A dollar is a dollar, whether spat out by an ATM or digitally issued on the blockchain. That’s the promise of Circle Internet Group Inc., one of the biggest issuers of stablecoins designed to emulate fiat money like the greenback or the euro, primarily for the purpose of cryptocurrency trading. With hype around the mainstream potential of these tokens now at fever pitch, Circle’s planned stock-market listing may yet raise questions over whether all dollars really are created equal.
Circle’s prospectus contains plenty of blockchain jargon but nonetheless tells the story of a relatively straightforward business model, somewhat similar to a money-market mutual fund. To fulfil its promise of a dollar-backed token that’s redeemable at par, called USDC, Circle says it reinvests each dollar collected into liquid cash and cash equivalents. With about $60 billion worth of USDC in circulation and three-month US Treasury bills yielding an average of around 4.25% in the past six months, that generates a tidy revenue stream; together with various fees for things like transactions and redemptions, the company’s revenue rose 16% to $1.7 billion last year.
Circle aspires to a valuation of as much as $5.7 billion — approximately 37 times last year’s earnings, which isn’t far off where credit-card behemoth Visa Inc. trades— because it argues that this is just the beginning for tokenization. While currently reliant on demand from the crypto market, the company envisions a future of stablecoins eating the world as a frictionless and more efficient form of payment than what’s currently on offer. Beyond ordering pizza at home or buying goods from abroad, there’s also the possibility of building new applications and financial products on the same rails. With the Trump administration pushing for stablecoins to be brought into the mainstream, this would all expand demand for USDC and generate more fee income: Citigroup Inc. projects that the stablecoin market may expand to $1.6 trillion by 2030 from $240 billion today.
But investors in Circle will be exposed to real market risk, whether from the returns on reserves held in short-dated debt or the performance of the broader crypto market. Circle posted a loss of $768.8 million in 2022 — a brutal year for crypto with the collapse of the Terra token and FTX platform — before swinging to a profit of $267.6 million in 2023 and $155.7 million last year. In 2023, USDC’s market capitalization halved after the meltdown of Circle partner Silicon Valley Bank saw a rise in selling pressure that led to a USDC dollar de-peg. The market cap has recovered but Circle’s perceived valuation hasn’t: It was worth $7.7 billion in a 2022 funding round and would have been valued at $9 billion in a failed merger with a blank-check company that same year. In the meantime, Circle has obtained an investment from Coinbase Global Inc. and expanded a revenue-split deal with the platform.
Circle’s prospectus also highlights that increased US regulatory clarity for stablecoins — which should give it a leg up against larger offshore rival Tether — might expose it to more competition, not less. One can imagine tech brands including Amazon.com Inc. or Alphabet Inc. being tempted to launch their own tokens to lock users deeper into their walled gardens. And banks aren’t going to sit still either, with trillions in deposits potentially threatened by fintech disruption: Bank of America Corp., Citigroup and JPMorgan Chase & Co. are among firms discussing jointly issued stablecoins, according to the Wall Street Journal. This might be a plus for those worried about consumer protection gaps in the current drive to regulate stablecoins, says Northeastern University Professor Ravi Sarathy. And it would likely see future growth favor more recognizable financial institutions.
None of this is to dismiss the genuinely exciting possibilities that payments innovation could bring. Still, even the most upbeat prognosticator has to concede that the history of private currencies and currency pegs isn’t a calm one. Data from over two centuries of currency pegs has shown that 49% of them fail, according to Deutsche Bank AG economist Marion Laboure. Meanwhile, central banks — remember them? — are testing their own digital-currency and cross-border payment schemes. Circle’s digital dollar network has certainly built something of value — but right now, the hype premium is too large to ignore.
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