📢 Sponsor | 💡 Telegram | 📰 Past Editions

Circle (USDC) 2024 IPO Plan
Everything That You Need to Know

According to Bloomberg, Circle is considering an IPO in early 2024.

Circle refused to comment on the rumor, but Circle’s representative added that “Becoming a US-listed public company has long been part of Circle’s strategic aspirations.” 

In 2021, Circle was on its way to IPO via a merger with Concord Acquisition Corp., a blank-check firm led by ex-Barclays CEO Bob Diamond but the deal was scrapped in December 2022. 

• The deal faced delays amid a broader crypto sector bear market in 2021-2022. 

• An amendment to the deal in February 2022 doubled Circle’s valuation to $9B when USDC had a market circulation of approximately $52B.

• USDC’s market cap has fallen around 55% from its $55.9B peak in June 2022 to ~$24B as of 16 November 2023.

Therefore, the real question is not if Circle is considering an IPO, but rather when it will happen. With stablecoins' growing importance in the decentralized economy and high-interest rates boosting issuers' revenues, Circle’s plan to go public is unsurprising.

Let’s take a look at Circle’s business and updates to find out whether the IPO plan is a hard sell or a no-brainer. 

How Does Circle Make Money?

Circle generates most of its revenue through interest income from assets backing its stablecoin in its reserve, such as dollar deposits and short-term Treasuries, making it a beneficiary of rising interest rates.

According to Circle’s Examination report in September 2023, USDC had ~$25B of assets in its reserve that consist of:

In the first half of 2023, Circle earned $779M in revenue, surpassing its full 2022 revenue of $772M. Circle also reported $219M in adjusted EBITDA, exceeding last year's $150M.

Rising interest rates played a significant role in Circle’s revenue increase.

• In 2023, the lowest interest for the 3-month Treasury Bill is 4.4% which happened in January, and the highest is 5.6% in October. Currently, short-term Treasury bills yield more than 5.4%.

Cutting of Exposure to Banks

Circle used to keep ~25% of USD reserves in cash, but not after the SVB failure that caused USDC to de-peg below $1.

• SVB was one of six banking partners that Circle used for managing cash and $3.3B was trapped there.

• However, Circle got the money back within days due to a government bailout.

• Now, Circle only holds ~5% of its reserves in cash held at regulated financial institutions.

Tether, the issuer of USDT and Circle’s main competitor, also used to partner with banks to keep their reserves. To be exact, Tether used to partner with banks which are based in the Bahamas. 

Who knew then that banks in the Bahamas *could have been* safer than a bank in Palo Alto?

But, a lesson was learned, both Tether and Circle cut exposure to banks and increased their holdings of US T-bills.

Circle’s Operating Expenses

According to Circle’s 2019 and 2020 Financial Statement, the firm’s total operating expenses were $42.7M in 2020. Compensation ($~19M) plus general and administrative expenses ($13.9M) were the primary operating expenses in Circle’s operation.

However, in July 2023, Circle reduced investments in non-core activities and cut operational expenses including a marginal reduction in headcount. Thus, the operating expenses in 2023 could be substantially lower than those in the 2019-2020 Financial Statement. 

According to LinkedIn, Circle still has 1,145 employees.

Coinbase Acquires Circle’s Minority Stake 

In August, Coinbase acquired a minority stake in Circle after they dissolved their Centre Consortium Partnership that previously issued USDC.

• As part of the move, Circle will bring the issuance and governance of USDC fully in-house.

• Coinbase and Circle, in a blog post and interviews with CoinDesk, didn’t disclose how big of a stake Coinbase received. 

• Coinbase did not give Circle cash for the stake.

Circle Alliance Program

This week, Circle launched the Circle Alliance Program, a new initiative to deliver durable USDC and Web3 utility at scale via a growing network of 250+ global partners in 40 countries.

Members of the program will receive dedicated support, incentives, and insights on the latest developments in the world of digital finance, and access to Circle’s emerging products as well as other alliance companies or partners such as BlackRock, Visa, and MasterCard.

USDC v2.2

Recently, Circle introduced an upgrade to USDC and EURC, reducing gas costs, enhancing account abstraction support, and boosting transaction security on EVM blockchains.

The upgrade adds to the momentum of USDC innovation after its recent expansion to 6 new blockchain networks: Polygon, Polkadot, Near, Noble, OP Mainnet, and Base. This brings the total number of supported blockchains to 15.

Head-to-Head: USDC v. USDT

USDC’s supply was inching closer to USDT in July 2022 but USDC supply began decreasing after the SVB failure.

• The gap continues to increase. Currently, USDT's circulating supply is $87B vs USDC’s $23B.

Some have said that the gap is caused by market makers' trauma post the SVB incident, but it’s difficult to point to exact proof.

A Bloomberg article stated that the edge that USDC has against USDT is its seamless off-ramp mechanism. Holders can redeem USDC for dollars via bank wire at no fee, and the minimum amount is $100. 

• Tether has a minimum $100,000 withdrawal at a fee of 0.1% or $1,000, whichever is higher.

• USDT holders must first have accounts at one of Tether’s Bahamas-based banks to redeem USDT directly, according to crypto investment firms Fasanara Digital and DACM.

• A popular method among those looking to cash out is to swap Tether for USDC and then trade the stablecoin for cash over on Coinbase.

However, this is not entirely true.

At its core is Tether’s great product-market fit. It’s more integrated with the largest centralized crypto exchanges in the world because USDT is first and foremost a digital version of offshore US Dollars.

USDC reigns supreme in the DeFi ecosystem — an ecosystem that the US government has been quite antagonistic towards. Oh, the irony.

What’s next: Circle needs to focus on regaining the trust of crypto natives while also convincing future new users from the next bull run that USDC is safe. 

The Circle Alliance Program is a good example of how to do this.

If Circle is associated with the likes of BlackRock and Visa, it will be further integrated with the US and global financial systems — a strategic move that will create a stark difference between USDC and USDT target market.

If you enjoy reading this issue, please consider subscribing. It takes 1 minute of your time but it would mean the world to us 🙇

Disclaimer: All the information presented in this publication and its affiliates is strictly for educational purposes only. It should not be construed or taken as financial, legal, investment, or any other form of advice.