So this deep dive might be a controversial one. Why? Because the company in question is in the crypto space. WAIT. Don’t scroll away yet. Although many people hate crypto and everything to do with it, this company is in a part of the space that is a little bit different to the rest. Here’s why:
Many people are (rightly) sceptical about crypto because although there’s a lot of money changing hands, it doesn’t seem to be used that much in the real world. No one is using Bitcoin to pay their rent. No one is using Ethereum to pay for food. This “digital assets” thing just seems like a different world that is detached from the real economy.
However, Circle is a company that:
· Makes something that is actually useful in the real world
· Makes a lot of profit
· And has a lot of room to grow.
Circle have made a coin called USDC. And to understand what USDC actually is and what it means. We have to discuss the type of coin it is - a stablecoin.
Stablecoins
I’m going to explain the point of stablecoins using my love language -memes.
The currency part of CryptoCURRENCY is really important. You need to be able to use them to pay for things. The price volatility of Bitcoin and other major cryptocurrencies makes it difficult to use them as a means of payment.
This is where stablecoins come into the picture.
These coins are designed to maintain a stable value relative to a currency, like the US Dollar (USD). So one USDC always equals one dollar. How do they ensure that? For every one USDC that Circle issues to a customer, Circle has one actual US Dollar sitting in its treasury.
Okay, so Why is this Useful in the Real World?
Let’s say I want to send money to a relative in a developing country. I could go down the route of bank transfers, but this would involve paperwork, high fees and days of processing. If I use stablecoins, this money can be sent across the world immediately, at almost no cost. And there are many in developing countries who have internet connections but do not have access to bank accounts. For these people, there is more motivation to use stablecoins. At the moment though, if I were to send my relatives money in the form of stablecoins, they would have to convert this money back to their local currency before they can spend it. This argument gets even stronger if and when merchants and businesses start accepting stablecoins as payment, which, (spoiler alert) they are beginning to do.
Y Combinator is the biggest and most famous startup accelerator in the world. It helped found startups like Airbnb, Dropbox, DoorDash, and Stripe. The list goes on and on. Here’s what they had to say about stablecoins, and why they’re convinced stablecoins are part of the future of finance:
“There’s been much debate about the utility of blockchain technology, but it seems clear that stablecoins will be a big part of the future of money. We know this because YC companies have been effectively incorporating stablecoins into their operations for years now – for cross-border payments, to reduce transaction fees and fraud, to help users protect savings from hyperinflation. This utility is so straightforward it seems inevitable traditional finance will follow suit. “
So the biggest startup accelerator in the world that funds thousands of companies is saying that many of their companies ALREADY use stablecoins on a regular basis.
How Circle Makes Money
This might be the biggest reason why Circle is such a good company. Many crypto startups raise a lot of money from investors but struggle to make any profit in the real world. Nothing could be further from the truth for Circle. The way they make money is really simple, and they make a lot of it.
Remember how I said for each USDC coin issued to a customer, there is one actual US dollar sitting in Circle’s treasury? Well, there are over 35 billion USDC coins in circulation. This means that Circle has $35 billion locked up in its treasury.
Guess what you can do when you have $35 billion sitting in a bank account?
You can earn interest on it.
Just like when you put money into your savings account, you can earn interest and watch it grow, Circle can do that too. But they get to do that with $35 billion.
The interest rate in the US is over 5%. 5% of $35 billion is almost $2 billion. So that means Circle is earning $2 billion a year, just in interest!
Current Valuation and Potential Upside
Circle’s current valuation is estimated at around $5 billion. It's already quite a big company. How much more can it actually grow?
Well actually, it has the potential to grow quite a lot. Its biggest competitor, Tether (who make a coin called USDT) is worth over $100 billion. Although Tether is the market leader and there is a lot of USDT floating around, Tether has gotten in trouble with US regulators a few times. They’ve been caught lying about how much money they actually have in reserve to back their own. So although they are the biggest, Circle benefits from more trust and better relationships with regulators. Both of these factors could end up being key in future.
Another thing that may push Circle’s valuation up is the fact that the stablecoin market is growing quickly. People have realised that stablecoins allow fast, cheaper transactions compared to the traditional banking system, and so more people are making the switch to stablecoins. The number of USDC wallets and the volume of transactions have been increasing, indicating a growing user base.
Remember I mentioned businesses are beginning to accept stablecoins as payment? Circle has established partnerships with some of the biggest financial and technology companies like Visa, MoneyGram, and Stripe. These partnerships mean USDC is becoming a more important part of the global financial system.
The Upcoming IPO
An Initial Public Offering (IPO) is when a private company first offers share to investors on a public company. It is a big, big deal in the life of company, and Circle is due to IPO later this year. The extra capital it raises from investors, and the extra attention Circle gets from the IPO may be another reason why the company will grow rapidly. But IPO’s also come with their own risks…
Risks
When a company, is about to IPO, there can be a lot of hype around it. This is especially for a company as hot as Circle. This hype is something we need to be careful, because sometimes too much hype can make the stock price overvalued in the short term.
Probably the biggest thing Circle needs to worry about is regulators. Regulators are understandably worried about stablecoins and the effect they could have on the whole economy if they get too big. The US government has already made it clear that stablecoin regulation should be a federal matter, Harvard Business Review wrote “Depending on future regulation, Circle could be in pole position or dealing with a messy transition into a bank”.
Then there’s competition. Everyone has woken up to how much money you can make issuing a stablecoin, and everyone wants a piece of the action. Its not just current competitors like Tether that Circle needs to worry about. Banks, central banks and even tech companies are all thinking of launching their own stablecoins.
Roles Available
Circle is on a big hiring spree, and has open roles all across the world in pretty much all of its divisions, including: Business, Compliance, Data, Risk, Engineering Finance, Legal, Product, Security, Strategy, Talent & Admin, Tech Ops & IT. If you have some skills in ary of these areas, Circle may want to hear from you.
The Icing on the Cake
For most of the companies featured on this site, including the ones that will be featured in future, there is no way to buy stock. They are private companies and the only way of buying a piece of the businesses without investing $10 million as part of a venture capital fund, is to work there.
But since Circle is about to IPO, in a few months’ time you should be able to buy stock in this company. So if you think Circle looks like a good bet, but you’re not sure about going off to work there, you also have the option of investing when the time comes.