DO-OVER

Circle eyes an IPO as the tightening stablecoin market benefits from high rates

Monday, November 20, 2023 by Snacks
If at first you don’t succeed… (Jakub Porzycki/Getty Images)

If at first you don’t succeed… (Jakub Porzycki/Getty Images)

Strikin’ while the iron’s warm… A cornerstone of the crypto ecosystem is looking to go public. Again. Stablecoin issuer Circle is considering an IPO early in the new year, Bloomberg reports, after trying to go public last year at a $9B valuation. Now that crypto winter’s thawing and coin prices have been popping, Circle’s seeing spring shoots. Refresher: a stablecoin is a cryptocurrency whose value is (theoretically) pegged to another asset, like the US dollar. Circle issues the second-largest stablecoin, USDC, which has a $24B market cap.

  • USDC is pegged to the USD. 1 USDC is designed to = $1. Circle says it holds cash (or cash equivalents) to back every USDC it issues — aka it’s “fully reserved.”

  • Like digital dollars... People use stablecoins sorta like people use $$: to transact. But stablecoin transactions are on a blockchain and can involve smart contracts (think: decentralized finance).

On unstable ground… USDC’s share of the $126B stablecoin market has fallen to about 20%. The coin’s market cap (how much investors have bought) is down nearly 50% on the year. Circle earns interest on customers’ dollar deposits, so fewer deposits = less earnings potential. Meanwhile, leading stablecoin tether (aka USDT) has gained market share since traders flocked from USDC to USDT in March — when Circle said it had $3.3B in reserves at the collapsed Silicon Valley Bank. Competition’s heating up: in August PayPal launched its own stablecoin, PYUSD.

THE TAKEAWAY

A smaller slice doesn’t mean going hungry… Despite its shrunken market share, Circle’s benefited from higher interest rates: its revenue in the first half of this year ($779M) was more than all of last year combined. Experts say the stablecoin market is expected to hit $2.8T in the next five years, so there could be plenty of stable slices to go around. But with traders betting that the Fed will start cutting rates by May, Circle may have incentive to go public while rates are high.

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