Author: Ji Zhenyu, Source: Tencent News "Qianwang"
In the latest story of wealth creation on Wall Street,the listing of stablecoinCircle (NYSE: CRCL), the issuer of USDC, is a simultaneous performance of a "victorious escape" and a "capital rhapsody".
On one side of the story, the company's founders, executives and early investors collectively cashed out nearly $600 million at the time of the IPO, but thus missed out on the "paper wealth" of more than $4.2 billion brought about by the subsequent surge in stock prices.
On the other side of the story, Wall Street has shown unprecedented enthusiasm for this "disruptor of the crypto world." Its stock price took off from the issue price of $31 and once reached nearly $300. In less than a month, it rose nearly 10 times, becoming one of the most dazzling IPOs so far this year. At the same time, many analysts gave "buy" ratings without hesitation, predicting that it will dominate a future market worth trillions of dollars.
This scene of ice and fire can't help but make investors ponder: What kind of foresight or concern did this group of insiders who know the company best choose to have an "imperfect" perfect exit? And what kind of stars and sea do enthusiastic public market investors see in the future of this company?
An analyst who has long focused on the financial technology field told Tencent News that although insiders and early investors sold heavily at the IPO, he believes that these are routine operations and is still firmly optimistic about the long-term development of stablecoins. Whether it is the regulatory environment or the industry ecology, the development of stablecoins has just started.
From vision to cornerstone: Circle's ten-year evolution
To understand Circle's internal decision-making, you must first understand the company's DNA. Founded in 2013, the original intention of founders Jeremy Allaire and Sean Neville was far more than just creating a new digital currency. Their vision is recorded in the "Founder's Letter" in the prospectus: "Building a new global economic system", an Internet-based system that allows value to flow as freely and frictionlessly as information.
The development of this company has not been smooth sailing. It initially tried Circle Pay, a peer-to-peer payment application similar to Venmo, and also dabbled in the cryptocurrency exchange business, but eventually carried out strategic contraction and business transformation. The real turning point came in 2018, when Circle partnered with crypto giant Coinbase to co-found the Centre Alliance and launched its flagship product, the US dollar stablecoin USDC.
The design of USDC accurately hits the pain points of the crypto world: it provides a value anchor that is pegged 1:1 to the US dollar, regulated, and has transparent reserves. Circle has adopted a "regulatory first" strategy from the beginning, proactively applying for and obtaining the first BitLicense issued by the State of New York, and obtaining compliance licenses in many major financial centers around the world. This obsession with compliance has made USDC stand out in the mixed stablecoin market and won the trust of institutions and the mainstream financial world. As emphasized in its prospectus, Circle is committed to "walking through the front door to regulators and policymakers."
Today, USDC has become the world's second largest stablecoin, with a circulation of more than $60 billion and running natively on 20 blockchains, forming the cornerstone of Circle's huge business empire.
Disassembling Circle's business model: more than a stablecoin
Although the USDC stablecoin issued by Circle is the most well-known to the outside world, its business model is far more complex and far-reaching than "issuing stablecoins."
In summary, it is a multi-level, networked financial service platform that is gradually built up with the flagship product USDC as the core. Its model can be understood as a strategic structure of "one body and two wings":
One body (core business): Interest income model based on USDC reserves. This is the company's most important and mature profit engine. Circle's prospectus shows that between 2022 and 2024, reserve income will account for more than 95% of the company's total revenue. Its operating mechanism is: when institutional clients mint USDC, they must deposit an equal amount of US dollars. These US dollars constitute a huge USDC reserve pool, which Circle invests in highly liquid, low-risk assets, mainly the "Circle Reserve Fund" government money market fund managed by asset management giant BlackRock, and cash deposited in global systemically important banks. Circle earns interest and dividends from these reserve assets, which is the company's core income - Reserve Income.
Two wings (growth business): Platform fee model based on transactions and services and emerging asset management model. These are the two major directions that the company is focusing on to achieve revenue diversification and build a long-term moat.
Platform and Developer Services: Circle aims to become the "Stripe" of the Web3 world, providing powerful APIs and tools for developers to build applications and charge service fees. Its products include: the Cross-Chain Transfer Protocol (CCTP), which allows USDC to be transferred "natively" between different blockchains and charges for each transaction; as well as a series of services designed to simplify the development process and create charging opportunities, such as programmable wallets, gas fee solutions and smart contract platforms.
Asset Management and Tokenized Funds: This is a sign of Circle's entry into traditional finance. Its core product is the interest-bearing tokenized money market fund USYC. By acquiring this business through the acquisition of Hashnote, Circle aims to provide traders in the digital asset market with a tool that can both earn income and serve as efficient collateral. As the manager of the fund, Circle can charge management fees and performance fees, opening up a new source of asset management income.
The “truth” of IPO: a feast designed for “exit”
However, for such a company that seems to have a bright future, its IPO structure reveals a strong “exit” signal. According to the S-1/A listing application document submitted by Circle to the U.S. Securities and Exchange Commission, of the 32 million shares issued this time, as many as 19.2 million shares (accounting for 60%) came from the company’s “selling shareholders” rather than the company itself. This means that of the more than $1 billion raised by the IPO, nearly $600 million went directly into the pockets of early investors and executives.
The list of stock sellers is star-studded, including founder Jeremy Allaire (who sold 1.58 million shares), co-founder P. Sean Neville (who sold 1 million shares), and a number of top Silicon Valley venture capital firms such as General Catalyst and Breyer Capital.
Based on the final actual offering price of $31, these insiders cashed out a total of $595 million. But when the stock price rushed to nearly $300, they missed out on a one-time potential profit of nearly $5 billion.
Wall Street's enthusiasm: Why is the market so optimistic about Circle?
In sharp contrast to the massive retreat of insiders is the extreme optimism of the public market. After Circle went public, its stock price soared and its market value quickly exceeded $50 billion.
This enthusiasm is not unfounded. Investors and analysts see Circle's unique value and huge growth potential:
Analysts at Seaport Research hailed Circle as a "top crypto disruptor" and gave it a "buy" rating and a target price of $235. His logic is simple: no matter which cryptocurrency or blockchain application wins in the future, a stable and reliable medium of exchange is needed, and USDC is the "dollar of the digital world." Circle does not sell cryptocurrencies, but provides the infrastructure on which the crypto world relies, which is considered a more robust business model.
Other analysts predict that the size of the stablecoin market may grow tenfold in the next five years, from the current approximately $260 billion to more than $2 trillion. As one of the most compliant and transparent stablecoins on the market, USDC is expected to dominate this huge incremental market. Analysts believe that Circle is more than just USDC. It is building a huge payment network through cooperation with payment and technology giants such as Visa, Mastercard, Grab, Mercado Libre, etc. At the same time, its developer-oriented tools (such as cross-chain transfer protocol CCTP and wallet services) are attracting tens of thousands of developers to build applications on its platform, forming a strong network effect and further consolidating its leading position. In addition, Circle's crazy rise has also taken advantage of the increasingly favorable regulatory environment. Recently, the legislative progress of the GENIUS Act passed by the U.S. Senate, which aims to establish a clear regulatory framework for stablecoins, has been interpreted by the market as a major benefit to compliant participants such as Circle. Analysts generally believe that a clear regulatory environment will accelerate the adoption of USDC in mainstream financial institutions and enterprises.
Circle's IPO perfectly illustrates two completely different perspectives in the capital market: for founders, executives and early VCs, this is a rational harvest after a long entrepreneurial journey. They face known huge risks - industry competition, systemic financial risks, and regulatory uncertainty. In the face of these risks, converting some of the "paper wealth" into real bank deposits is a prudent and wise financial decision.
And for investors in the public market, they are currently betting on a more ambitious future. They believe that as the wave of the digital economy surges forward, Circle, with its compliance advantages and technological barriers, will become an indispensable financial infrastructure in this new era, and its value will far exceed today.
Is it that cautious insiders misjudged the fuel for the rocket, or that enthusiastic external investors ignored the risks of flight? Only time can tell the answer to this nearly $5 billion question.
Alex
Kikyo
Joy
Brian