Circle Internet Group, Inc. (CRCL) Earnings Call Transcript & Summary

At Citi's 14th Annual Fintech Conference. My name is Peter Christiansen on Citi's Research Team covering a number of digital assets companies, and I am more than delighted to welcome Jeremy Allaire, CEO, Co-Founder of Circle. Jeremy, just fantastic to have you here. I think you might be the busiest person out there. I can't -- when I think about the inbounds and the activity and client interest that we are having with the stablecoin theme, and it's just been off the charts, something I haven't seen in my career at all, and I think one of the things we would love to hear your perspective of, I mean, it's been quite a minute, right? I think of this time last year, maybe prior to the elections, it was like you're hanging your hat on McHenry and Waters, right? And now you have an administration change. You had the GENIUS Act and the movement towards that. You had a tremendously successful IPO. You're ramping up Circle Payment Network, now the Arc blockchain, things like that and really just starting to beginning to see the evolution of this business of this theme, just the pieces just starting to come together now. From your perspective, what's the last 12 months been like? Are you getting any sleep?

I try very hard. No, I mean, I think the last year has been amazing. But I would also just put it in the context of the prior 11 years before that, which is building what we've built and building what we want to ultimately build, is a long-term endeavor, and I say this to everyone in my company, and I'd say this to anyone who's an investor in the company is, Circle is still an early-stage company that has the vast majority of the potential future growth and opportunity for an upgrade of the economic system into something that's more natively run by -- executed by software on the Internet and machines on the Internet. We're very early in that. And for many years, actually, I was asked a question like what's it going to take for this to go mainstream, right? And when we actually put out a white paper about what would become USDC back in 2017, so about 8 years ago, and we outlined a vision for what you could build and how it could work. And actually, if you go back and read that white paper, you'll sort of see that a lot of those things are now kind of coming online. But during those, let's just say, even just the trailing 5 years, right, the question was always like, what's it going to take for this to go mainstream? And my answer was generally kind of three things. One was essentially, we needed the infrastructure to be ready, and we can all relate to what it was like when we had dial-up Internet versus when we had broadband Internet or what it was like to use the Internet exclusively on personal computers versus using the Internet on a touchscreen mobile device, and the sort of user experience and infrastructure shifts, they happen at the same time often. And so I was really focused on like making sure that the infrastructure is there, and so we've seen really over the last 18 months, this kind of progression of blockchain network infrastructure to the point where you can actually do a lot of things that were held out as promises. You can transact at sub-second, sub-penny all around the world. The other piece was, related to that was making it possible to actually create user experiences where the end user, whether it's a business that's doing kind of treasury management or investments or a user who's using this for payments or other financial activity can do that in a sort of safe, easy-to-use way, and so we've seen a lot of progress there. But the two other, I think, really big pieces that were -- that I always would say is we need legal certainty, and without legal certainty, this can't scale. And that's why I spent 5 years working on the Stablecoin Bill and obviously eventually got that to become Federal Law this summer, and legal certainty is not something that happens all at once. Legal certainty is something that happens also over time. And so Circle as a firm has worked on establishing regulation and policies around this form of activity. Really since I began the company 12 years ago. 12 years ago, I testified to the Senate on what I envisioned as the need for regulation in the space. But even with GENIUS Act coming online now fast forward, that's on the back of European governments having a stablecoin law, the Japanese having a stablecoin law, Hong Kong, UAE, now the U.K., Singapore, imminently in Saudi, in Brazil, in Turkey, in South Korea and so many other markets. So all around the world, this new form of M1 electronic money, this new form of very safe digital cash money is being -- we're getting legal certainty on that, and that's really been essential. And so once you get legal certainty and you get the infrastructure and the UX good enough, the last piece is sort of what I broadly call operational readiness, which is that when you have a platform paradigm shift in technology. Enterprises, they don't move all at once, right, on-prem to cloud or from desktop and web to mobile, like it's incremental. And one thing I would say is -- and I don't know if there are companies like this here in this conference presenting, but there's been an incredible amount of growth in the infrastructure capabilities, enterprise-grade, ready-to-operate, and so what that all translates to is now exactly as you said, on the back of the market being ready, the technology being ready, the sufficient amount of kind of existing distribution and liquidity and the legal certainty is now just like a race. And so we're seeing an incredible amount of inbound activity as a company, not just here in the United States, but everywhere in the world, every single corner of the world, both governments and commercial entities, financial institutions are very focused on how they can start to implement this technology. So it's an exciting time, but I have a lot of people in my team who can work, while I sleep.

I'm sure. I need that, too. But no, often I talk to clients, and I'm like this is a little bit of an overnight success, years in the making. And the reason why you're in the pole position today is those years of work, building-out like those pieces and the components. And as you talked about, yes, the legality and the regulatory structure needed to come together. But quietly building these important blocks and seeing how the adoption curve is going to go right now. How are you feeling about your overall solution set today? And your ability to maintain the pole position for this -- what could be a massive shift.

Yes. So I think it's a great question. I would kind of step back and sort of say the opportunity is that the global economic system and the global financial system over the course of the coming 1 to 2 decades is going to be upgraded into software, and it will be software that natively runs on new economic operating systems. These economic operating systems are what we think of as these blockchain networks. And that is a major platform shift. It's as big as the web or mobile or cloud or AI. It's a huge platform shift, and it represents an evolution in the way all facets of corporations and finance and commerce are going to work. So we have this very broad upgrading of the economic system through the Internet. That's a multi-decade opportunity, and I think it's an opportunity that is as large as any other major, major category of technology transformation in the Internet. Now within that, you're going to have full stack Internet platform companies get built and full stack Internet platform companies, similar to we have full stack Internet platform companies that were built around the web and information discovery, around search, around social and communications, around retail and commerce, around device platforms or cloud platforms and commerce. You're going to have full stack Internet platform companies that get built around this upgrading to this Internet-based economic system. We want to be one of those. And I think we have very strategically started with a very clear focus on establishing the kind of the digital money layer, this very safe digital money layer with our stablecoin network. And we're now, as you noted earlier, we're now building out more pieces of the stack that are necessary for, going from this early adopter phase into a much more mainstream scaling phase. So today, just taking that core, our stablecoin network is the largest regulated stablecoin network in the world. In Q3, we handled almost $10 trillion of on-chain transactions. The amount of money in circulation on the network grew 108% year-over-year, and that delivered $740 million of top line revenue, which is a very strong year-over-year growth as well, and that business is a classic network-effect flywheel business, meaning we have liquidity network effects because we have liquidity through banking systems, both direct and indirect or secondary liquidity, all around the world, which is a huge part of its success. And then we have general utility network effects. That stablecoin network is available through tens of thousands of products and services. So if you're building a product or service that wants to transact in digital dollars, you're at a competitive disadvantage if you don't support USDC. And so all of these products and services, whether they be wallets or payments apps or investment platforms, all of these support USDC, that creates more utility on the network, which then drives more developers to build more applications, more integration. So we have this core, which is quite cash-flow generative for us and is a very strong business. And we're now with great intention, moving down the stack and moving up the stack. And when I talk about a full stack, that down the stack is, we have built and we are now in beta test, if you want to call it that, of an economic operating system from the Internet called Arc, which is a Layer-1 blockchain network. It is a general-purpose compute transaction infrastructure, purpose-built for regulated financial activity to happen on-chain. And so we went live with that beta test launch several weeks ago. We had many of the world's largest banks, many of the world's largest payments companies, many of the world's largest asset managers, asset issuers, fintechs, neobanks and virtually every major player in the digital asset ecosystem getting involved in collaborating with us as we prepare for the kind of commercial launch of that as well. So that's a very exciting platform infrastructure, which has a lot of potential, and we also announced that we're exploring a token, a native token for that. And then we're moving up the stack and really taking the stablecoin network that we've built, which has all this availability and liquidity and building a layer, an application layer on top of that which makes it easier for financial institutions to wire stablecoins into their international money movement flows. So really building a money movement payment network. So bottom line is, I think we're trying to seize the moment. We're building up these complementary network infrastructures -- but obviously, building on the fundamental strength that we have with the core Circle Stablecoin Network as well.

Super promising there. And I think you're right. It is this full stack approach from Mint to last-mile. How do you feel about the components that you have in place today? What needs -- where there needs to be more work, you're also trying to grow a network at the same time, which is its own challenge. What are some of the kind of challenges -- maybe challenges is not the right word, but where is the work to be done right now?

Yes. I mean if you look across these three pillars of the company's strategy, within the core stablecoin network, right, we're still early in the adoption cycle there, right? The roughly $75 billion in circulation, you have a total market size of around $300 billion that's expected to grow to multiple trillions over the next 5 years, and the penetration of digital cash-type products like this in a world where physical cash and noninterest-bearing demand deposits globally is $60 trillion, there's a huge amount of growth opportunity there. So what do we need to do there? We need to make sure that we're continuing to put in place great distribution relationships around the world to make sure that our stablecoins are widely available when people need them, where they want them, et cetera. And so that's a lot of global expansion, a lot of expansion in regions of the world where we're seeing intrinsic demand. It's ensuring that we get the best underlying liquidity available. These are again, liquidity is sort of an essential flywheel within the network effects more broadly of a money system. So continuing to focus on improving liquidity in the places that matter. And then there's a whole build-out of regulated infrastructure. We have this footprint in a number of markets, but now all these other markets are building rule sets. We want to be there. We want to make sure that if stablecoins are going to be a legal part of the way the Brazilian financial system works, we want to be there and we want to be a partner to the Brazilian government. We want to make sure that the way that works, is going to work for our stablecoin network as well. So that's one big piece. And then I think with Arc, that's obviously brand new. We're in beta test. And really there, it's about bringing that to commercial launch and making sure that we've got fantastic apps that are built on it. We have our own first-party app like CPN and Stable FX, which is an FX app utility, but getting many, many third-party apps, the leading third-party apps in the on-chain ecosystem. We want to see those. We want to see novel new applications built, and we want to see major institutions become partners in the operations of that infrastructure. So there's a huge amount of work to do there and get that stood up. And ultimately, the market will be able to look at that in terms of the apps and the usage and the transactions and the value that's deployed on the network. Those will become metrics as we go forward to look at that. But that's its own -- kind of has its own kind of platform network effect characteristics as well. And then CPN, I mean, we're in the early stages where we've seen encouraging early growth in the financial institutions coming on, the number of financial institutions that want to be on, getting the product stack evolved and growing the flows. And there, we've got a long way to go to hit our ultimate ambitions, whether it's in terms of the amount of activity, the number of institutions, the number of markets and the feature set of that utility. But that's an investment and a build as well. And so across these three pillars, there are opportunities. There's a lot of growth and execution for us as well.

I just want to touch real quickly on GENIUS. Goes into effect, I think, 2027 officially. But then we also have market structure, the debate there with RFIA going on as we speak. And hopefully, that gets done hopefully early '26. Should investors think of that as a catalyst as well for the business?

Yes. So just first on GENIUS, while GENIUS is now federal law, the ultimate implementation will take multiple years. But what's happened is that effectively the market has begun to behave as if GENIUS is enforced. And so they're looking at products that are effectively GENIUS-compliant, such as Circles and they're looking to accelerate use of those, and then at the same time, what's happened is now that you have this body of law, the OCC, the Federal Reserve, the CFTC, the SEC, all of these financial regulators are effectively doing interpretive rule-making, guidance, bulletins and other things to make it, so that participants that sit underneath their realm can begin to use these now with incremental regulations. So just yesterday, I think it was yesterday or the day before, CFTC Chair, Caroline Pham or Acting CFTC Chair, Caroline Pham rolled out their whole proposal for the acceptance of kind of covered stablecoin, A-K-A kind of GENIUS-compliant stablecoins as a form of collateral for margin and for settlement in clearinghouses and derivatives venues, and that's a huge new use case that's very powerful that we're excited about. So that's an example where GENIUS is sort of creating the basis for another regulator to kind of do more, and we're seeing similar things in other parts of the world as well. But to CLARITY, the CLARITY Act is actually very important. We care a lot about it, and we spend a lot of time on it, which is that the ability to have a clear rule set for how digital tokens can be issued, sold, offered and utilized will open up the use of digital tokens much more broadly in the financial system, and that intrinsically tokens and smart contracts, the lifeblood of those is digital cash like [indiscernible], and so growth in these markets and growth in the products that can be sold, whether they're registered or offered and ultimately made available for use by consumers. The growth in tokenization and digital assets and market infrastructure to support that in a regulated way is very much a growth catalyst for us. And so we're quite supportive. And the good news is that the Congress is sort of designing these to work hand in glove, right? These are two kind of twin pillars of regulation.

Super exciting. Multiple tailwinds, multiple stories here to benefit from. A lot of the questions we get is obviously, thinking about the future and how this is going to work, particularly for real world? I hate to use the term, but real-world use cases and payments, cross-border, that sort of thing. So nearly instant, nearly free is a super compelling tagline for stablecoins. But I do want to delve into at least qualitatively, let's talk about some of the comparative unit economics of the so-called stablecoin sandwich. I'm not sure if you're a fan of that term at all.

I don't like that term.

No. Okay. But let's just talk about -- break up some of those components. So we know that FX conversion is a fairly efficient market today. So I guess the thinking is, at least from the outside-in, is that the motivation to move versus a traditional cross-border payment scheme to a stablecoin scheme is really comparing the loss of those -- obviating the need for intermediaries and certainly all the administration and fees that go with that versus the fiat conversion element, right? And there's got to -- I guess there's got to be a savings between those two that's going to motivate payment providers, money transfer players, the main players in this area to move more flows on to that. Is that the right way we should think about it?

Well, I mean, as you point out, right, there are a lot of different layers in the intermediation of money movement as it exists today, and there are lots of different approaches to how to compress that, simplify that, et cetera. And there's a lot of inertia around a lot of existing systems there. I think what's interesting about stablecoins is, it's a little bit like other kind of consumer scale Internet utilities that have happened in the past that maybe started out with just like end users that just figured this out and adopted it. And then ultimately, it kind of gets hardened into an enterprise kind of model, and so take an example like WhatsApp, which is a great example where basically people around the world figured out like, "hey, I can just download this piece of software, and now I don't need to -- I'm not charge local messaging fees. And it just works everywhere in the world. I'm not tied to my carrier and my country", and it just exploded, right? And so you had this kind of moment. Now WhatsApp itself just started out as a consumer phenomenon, but then eventually, there's WhatsApp for Business and then maybe they created product lines around it, et cetera. It's not the perfect analogy, but stablecoin adoption right now has sort of been driven in a similar way, which is that people have figured out that they can actually access stablecoins relatively cheaply. They can access them on exchanges and through various types of brokerage-type platforms with very good conversion rates, very good competitive currency conversion rates and within products that oftentimes allow them to kind of cash-out or cash-in whatever the payment instrument is, wherever they are in the world. And then they hold them because they want to hold them because they're digital dollars and not the local currency. And so they want to actually hold a digital dollar instead of the local currency. Dollar banking isn't readily available necessarily, and then they discover that they can transact directly with counterparties, just like when you learned like I could directly communicate with someone or have a peer-to-peer voice call on the Internet and it was free, right? So people are -- basically people and businesses are figuring this out, and they're figuring out that I can do direct settlement, I can store value in dollars. I have no counterparty risk and it happens instantly. And so to those users who are the early adopters, this is just a far, far better system of money than they're accustomed to. And that has contributed to the growth in stablecoin adoption, in particular, over the past couple of years. Now when you start getting into embedding this in bigger flows for enterprises, for SMBs and you want it to be a user experience that's abstracted away, whether it's fiat or crypto, et cetera, that's when you start to introduce questions about, well, are there -- do you still have all these other fees, right? This is sort of the kind of relative economics there, and what we've essentially seen is that stablecoin as a settlement layer has several immediate benefits. So one is, just the capital efficiency of being able to settle to a counterparty in seconds versus days in some cases, and so just purely capital efficiency. The certainty of delivery is another piece. So stablecoins effectively get you this bearer asset that is received. And so assurance of delivery is another key piece.

And by the way, I started my career Green Screens, sending Swift wires, sending faxes, call it, hey, did you get the -- like it's amazing.

Yes, totally, you get the sort of capital efficiencies and settlement assurance, et cetera. And then on the effectively, what we're doing with CPN is we're saying, hey, let's take those capital efficiencies. Let's take that settlement assurance. Let's take that liquidity that already exists for stablecoins. And then let's wire that up to all the on and off ramps around the world so that users can effectively route money, whether they're going to continue to hold it in stablecoin or they're going to deliver it in an ultimate fiat form. There, the FX quoting is still dependent on the same underlying FX market quoting that we have today. So there's no magic there right now. But we are creating a kind of competitive quoting marketplace basically, where if I'm sending funds to Nigeria or to India or to Hong Kong, I've got multiple competing providers around the unit economics. And ultimately, we want to see local stablecoins performing FX functions against dollar-stablecoin in on-chain markets like stable FX, which can provide payment-versus-payment, atomically swappable currency transactions that as an upgrade to the way this works. And I believe that the market pricing that you can -- and pricing discovery that you can achieve there will be effectively like interbank mid, so you can drive towards the most efficient pricing and anyone can then use that as a building block in their own financial applications. We're going to be building that into CPN just as an embedded component of cross-currency transactions in CPN as well.

So cost, speed, also the ability to observe and see how your payments are being handled are certainly comparative advantages versus traditional payments. I just don't want it to get lost at the programmability. This smart contract, so I know we have 8 minutes left here. I want to touch upon the use cases that you're seeing for smart contracts. How do you think about Circle's smart contracting capabilities there? How are you enabling usage and adoption of that? And then I definitely want to attack on AI at the end of that.

Yes, sure. So I mean, I think a big motivation in starting Circle and part of the vision of the company was that, first, we get to this sort of protocol for dollars on the Internet and we get this kind of efficiency and scale and unit economics for moving money. But that programmability was going to be the major breakthrough, like programmable money where you have smart contracts that are essentially machines running on the Internet that can intermediate all kinds of financial arrangements is a huge breakthrough. And something like CPN is a great example. CPN is designed to be an extensible modular payment network. Like if I'm a third party and I want to build like a new invoice credit feature on the Visa network, like I can't like just like call it Visa and say, "Hey, I want to deploy that module onto your network. It's a closed system, right? CPN is designed as an open system. So the very first third-party apps are actually launching on CPN, and in fact, one of them is a trade-receivable credit module that can scan in CPN flows, and as things come on-chain, you effectively have the ability to introduce these like plug-ins, like app modules that are available to third parties that are opt-in and electable. So for example, we've worked on what's called a Refund Protocol, and the Refund Protocol is a Transaction Reversibility Protocol and has a Companion Protocol, which is an Insurance Protocol for third parties to underwrite the insurance of reversals. And so you have an insurance market and you have a refund protocol. This is just R&D from us. We haven't commercialized it yet. But the point is like those become modules that anyone could connect and build on. They're just like LEGO Bricks, Money LEGO Bricks, but then they can be integrated into a broader stack, like a broader application utility like something like CPN, and just as a final note on smart contracts. What I think most people don't realize is the scale to which these autonomous software machines are already running today. So something like Aave, which is a debt protocol that entirely exists as a collection of smart contracts on the Internet. It's deployed on multiple blockchain networks. I think it's handled -- approaching $1 trillion of borrowing and lending behavior. And this is just a software machine running in smart contracts on the public Internet that anyone can connect to. That's just extraordinary. Or if you take something like Hyperliquid, which is all written in smart contracts, it is a software-based derivatives and futures' engine, that sort of software machine that runs on the Internet that anyone can connect to and use to both create derivative markets, but also participate in derivatives markets. It's a collection of protocols, about 11 people created them and it's producing about $1 billion a year of revenue. Pretty amazing. And there are thousands and thousands of these smart contract protocols that exist that are performing all kinds of building block functions in finance, and we're in the super-nascent stage of this. Last piece on that is, Circle has a full stack to help people build deployment operation. Arc as a blockchain network is a full platform for easily deploying smart contract applications for financial applications. We have developer tools. We have developer tools to embed the user experience in your own products, something called Circle Wallets. We have something called Circle Smart Contracts platform, which is a way to actually, in a fairly templatized way, streamline the building and deployment of smart contracts, and we're definitely trying to assist with enterprises that are trying to build applications that can utilize this programmable money infrastructure.

All right. Extra credit. It's a big one. How does Circle envision stablecoins serving as the foundational currency of the future AI-native economy?

So we definitely see that. And I think generally, I guess my view is that if you look at the curve we're on with AI right now, and in particular, you look at the curve we're on in terms of agentic deployments and the kind of proliferation over, let's just say, over a 3-, 4-, 5-year period, I think we'll be in a world where there are many hundreds of millions of AI agents that are operating, and they're operating companies and they're operating work, they're operating work on behalf of companies and individuals. And that -- those AI compute environments are going to need to have trust machines, that can validate their -- kind of truthfulness and that can actually provide them with provable, very, very cost-efficient mechanisms of executing economic contracts and executing value exchange. There's nothing else in the world that can do that other than blockchain networks and stablecoins. I just see nothing else that could do it today. And so my view is that over 3 to 5 years, the amount of stablecoin transactions, so we think TPVs, like we talked about in Q3, $9.6 trillion of total payment volume of USDC on-chain. My own view is that over...

In Q3?

Yes, in Q3. My own view is that over 3 to 5 years, total payment volumes will just go exponential because the velocity of money will be very, very different because AI agents will be able to conduct work with data and work with tasks and execute transactions and that stablecoin transactions, again, intermediated by specific policy controls implemented in smart contracts will be how that happens. And so I think our whole notion of TPV will look very different 5 years from now, and so I think it's purpose-built. It's significant. We are an active contributor to open protocols for AI agents to use payments and in-particular, to use stablecoins. We have a full set of tools for AI development tools to integrate to our whole stack to accelerate people building it.

Are you seeing proof-of-concept work or implementation work?

Absolutely, yes. So we have quite a few start-ups, some of which we're investors in, that are basically building these agentic commerce and agentic payment stacks, both at a developer level and an enterprise level. Anthropic themselves are collaborating in Arc and what we're doing with Arc, and so we're placing a number of bets. And what I would say is this is still a discovery phase for everyone in this, and so we're focused primarily on the infrastructure side and on the developer experience side of this, as opposed to us building like full solutions. But I think -- we just had an AI Arc Hackathon that had tremendous hundreds of participants in it here in New York last week. And so it's definitely a place where there's a lot of activity.

Fantastic. Well, congratulate right on the zero -- unreal. Congratulations on a fantastic year and your pole position and super exciting theme. Can't wait to see what '26 brings.

Thank you, Pete.

Thank you. Absolutely.