Arca blasts Circle: Why did IPO abandon its crypto allies and favor Wall Street?

Author: Jeff Dorman, Chief Investment Officer of Arca; Translator: Yuliya, PANews

Circle, the issuer of the USDC stablecoin, should have made an important milestone for the crypto industry to move towards mainstream finance through its IPO. However, the issuance process has caused widespread controversy in the crypto industry. In this article, Arca Chief Investment Officer Jeff Dorman, from an eyewitness perspective, strongly criticized Circle for favoring traditional financial institutions and ignoring native crypto participants in its IPO placements, and used this to explore why the core concept of the crypto industry, "alignment of interests", has been repeatedly violated in the traditional IPO system. The following is the original article, which was translated by PANews. Circle, the company behind the USDC stablecoin, completed its initial public offering (IPO) last week, pricing its shares at $31 per share (higher than the initial expected range of $24 to $26). The first-day closing price was $84, and by the end of the week, the stock price had exceeded $107. It is no exaggeration to say that the investment bank made a serious mistake in pricing this IPO. Similarly, it is no exaggeration to say that Wall Street is enthusiastic about investing in crypto assets, especially stablecoins.

Reasons to be bullish on CRCL:

• This is the first and only listed investment target on the market that focuses on stablecoin growth. Investors have been waiting for seven years for this investment opportunity (Arca included).

• The stablecoin market is expected to grow to more than $1 trillion in assets under management, which alone is enough to constitute a good investment story.

• USDC currently has $60 billion in assets under management, with an annual growth rate of 91%.

Reasons for shorting CRCL:

• This is a business model that is completely dependent on interest rates, and all of its revenue comes from interest income;

• Circle relies on Coinbase as an issuing agent, and Coinbase takes about half of the interest income;

• Circle also relies on BlackRock, which has partnerships with many banks that are trying to enter the stablecoin market to compete with Circle and Tether;

• In the past three and a half years, the company has had almost no revenue and profit growth (although EBITDA has increased by 60% year-on-year);

• The current share price of $107 is overvalued, and its valuation indicators are as follows:

• About 30 times gross profit;

• About 110 times earnings;

• About 59 times adjusted EBITDA. (Annualized by the first quarter of 2025)

About my open letter to Circle CEO Jeremy Allaire

Many of you may have seen a tweet I posted and the subsequent news reports about the open letter to Circle CEO Jeremy Allaire. The language in the tweet was a bit harsh, and I have deleted it because it does not represent Arca's official position. But I want to make it clear that I still stand by the core points I expressed.

In my opinion, Circle made a huge mistake by allocating shares to traditional financial institutions (TradFi) rather than crypto-native funds during the IPO allocation process. They should be held accountable for the implicit message behind this decision.

We have communicated with multiple crypto funds and companies, including many early users and promoters of USDC (including Arca itself), and some of them have closer relationships with the IPO underwriters JPM and Citibank than Arca. We received clear feedback from these industry leaders that they either received very little allocation or no allocation at all, which further confirms the fact that Circle favors traditional Wall Street financial institutions and ignores crypto-native supporters.

I have not been able to find any crypto-native institution that received fair treatment in this IPO allocation. This situation is simply ridiculous and shows extremely short-sighted behavior by Circle.

Why am I angry? Not Because of Emotions, But Because of Principles

People who know me, or have invested with Arca, know that I am not an emotional investor. Quite the opposite, I always stay rational and focus on investment logic rather than personal emotions, whether in good times or bad.

But when it comes to promoting the crypto industry "correctly" and adhering to the principles of integrity, I am extremely passionate and emotionally engaged.

Since its founding in 2018, Arca has been at the forefront of the crypto industry, advocating and fighting for this industry. We have spent a lot of time, launching and winning rights actions against some crypto companies that are poorly managed and harming the interests of investors or customers. Many people used to think that token holders have no rights - we overturned this misconception and risked losing our reputation in the process, but we think it was worth it.

We have been exposing what we believe to be fraud and misconduct in the industry, even if it means having some very uncomfortable conversations with friends or partners. It’s also worth it. We’ve also publicly criticized the traditional financial sector for misunderstanding and misclassifying the crypto industry many times - such as lumping all tokens together and ignoring the significant differences between them. We’ve also pointed out that some companies in the industry deliberately distort the narrative for their own benefit, which harms their peers who are developing with them. In addition, we have always been candid about our mistakes and promised to continue to do so. We spare no effort to educate the world on the pros and cons of crypto technology, with the goal of allowing investors and users to make informed decisions based on facts, rather than being misled by the media or other untrustworthy entities. Ultimately, we support the development of the crypto industry in all its forms. Whether misunderstood or not, we always believe that we have a responsibility to use our voice to expose fraud, expose bad apples, and call out poor decisions - with the goal of making the entire industry stronger and healthier in the long run.

And this time, we are issuing a "Citizen Arrest Warrant" against Jeremy Allaire and Circle - your actions have deviated from the original intention of crypto.

I'm not an idealist, I just believe in "customer first"

I'm not a naive idealist. I sincerely believe that when you make your customers rich, your company will naturally succeed.

Look at Binance, Hyperliquid, and even projects like Axie Infinity, even in the face of difficulties, their founders, employees, customers, and investors remain highly satisfied. Why? In one word: "Alignment".

This is not a new concept. As early as 2018, when Arca didn't even have a website, I wrote about the lack of alignment of interests in the stock market.

In 2020, I criticized Airbnb and DoorDash for not sharing in the financial dividends of their IPOs with their customers. I also wrote about Coinbase's attempt to issue stock through a direct listing, which was a respectable attempt, although it also had risks - such as no investment bank support to educate investors.

I have been saying for the past eight years that tokens are the greatest capital formation and user growth mechanism ever, because they can instantly align the interests of all parties involved and turn customers into core users and brand evangelists.

However, Circle completely and deliberately ignored its own customers in this IPO.

Arca's multi-year partnership with Circle - why is this IPO placement a slap in the face?

I can't speak for all other funds (although many institutions have stood with Arca and expressed anger at the unfairness of this IPO placement), but I can clearly speak for Arca.

Arca has been a Circle customer and partner for nearly a decade. We used our platform to support USDC when it was still unrecognized and had almost zero assets under management. We have defended USDC and the entire stablecoin track, and have argued against those who called the entire industry a "joke".

Our trading and operations teams have worked hard with the Circle team, standing by them and providing practical assistance in product testing, optimization suggestions, and major crises (such as the banking crisis in March 2023 and the USDC depegging incident).

In this IPO, we only received a very low allocation ratio. This result is tantamount to a slap in the face.

Crypto companies like Arca have survived the past eight years. Many people and companies in this industry support each other and move forward together. When you have the opportunity to benefit your clients through an IPO, thereby increasing their returns and AUM—and that money will eventually feed back into the industry—it should be the obvious right choice.

Why not give back to the funds that are already deeply involved and continue to invest in the crypto industry? If these funds get good returns, they can raise more funds and invest again in the crypto ecosystem. Isn’t this a virtuous cycle for the industry?

But Circle did the exact opposite.

Their behavior is completely contrary to the spirit of crypto

This time, Circle did not express gratitude to users and achieve long-term win-win results by issuing tokens or creating some kind of interest binding mechanism. Instead, it generously allocated IPO shares to mutual funds and hedge funds in traditional finance. These institutions probably didn’t even read the prospectus, didn’t have digital wallets, and would never actually use Circle’s products.

They just want to make a quick buck.

To those who are angry at me, I would also like to respond to a few words:

"You Arca are like those crypto users who want to get free airdrops, thinking that they should get benefits just because they use the product!"

A: This is half right and half wrong. Indeed, we believe in the concept of "customers should be rewarded" mentioned above. Any customer who has a direct impact on business growth, no matter how big or small, should be rewarded in some way.

DoorDash's delivery drivers and customers should have received DASH stock; Airbnb's hosts and guests should have received ABNB stock; Amazon Prime members and merchants should have received AMZN stock... There are countless such examples.

But one thing that is different between IPOs and airdrops is that we are willing to buy stocks at the same price as everyone else. Airdrops are usually given away for free. More importantly, the allocation of airdrops is often based on algorithmic formulas, which is transparent and automated; while the allocation of IPOs is a manual process, Circle can fully control who gets how much.

"You should blame Citi and JPMorgan, not Circle!"

A: This is completely wrong.

I used to be an investment banker in the capital market and also worked as a trader. I have been dealing with the syndicate desk for nearly ten years and know how the whole process works.

It is true that investment banks are responsible for creating market demand, pricing, and collecting initial interest from institutional investors. But the final decision on the allocation list and proportion is made by the sponsor (that is, Circle).

Circle is the client of this transaction. They pay high fees to lead underwriters such as Citi and JPM and have full final decision-making power. They have the right to view all orders and can directly control who gets how much.

No matter how good your relationship with the underwriter is, it is not as important as your direct relationship with the issuer's executives.

By the way, Arca probably trades more traditional assets such as stocks, bonds, and preferred stocks than most other crypto funds. We even helped Galaxy (GLXY) when it was struggling to issue convertible bonds in 2022, tripling the subscription quota to help it complete the fundraising (the lead underwriter was Citi, who praised Arca at the time).

But even so, large investment banks still do not give priority to small crypto funds in the allocation process. Therefore - the responsibility for this allocation lies with Circle, not the underwriters.

Circle's choice to ignore the needs of crypto funds is either negligence, incompetence, or more likely intentional.

"This IPO was oversubscribed 25 times - everyone's allotment ratio was compressed!"

Answer: This statement is not entirely true.

Don't forget, this is Circle's second attempt at an IPO. (The first time they failed, they were forced to withdraw.) The IPO was not smooth when it first started in April, for a variety of reasons—the macro market was weak due to trade tariff tensions, and Circle’s lack of profitability and reliance on interest rates and partners also raised questions. The deal was difficult in the early stages, but it suddenly became hot near the end of pricing. Why? Because the market began to realize that the stock was likely to rise after listing, so a large number of investors frantically submitted large orders at the last minute. The order mechanism of the IPO is a game of "cat and mouse". Many investors will deliberately place an order far higher than they actually want in order to get a larger allocation, betting that they will get a satisfactory proportion in the end. Early buyers like Arca reported real subscription demand before the entire order book was established, and we should have received our due share on demand. But we are completely marginalized in this operation.

The so-called "25 times oversubscription" title is likely just a "masquerade" on the final data and cannot reflect the actual fairness.

"Stop complaining - this is just sour grapes!"

A: Yes, this is the whole meaning of this article.

Whether Circle's IPO placement behavior will affect its future and the adoption of USDC is still unknown.

But we are very much looking forward to the upcoming 13F filing (institutional shareholding report disclosed by the US SEC) to see which investors Circle has chosen to share their growth dividends.