The interest earned on the reserves backing USD Coin (USDC) never reaches the people holding the token. It flows to Circle, the stablecoin's issuer, and the largest share is then handed on to distribution partners — above all Coinbase. Circle's second-quarter results, filed with the US Securities and Exchange Commission (SEC) on August 5, show precisely how the money was divided.

How the quarter's income was split

Measured in shares of $100, Circle's quarter breaks down as follows, based on its second-quarter results filed with the SEC on August 5:

• $46.30 — Coinbase-linked distribution costs
• $12.50 — other distribution, transaction and related costs
• $36.30 — operating expenses: staff, technology and administration
• $4.90 — operating income, rising to about $6.90 of net income after other income and tax

In dollar terms, Coinbase-linked costs absorbed $324.6 million of the $701.3 million total, while Circle kept $48.2 million after costs and tax.

Distribution costs came to $412.5 million in total — the line that answers the headline question. Most of that, $324.6 million, is tied to Circle's agreements with Coinbase; the rest covers other partners, transaction costs and related items.

Why holders have no claim on the reserve interest

The dollars behind USDC sit in reserves kept separate from Circle's operating funds. According to Circle's transparency page, those reserves are held as cash and in the Circle Reserve Fund, which can own short-dated US Treasuries and overnight Treasury repurchase agreements. The assets earn interest while remaining ready to meet redemptions, and that interest is where most of Circle's revenue comes from.

Holders have no claim on it. Circle's USDC terms for users outside the European Economic Area state that holders are not entitled to interest or other returns earned on the reserves; EEA holders are covered by separate documentation.

The chain of payments runs in one direction:

• A holder's dollar becomes USDC
• The reserves buy Treasuries and repo
• The interest goes to Circle
• Circle pays Coinbase and other partners
• A platform may choose to pay the holder a reward

More USDC, thinner returns

Circle's earnings release shows average USDC in circulation up about 25% from a year earlier, while reserve income grew only about 5%. The return on reserves fell by 0.66 percentage points as interest rates came down.

The quarterly filing puts numbers on the tug of war: roughly $147.4 million of extra reserve income came from having more USDC outstanding, and roughly $113.9 million was lost to lower yields. Circle still improved the figure that matters for its own margins — revenue left after distribution, transaction and other costs rose about 15%.

How Coinbase's share is calculated

Coinbase's cut comes in two parts. It receives income tied to the USDC held on its own platform, after an amount Circle keeps as issuer. It also takes half of what remains from USDC held elsewhere, once other partners' allocations are paid.

That is why an exchange values USDC balances even when customers are not trading them: the balances earn the exchange money. Competing stablecoins use similar partner economics to win distribution, as Coindoo explained in its look at Open USD's partner incentives.

When reading these numbers, it helps to keep the companies separate. Coinbase's USDC income and Circle's reserve income describe the same money from two sets of books, so adding them together counts it twice.

What holders actually earn

Any reward a holder receives comes from the platform, on the platform's terms. Coinbase describes its USDC rewards as a loyalty program it funds itself, with rates that vary by region and account type, eligibility rules, and the right to change or end it. Moving USDC to another wallet means leaving the program behind.

Membership fees can change the math. Using hypothetical figures:

• +$40 a year from $1,000 at 4%
• −$120 a year for a $10 monthly membership

A holder paying for a membership purely to unlock the reward would be $80 a year behind on those numbers, before tax. Real rates, balances and other membership benefits would change the result.

Spending USDC carries its own fees

Paying with USDC adds a separate set of costs that never touch Circle's accounts. Payment providers charge businesses for processing, screening, conversion and payouts. Stripe's documentation, for example, describes customers paying in supported stablecoins while merchants are settled in local currency in their Stripe balance. As Coindoo noted in its piece on stablecoin conversion costs, what matters to the recipient is the amount they can actually spend, the total fees and how long the money takes to arrive.

Circle is scheduled to publish its third-quarter results on November 4, with updated figures for circulation, reserve yields and partner payments.

---

This article is provided for informational purposes only and does not constitute financial or investment advice.

This report was originally published by Coindoo.