Will Circle change the banking world?

The Rundown – Your weekly SPAC Deep Dive (11/10/21)

What’s up everyone,

Despite several attempts at banning or severely restricting a decentralized economy, cryptocurrencies have continued to thrive against all odds. The fact that the combined market cap of all cryptocurrencies now stands at $3 trillion is proof that crypto has gone mainstream. As a result, cryptocurrency firms have been racing to public markets to raise capital in a bid to acquire users quickly. Coinbase hit the markets in April and now has a valuation of more than $88 billion. Bakkt went public through a SPAC merger last month with shares surging 3x as the company inked a vital partnership with Mastercard.

While companies like Coinbase and Bakkt aim to provide a platform for users to buy and sell cryptocurrencies, Circle is looking to be the backbone of the market by facilitating the transactions on most platforms. The company announced in July that it would go public through a SPAC merger with Concord Acquisition Corp, valuing the company at $4.5 billion. Circle’s revenues have been growing at an astounding rate over the past few years and the company stands to gain the most if cryptocurrencies exist in conjunction with fiat.

Stablecoins are central to a Crypto future

Circle’s core business revolves around a stable coin (essentially a crypto asset to an external currency like the US Dollar). Back in 2018, the company collaborated with Coinbase to create USDC, which was pegged to the US Dollar.

The standards and protocols for USDC is overseen by the Centre Consortium, an organization that is jointly run by Circle and Coinbase. Unlike USDT (from Tether), USDC is backed 1:1 in dollars by cash and equivalents like short-term treasuries.

USDC plays a pivotal role by providing on-chain buying power in a highly volatile cryptocurrency market, while providing stability and avoiding taxes.

Stable Coins therefore brings the stability of the US Dollar into the decentralized world of cryptocurrencies. The market has already understood the importance of stable coins and there is over $32 billion USDC in circulation on the Ethereum, Solana, Algorand and Tron blockchains.

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The Future of Stablecoin Regulation

USDC may face much harsher regulation in the future compared to other utility tokens, primarily because it may compete with traditional monetary systems to facilitate cross border payments and reach unbanked/underbanked customers. Circle, knows this and aims to be regulation conscious. The company has already announced plans to become a full-reserve national commercial bank, which would operate under the supervision of the Federal Reserve, US Treasury, Office of Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC). Circle may also pursue a bank charter in the future or consider acquiring a national bank, which would help reduce dependence on third-parties, enable access to the Federal Reserve System and reduce the cost and time to settle transactions.

Recently, the Treasury Department recommended in a new report that Congress should pass legislation that would require stable coins to be issued by banks to be subject to the federal banking laws. The committee has gone on to recommend that only Banks should issue stable coins and that anyone who provides crypto custodial wallets should be subjected to additional federal oversight. The primary reason that the US Treasury wants additional regulation on Stable Coins like USDC is to guard against stable coin runs, address concerns about payment systematic risk and address additional concerns about economic concentration of power. Regulation will be a major hurdle for Circle to clear, with the federal reserve and the government putting up a fight against alternative monetary systems. Should the circulation of Stable Coins reach a critical mass, it will be far harder regulators to pose a threat.

Circle’s Business Model

Circle is essentially the banking infrastructure for the crypto economy and generates revenues like a bank from interest income, transaction fees and treasury services. Thus, Circle derives interest on reserves deposited by users (USD Coin), provides transaction and treasury services and has a platform to fund businesses (SeedInvest). As Mentioned earlier, the current circulation of USDC is around $34 billion, which Circle forecasts that this will grow to $200 billion by 2023. With this, Circle estimates that it would be able to generate interest income of $196 million (but numbers are highly sensitive to interest rates, with an increase in interest rates of 50 bps resulting in an additional $555 million in income). In that sense, the USDC segment acts as an entry point towards other high-margin services.

The majority of Circle’s revenues will come from Transaction and Treasury Services, which is estimated to grow nearly 10x from $65 million in 2021 to $622 million by 2023. Circle has partnered with the largest cryptocurrency exchanges like Coinbase & FTX, Marketplaces like Dapper Labs & NBA Top Shot and even traditional international payments services like MoneyGram. Partners use USDC as a means of settlement, deposits, withdrawals, payments & remittance.

Circle thus benefits from more transactions at its partner firms and also makes money on the spread in most cases. As a result, Circle will massively benefit from as ideal future where both the Fiat and Crypto economy exist parallel to each other and there is constant demand for settlements/transactions. The final piece of the puzzle is Seedinvest, which Circle acquired in late 2018. Seedinvest is a two sided marketplace for connecting issuers and investors and will generate revenues through a fee based model. Seedinvest is expected to generate $68 million by 2023.


Currently Concord Acquisition Corp (the SPAC merging with Circle) is trading at $13 (up 30% since the broader cryptocurrency markets rallied), valuing circle close to $5 billion or approximately 6.5x Forward Sales (FY23). Circle’s valuation may seem cheap/expensive depending on what your view is about the future of cryptocurrencies/decentralized networks/the metaverse. Furthermore, in the likely event that Central Banks end up raising rates next year, Circle will see a massive boost, and valuations make look more attractive.

Circle’s projection to have $200 billion in USDC seems conservative, considering that USDC is the fastest growing stable coin in the market over the past few years (with a growth of 145x in circulation!). Most of Circle’s projected growth could in fact be attained in the next 12-18 months, if crypto markets continue to flourish. Tether is the market leader in stablecoins (USDT has a market cap of $70 billion), but with strategic partnerships, USDC could overtake USDT in a few years.

Bottom Line

Stablecoins like USDC will be a key facilitator of transactions in the decentralized economy, which will ultimately generate revenues for Circle. A key risk in the near term will be the potential regulation from the US Treasury, which could determine the future of USDC. Circle is a one of a kind breakthrough crypto national bank which is set to majorly benefit from the upcoming crypto revolution. As the circulation of USDC exponentially rises over the next few years, Circle’s stock will as well.


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Will Circle change the banking world?

The Rundown – Your weekly SPAC Deep Dive (11/10/21) What’s up everyone, Despite several attempts at banning or severely restricting a decentralized economy, cryptocurrencies have