Circle’s fourth quarter earnings tell a story the company would prefer investors understand through the lens of growth: USDC circulation climbed 72% year-over-year to $75.3 billion, reserve income surged 69%, and adjusted EBITDA quintupled.
However, the income statement reveals a different architecture in which the issuer generates yield and immediately bargains most of it away to the platforms that control access to users.
The scoreboard is stark. Circle earned $733.4 million in reserve income during the quarter.
Distribution and transaction costs consumed $460.6 million of that, roughly 63 cents of every dollar earned from investing customer deposits.
Total revenue and reserve income reached $770.2 million, with distribution costs accounting for nearly 60% of all earnings flowing through the business.
Circle kept what remained after paying the gatekeepers.
This isn’t a disclosure buried in footnotes. Circle elevates “Revenue Less Distribution Costs” as a core performance metric, publishing RLDC margins alongside earnings and net income every quarter.
The company is telling investors: the yield exists, but capturing it requires paying for shelf space. The stablecoin business is structured as a negotiation between issuers and the exchanges, wallets, and fintech rails that control where the balances actually sit.
The yield pie and who gets it
Stablecoins generate income through a straightforward mechanism.
Users deposit dollars or convert crypto into stablecoins. The issuer holds those funds in reserve, consisting primarily of short-term Treasuries and similar instruments, and earns the prevailing rate.
Circle reported a 3.8% reserve return rate in the fourth quarter, down 68 basis points year over year as the Federal Reserve’s path evolved. Yet, even as rates declined, reserve income climbed because average USDC in circulation doubled from $38.1 billion to $76.2 billion.
Scale overpowered rates. That dynamic is central to understanding why distribution costs rose 52% year over year.
Circle attributed the increase explicitly to “increased distribution payments,” noting that the prior-year period included a previously disclosed $60 million one-time fee to a distribution partner.
Strip out that one-time payment, and the underlying growth in distribution economics accelerates further. As the pie grows, the toll grows faster.
Circle’s net reserve margin, consisting of reserve income minus distribution and transaction costs as a percentage of reserve income, settled at 37% in the fourth quarter.
Put another way, Circle retained roughly $0.37 for every dollar of gross reserve yield, with the balance flowing to distribution partners.
This isn’t a cost structure that scales down easily.
Distribution payments aren’t technology spend or fixed overhead that dilutes with volume. They’re negotiated economics tied to placement and flows, which means they’re sticky and potentially increasing as gatekeepers gain leverage.
The distribution cartel as a market structure
The term “cartel” here is a metaphor, not an accusation. It’s shorthand for a small set of gatekeepers who control user access and therefore extract a share of the economics proportional to their leverage.
Circle’s own risk disclosures make this explicit. The company warns it may be “unable to maintain existing relationships with financial institutions and similar firms or enter into new relationships”. It flags the risk of being forced to accept “less favorable financial terms” with distribution partners.
It highlights “dependence on a few key distributors” as a structural constraint.
This language matters because it positions distribution not as a vendor relationship but as a power dynamic. Circle reports a metric called “USDC on Platform,” which tracks the share of total USDC held across partner platforms.
That figure reached $12.5 billion at year-end, up 459% year-over-year, with a daily weighted average of 17.8% of total circulation. The company is explicitly monitoring where balances concentrate, another signal that control over rails determines who captures yield.
The competitive battlefield isn’t stablecoin technology or reserve management. It’s access.
Exchanges, wallets, and payment platforms sit between issuers and users, and they monetize that position. Circle can engineer a better product, achieve regulatory clarity, or optimize reserve returns.
However, if a major distributor shifts incentives or threatens to promote a competitor, economics swing fast. The issuer’s margin depends on the gatekeeper’s terms.
What happens when rates fall
The current structure functions in a mid-3% rate environment, where reserve portfolios earn enough to support both issuer economics and distributor payouts while leaving room for margin expansion.
But rates are directional, and the Federal Reserve’s trajectory matters. Treasury bill yields, the anchor for reserve portfolios, remain in the mid-3% range as of late February 2026. Yet, market expectations contemplate potential cuts over the coming quarters.
A falling-rate regime compresses issuer economics faster than distributor take if distribution costs are sticky.
| Rate environment | Reserve return rate | Implied quarterly reserve income ($M) | Distribution cost assumption | Distribution costs ($M) | Issuer retained ($M) | Net reserve margin |
|---|---|---|---|---|---|---|
| Baseline (Q4) | 3.8% | 723.9 | Sticky | 460.6 | 263.3 | 36.4% |
| Baseline (Q4) | 3.8% | 723.9 | -25% vs Q4 | 345.5 | 378.4 | 52.3% |
| Baseline (Q4) | 3.8% | 723.9 | Proportional (same take-rate) | 460.6 | 263.3 | 36.4% |
| -100 bps | 2.8% | 533.4 | Sticky | 460.6 | 72.8 | 13.6% |
| -100 bps | 2.8% | 533.4 | -25% vs Q4 | 345.5 | 187.9 | 35.2% |
| -100 bps | 2.8% | 533.4 | Proportional (same take-rate) | 339.4 | 194.0 | 36.4% |
| -200 bps | 1.8% | 342.9 | Sticky | 460.6 | -117.7 | -34.3% |
| -200 bps | 1.8% | 342.9 | -25% vs Q4 | 345.5 | -2.6 | -0.7% |
| -200 bps | 1.8% | 342.9 | Proportional (same take-rate) | 218.2 | 124.7 | 36.4% |
In a potential scenario where rates decline 100 basis points, if distribution payments remain fixed or decline more slowly than reserve income, Circle’s RLDC margin faces additional pressure.
If rates drop another 100 basis points and issuer economics can approach zero or turn negative under sticky distribution contracts, it forces renegotiation or consolidation.
This isn’t speculation. Circle’s guidance already reflects margin compression relative to the fourth quarter’s 40% RLDC margin. The company is pricing in a world where distribution costs don’t scale down proportionally to reserve income.
That dynamic intensifies the fight over the remaining spread and pushes the category toward more aggressive pay-to-play arrangements or structural redesigns.
The political economy of the float
Stablecoins present an unusual political economy.
Users supply the float, $75 billion in Circle’s case, but don’t directly receive yield in most implementations. Issuers earn the reserve income but negotiate away a majority share to distributors.
Distributors capture economics by controlling access but don’t bear balance sheet risk.
This arrangement works as long as users value convenience and stability over yield, but it creates a legibility problem once stablecoins reach mainstream scale.
The GENIUS Act, referenced in Circle’s disclosures as relevant to its regulatory environment, establishes a US framework for payment stablecoins. As regulation formalizes, the question of who deserves the yield becomes harder to avoid.
If stablecoins function as deposit substitutes, why shouldn’t users receive interest? If they’re payment rails, why do gatekeepers command such large economies? If they’re reserve instruments, why isn’t the issuer capturing a larger share of the spread?
These aren’t rhetorical questions. They’re the basis for future renegotiations among issuers and distributors, platforms and users, and the industry and regulators.
Circle’s current margin structure reflects its bargaining power at a given moment. That power shifts with market share, regulatory posture, and alternative rails.
The real risk isn’t a run
Circle’s balance sheet can withstand redemption surges. Reserves are liquid, audited, and managed conservatively.
The operational risk the company flags isn’t a classic bank run but a distributor switch, in which a major partner changes incentives, promotes a competitor, or builds its own stablecoin infrastructure.
This risk manifests differently from credit or liquidity risk. It’s a market-structure risk tied to how stablecoins reach users.
If a top-tier exchange decides to favor a different stablecoin, flows shift rapidly. If a fintech platform integrates a competitor’s rails, distribution economics reallocate.
The issuer’s response options are limited: pay more to retain placement, accept margin compression, or build direct-to-user distribution. The result is a capital-intensive, time-consuming alternative.
Circle’s “USDC on Platform” metric exists because the company needs to monitor this concentration.
Where balances sit determines leverage. The more USDC concentrates on specific platforms, the more those platforms can extract in negotiations.
The issuer’s margin is a residual claim after distribution partners take their share.
The endgame question
Stablecoin competition looks like a bidding war for rails.
Market share gains don’t come primarily from technical superiority or regulatory advantage, as they come from securing and maintaining distribution relationships.
That structure favors issuers with capital to pay for placement and distributors with large enough user bases to command economies of scale.
The consolidation pressure is straightforward.
Falling rates compress issuer margins. Distributors have less incentive to support multiple stablecoins when they can extract better terms from a concentrated relationship. Users gravitate toward default options embedded in the platforms they already use.
The category trends toward fewer issuers, more powerful distributors, and margin pressure on both sides as the yield pie shrinks.
Circle’s fourth quarter demonstrates what this looks like at scale.
The company generated $733 million in reserve income and paid out $461 million to access users. The remaining $272 million, before operating expenses, is what the issuer kept.
That’s the economic reality of stablecoins: they’re not just digital dollars or an interest-rate trade.
They’re a bargain between issuers and gatekeepers over who captures the spread, negotiated quarter by quarter as the size of the float and the level of rates determine how much yield exists to fight over.
