Circle hit by doubts beyond the sell-off

Circle Internet Group shares slid nearly 10 per cent on Thursday, closing at $85.10, after a fresh Wall Street “sell” call added to investor unease over the stablecoin issuer’s margins and over criticism of its handling of funds tied to the Drift Protocol exploit. Market data showed the stock ended the session down 9.89 per cent, extending a volatile stretch for one of crypto’s most closely watched public companies.

The immediate trigger for the fall was a downgrade from Compass Point analyst Ed Engel, who cut Circle to “sell” and lowered his price target to $77 from $79. Coverage of the note said Engel’s central concern was that Circle’s earnings outlook is being squeezed by the economics of distributing USDC through partners and platforms where revenue sharing is less favourable. Barron’s reported that growth in USDC supply has remained intact, but that more of that expansion has come through channels that carry lower margins, raising the risk that headline growth will not translate into the kind of profitability investors had expected.

That judgement lands awkwardly for Circle because the company had entered 2026 with strong operating momentum. Circle said in its full-year 2025 results that USDC in circulation reached $75.3 billion by year-end, up 72 per cent, while fourth-quarter total revenue and reserve income rose 77 per cent to $770 million. Reuters reported in February that the company beat Wall Street expectations for fourth-quarter revenue as higher reserves income benefited from the expansion of USDC circulation. Those figures helped reinforce the case that Circle remains a leading beneficiary of the push to bring dollar-linked tokens deeper into payments and trading infrastructure.

Yet the margin debate has become harder to ignore. Circle’s business is highly sensitive not only to interest earned on reserves but also to how much of that economics must be shared with distribution partners. Reports drawing on company disclosures and partner filings have underlined how significant those payouts have become as USDC has scaled across exchanges and payment channels. That has fed a broader investor argument that Circle’s valuation may have run ahead of its ability to defend profitability in a market where adoption is growing, but competition and bargaining pressure are rising alongside it.

The stock’s latest fall also coincided with a separate controversy in crypto markets after the April 1 exploit at Solana-based Drift Protocol. Security researchers and market participants have accused Circle of moving too slowly, or not acting at all, as large amounts of stolen USDC were bridged away after the attack. Coverage of the incident said Drift lost about $285 million, making it one of the largest crypto thefts of the year so far. Bloomberg, Chainalysis and TRM Labs each described the exploit as a major DeFi breach, with preliminary analysis pointing to a sophisticated operation and possible links to North Korean actors, though formal attribution remains unsettled.

Criticism of Circle has centred on whether the issuer should have frozen tainted USDC more aggressively. CoinDesk reported that blockchain investigator ZachXBT alleged Circle failed to intervene while more than $230 million in stolen USDC moved through its cross-chain transfer infrastructure. Those claims remain allegations rather than findings by a court or regulator, and no evidence in the public record shows Circle violated any law. Even so, the dispute has sharpened questions about what users and investors should expect from a stablecoin issuer that has both compliance obligations and technical power over its token.

Circle’s own legal terms leave room for interpretation. The company states that it may freeze USDC or surrender associated funds if it receives a valid legal order, and it may report suspected illegal activity to law enforcement. That language indicates Circle has mechanisms to block or restrict tokens in some circumstances, but it does not amount to a blanket commitment to act instantly whenever market participants flag suspicious flows. The gap between what is technically possible, what is legally required and what is operationally prudent is now becoming a reputational issue as regulators scrutinise stablecoins more closely and institutional users demand clearer risk controls.