliable endgame prediction to assess the current bubble size and evaluate the risk-reward ratio.

Several Assumptions:

(1) The following assumptions are mainly based on the relatively optimistic assumption that USDC can reach the end (refer to the previous article, $1.4 trillion stablecoin market by 2030, with USDC accounting for 35%), otherwise discussing valuation at this explosive point is meaningless.

(2) Regarding the profit-sharing relationship between Coinbase and Circle, Dolphin Research assumes that by 2030, Coinbase's profit-sharing ratio will follow the general 30% channel profit-sharing ratio, with the extremely optimistic scenario retaining the original 50% or more profit-sharing ratio.

(3) Circle's stablecoin income still relies on interest income as a revenue source, but this expectation is conservative. We are more inclined to believe that if USDC reaches a market scale of over $500 billion, Circle will participate in transaction, payment, and investment-related fund flow charges beyond the "interest income" business model.

(4) However, since the endgame still has uncertain variables, our strategy is that due to the more favorable logic for Coinbase in the short to medium term, we have a higher preference for it, unless the valuation is too full. For Circle, we suggest giving yourself more safety margins to bet on longer-term potential upward flexibility.

1. Coinbase

(1) Basic Transactions

In the industry trend analysis in the previous article, we expressed skepticism about retail transactions as the future revenue pillar.

Following this logic, Dolphin Research continues to lower future transaction fee rates over the next five years, reducing the comprehensive retail transaction fee rate (transaction fee + spread cost + Base fee) from 1.49% in 1Q25 to 1% by the end of 2030 (assuming the official transaction fee decreases from 0.6% to the industry level of 0.1%). The institutional transaction comprehensive fee rate decreases from 0.03% in 1Q25 to 0.02%.

As for transaction scale, it is assumed and estimated based on "transaction scale = market value * turnover rate."

a. Market Value Expected to Double

With regulatory relaxation and active embrace in some countries, from a medium to long-term perspective, the upward momentum of the cryptocurrency market is more evident. Currently, the cryptocurrency market accounts for 3% of global GDP ($110 trillion), and Coinbase's CEO expects it to reach 10% by 2030.

Of course, the CEO is a direct stakeholder and may exaggerate, so we consider the CEO's expectation as an optimistic level, with 6% as a compromise expectation, and the current 3% as a pessimistic expectation.

Assuming that by 2030, the assets on Coinbase's platform (self-held + customer custody) account for 16% of the total market coins (corresponding to a CAGR of 15.3%), and the institution/retail ratio reaches 70/30, between the current 55/45 and the mature U.S. stock market level of 80/20.

b. Turnover Rate Decreases

As for the turnover rate in the stable period of 2030, on one hand, we refer to the turnover rate level of small-cap growth stocks in the U.S. stock market to reflect the gradual maturity of the cryptocurrency market and its characteristics as a mainstream market. For example, the turnover rate of the NCM market and ETF main board is in the 200%-300% range. On the other hand, based on the current turnover rate levels of institutions and retail investors, combined with the future asset scale structure (70:30) mentioned above, the comprehensive turnover rate is calculated to be in the 400%-600% range, and we select the median of 400%.

(2) Institutional Derivatives

In subscription income, besides stablecoins, the largest share currently comes from staking income and custody business, both directly related to the asset scale custodied on the platform. However, from a long-term perspective, as the potential supply of quality cryptocurrencies continues to shrink, staking yields will trend downward.

Custody fees are mainly affected by peer competition. Although the direct way is to start a price war, for institutional funds, from the perspective of convenience and reducing friction costs, more attention should be paid to the product competitiveness of Coinbase's entire ecosystem.

In the short to medium term, Coinbase's compliance advantage makes it a relatively preferred choice for mainstream institutions in cryptocurrency trading. Therefore, we assume that as the institutional asset scale increases, custody fees remain stable.

Combining <1-2>, the "basic business" excluding stablecoins is highly dependent on the performance of the cryptocurrency market. However, the development of stablecoins can drive the platform's AUM upward in the long-term trend, avoiding AUM being solely tied to cryptocurrency market fluctuations, but this is not reflected in our pessimistic expectations.

Finally, the basic business is benchmarked against the operating profit margin levels of mature exchanges and brokers, combined with the current profitability level, selecting 50% as the neutral expectation of OPM, and applying a 20% effective tax rate to obtain a net profit of $3.96 billion. Using the average 20x P/E of traditional exchanges, brokers, and wealth management institutions to value the basic business, with a 15% annual discount to the end of this year, the neutral valuation is approximately $40 billion.

(3) Stablecoin Standalone Valuation

Under optimistic expectations, if the proportion of USDC custodied + self-held on the Coinbase platform reaches 25%, and 10% on the Circle platform, then based on the current agreement, with a 3% treasury yield, Coinbase's stablecoin income is expected to reach $7.5 billion by 2030, expanding sevenfold compared to 2024.

Even assuming an 80% user custody ratio, deducting 45% user incentives (long-term subsidies needed to stimulate USDC penetration and circulation), the remaining net income of $4.8 billion is not much different from the net increase in profit (assuming operating expenses account for 10% and a tax rate of 20%). Using the average 25x P/E of payment institutions and 30x card-issuing institutions, with a 25x valuation, and a 15% annual discount to 2025, Coinbase's stablecoin business could be worth $73 billion.

However, under the medium-term expectation, we only assume a 25% custody ratio, giving Coinbase 25% of the stablecoin income share, but without "privileges" in profit-sharing, distribution motivation is insufficient, so the 45% user incentive decreases to 20% of previous years. Other parameters remain unchanged, and the stablecoin business value is directly halved compared to optimistic expectations, at $36 billion.

Finally, combining <1-3>, under the above neutral expectation, Coinbase's valuation in 2025 is estimated at $76.3 billion, with core assumptions being 1) the cryptocurrency market reaching $6.6 trillion by 2030, with $1.4 trillion in stablecoins, and USDC accounting for 35%; 2) under neutral expectations, income sharing is limited to 30%; under optimistic expectations, Coinbase's overall competitiveness remains stable with slight improvement, and cooperation with Circle does not collapse.

As of July 2, Coinbase's market value of $90.3 billion exceeds our neutral expectation, but it is still far from the optimistic expectation of a $140 billion bubble valuation, and there is still the story of on-chain stocks to add fuel.

Returning to our assumptions, it shows that the market has already priced in most of it. But this is also because Dolphin Research has narrowed the stablecoin market size for scenarios with higher certainty, making the assumed value lower than mainstream expectations.

Therefore, as long as there is no systemic risk affecting liquidity, we tend to believe that Coinbase still has room for growth in the future, but short-term risk-reward can be evaluated by each individual. This largely depends on how you view our assumptions: a $6.6 trillion crypto market, $1.3 trillion stablecoins, and USDC's 35% market share.

The above nearly $80 billion valuation, the downside risk naturally lies in the regulatory compliance promotion pace and cooperation with Circle. But at this valuation, it does not consider more upside potential, but stablecoins bring more business expansion to Coinbase, such as trading stock tokens, which competitors Kraken and Robinhood are actively promoting, and this can fully lead Coinbase's valuation towards our optimistic expectation.

2. Circle

Based on the previous assumptions, if Circle's business model does not change (no other income besides reserve asset interest), then the income can be directly calculated.

The main issue is the profit margin, with the major cost being the profit-sharing with Coinbase. If the agreement does not change, Circle's gross margin can only be around 40% (assuming USDC retention ratio increases from 6% in the first quarter to 10%, meaning Circle does not overly break with Coinbase).

Although Dolphin Research believes this imbalance will be broken, given it has not formed a mainstream market expectation, we do not change the profit-sharing agreement under pessimistic and neutral expectations, but under optimistic and super optimistic expectations, the profit-sharing agreement is changed so that Coinbase and other channel platforms can only share 30% of the income. This does not consider a more optimistic scenario where, if USDC reaches an absolute strong period, Coinbase can only share based on AUM proportion in the endgame form.

In terms of operating expenses, Circle's main expenses are currently personnel-related compensation, including salaries and equity incentives, followed by infrastructure depreciation, etc. As income grows, these expenses can be continuously diluted. In the long term, we assume overall operating expenses decrease from the current 24% to 15%. Under optimistic and super optimistic expectations, because there is no longer Coinbase's distribution privilege, more promotion expenses are needed, with operating expenses at 20%.

Using the traditional payment institution's 25x P/E, with a 20% discount rate, the final calculation shows a valuation of $34.8 billion to $56.2 billion under neutral to optimistic expectations by 2025, and $80 billion under super optimistic expectations. However, note that the above forecast is based on Circle's current situation, without considering more monetization models.

In summary, how regulation advances stablecoins, how USDC utilizes the window period's scarcity, and the interest game between Coinbase and Circle are all key factors affecting the above valuation, all uncertain. Dolphin Research can only seek certainty from uncertainty to provide a rough range for everyone to track where market expectations have reached. We do not know which direction the future will change, but we know that the seeds of change have been planted.

Dolphin Research "Coinbase" Related Articles

First coverage mid-article on July 2, 2025, "Stablecoin: Don't Doubt! Coinbase's iPhone Moment"

First coverage upper article on July 1, 2025, "Coinbase: On-Chain is Hot, Can the "Water Seller" Really Win Lying Down?"

Risk Disclosure and Statement of this Article:Dolphin Research Disclaimer and General Disclosure