Circle Case Study

Circle Case Study


Circle Internet Financial, colloquially known as Circle, is a financial services company that launched in 2013 as a peer-to-peer payment, crypto wallet, and exchange platform in the form of an app called Circle Pay. Circle Pay allowed users to make instant and free transfers between individuals, akin to Venmo and Paypal. Ultimately though, Circle sold off much of their business lines and discontinued Circle Pay in order to focus solely on the creation of a stablecoin on the Ethereum blockchain backed by US dollars.

USD Coin (USDC), Circle’s fiat-backed stablecoin hosted on blockchain, is Circle’s attempt to both decrease friction and increase efficiency within the current financial system, as well as increase potential economic prosperity for the unbanked. In particular, Circle is striving to become the guide rails of the new economic system as the financial industry begins to move away from legacy systems and transactions that stifle innovation.

In 2021, a SPAC known as Conrad Acquisition Corp. attempted to acquire Circle for $4.5 billion, a deal which would have taken Circle public in Q4 2021. However, Circle signed a new deal with Conrad Acquisition Corp. in early 2022 to be acquired for $9 billion instead, exactly double the original valuation. Circle is speculated to IPO by the end of 2022 under the ticker CRCL.


USD Coin, otherwise known as USDC, is a “stablecoin” issued by CENTRE, a joint-venture by Coinbase and Circle. As a stablecoin, USDC is a cryptocurrency meant to maintain a value of 1 US dollar. At its core, USDC was originally an ERC-20 token: a fungible token created using the Ethereum blockchain. In total, there are 14 USDC compatible blockchains, including Solana, Avalanche, Algorand, etc. A USDC token is created when a user sends a USD to the token issuer, CENTRE, which creates a smart contract that creates a USDC token and sends it back to the user. All the USD sent to CENTRE is stored in its reserves off-chain, which are maintained by regulated and licensed financial institutions, allowing every USDC token to be backed by exactly one corresponding USD. As such, USDC is fully collateralized, and any USDC can be exchanged for a USD at any time.

Through the process mentioned above, USDC functionally tokenizes US dollars and puts them on the blockchain, allowing users to access the advantages of cryptocurrencies, such as frictionless transfer of funds, while limiting volatility typically inherent in crypto by backing it with a real asset.

USDC is focused on speed and reliability through smaller transaction fees and quicker finality times. Though USDC is intended to be the foundation of the new evolution of finance, many crypto purists take issue that USDC is centralized, which seemingly goes against the decentralized ethos of crypto in general. While a bank run is improbable, USDC is not impervious to the many difficulties of a centralized system. It continues to place faith in a trust-based system, bad decisions can affect all token holders, and banks can continue to freeze capital.

USDC has grown at an exponential rate, with only 130 million USDC issued to users in October 2018, while four years later on October 2nd, 2022, the amount of USDC in circulation reached around 47 billion.


Figure 1 – USDC issued over time via Dune Analytics

Innovation on the Current Financial System

Circle’s product suite attempts to address issues associated with systems built on legacy technology, but also future problems in Web3 as well. USDC onramps include bank wires, ACH, cards, and SEN, settling transactions directly to your Circle account. USDC also facilitates financial inclusion to the unbanked in developing nations with internet access alongside transactions that are cheaper and are finalized at the speed of the internet, prioritizing making “cross-border payments” obsolete. Circle’s emphasis on the ease of transactions with USDC has facilitated partnerships with large companies, such as BlackRock, Mastercard, Plaid, and MoneyGram, which serve to increase their legitimacy and adoption.

Circle has further innovated with Circle Account, a portal which allows business customers “to deposit, withdraw, send, receive, store and allocate funds to invest in digital currency to implement their operations in the digital economy”. Circle Account also works in tandem with Circle Yield, an investment opportunity which allows users to allocate excess funds and earn a higher yield on the funds compared to traditional banks and a variety of fixed income markets. They’ve also ensured its safety through an overcollaterization with Bitcoin.

The Stablecoin Trilemma

The stablecoin trilemma is the most important factor when understanding Circle’s market share and predicting who will win stablecoin dominance in the long term. The three components of the trilemma are Capital Efficiency, Decentralization, and Price Stability. Balancing the Trilemma has become an increasingly difficult task, with the algorithmic stablecoin United States Dollar Terra (UST) recently collapsing after failing to maintain price stability. Though these three factors can never be perfectly optimized, fiat-backed (USDC) and decentralized overcollateralized stablecoins (DAI) have been the most successful at holding pegs and using decentralized finance. Circle attempts to be the bridge between traditional and decentralized finance, choosing to stay centralized and cater to institutional investors that are scared to dive headfirst into the world of complete decentralization where trust doesn’t exist.


Figure 2 - Stablecoin peg over time (Algorithmic vs. fiat-backed vs. overcollateralized)


Since Circle’s inception in 2013, it has raised a total of $1.1 billion over 11 rounds of funding, consisting of Series A, Private Equity, and Venture Capital rounds. Their latest funding round was a private equity round on April 12, 2022, ultimately raising $400 million. The investors consisted of BlackRock, Fidelity Management and Research, Marshall Wace LLP, and Fin Capital.

While many of Circle’s investors are simply suppliers of capital, some are partners such as BlackRock, who formed a strategic partnership with Circle in which they explore the capital market applications for USDC.

Customers (Target Market)

With the stablecoin market cap currently sitting at $152 billion, it currently makes up nearly 16% of the total cryptocurrency market cap. USDC, and by extension Circle, has a firm position in the market with many consumers looking for a reliable, transparent stablecoin after a myriad of failures/issues with competitors such as Tether and Terra.

While “yield farming” stablecoins is a popular option for traders, stablecoins also act as a gateway for traditional investors looking to start investing in crypto, given that it is closer to traditional assets than other crypto assets. Additionally, stablecoins are appealing as a safe store of value, especially compared to the notorious volatility of crypto in general.


When Circle and Coinbase launched USDC in September 2018, only two major incumbents and their stablecoins existed at that time: Tether (USDT) and Dai (DAI). Tether released USDT, originally known as RealCoin, in July 2014 and pioneered the fiat-collateralized stablecoin model. On the other hand, Dai released DAI in December 2017, revolutionizing the industry with a decentralized stablecoin.

Though Tether has the highest market cap in the stablecoin market at the moment ($68 billion vs Circle’s USDC $49 billion, Binance’s BUSD $21 billion, and Dai’s DAI $7 billion), USDC is quickly on the rise.

Tether and Circle are functionally very similar, however Circle is well renowned to be incredibly transparent with their reserves, providing monthly attestations by a global accounting firm. Tether has attempted to increase their transparency, however, their reports have yet to reach the consistency of Circle’s. Tether recently has also taken steps to further reduce Asian commercial paper in its treasury and turn them into U.S. treasuries with a short maturity (like Circle’s USDC) to allow users to redeem it for cash.

The only major startup to release after Circle’s USDC is Binance’s BUSD. Their dollar pegged stablecoin is attached to the company’s crypto exchange market, the largest crypto market in the world by trading volume. Due to the rising popularity of USDC, BUSD has been boosting its liquidity in recent months and has converted user balances and deposits of USDC, PaxDollar, and True USD to BUSD. Binance, similar to Tether, is also not as transparent as Circle in terms of reserve reporting.

Competitive Strengths

One of the key strengths and reasons for USDC’s rise in popularity is its focus “squarely on regulation and transparency since day one”. USDC is fully backed by highly liquid fiat reserves held separately from Circle’s operating funds at leading financial institutions, specifically in the custody and management of BlackRock and BNY Mellon.

The company issues monthly reports on all reserve assets, along with SEC filings, as part of their strategy on transparency. Users can view reserve attestations from Grant Thornton, one of America's largest audit, tax, and advisory firms. The reports provide assurance that the amount of stablecoin reserves are greater than the amount in circulation each month, according to attestation standards set out by the American Institute of Certified Public Accountants (AICPA).

Circle is also regulated as a licensed money transmitter under U.S. state law just like PayPal, Stripe, and Apple Pay, unlike its competitors Tether, Binance, and Dai. Circle’s financial statements are audited annually and subject to review by the SEC.

Circle plans to become a publicly traded company on the New York Stock Exchange via a special purpose acquisition company Concord Acquisition Corp. by the end of 2022, also speaking to the company’s strong financial reporting.


Circle’s primary weakness originates from the sentiment that they are “too centralized”. Given that one of the core principles of crypto that has been touted since its inception is decentralization, many have raised concerns that Circle’s regulation goes against the fundamental ideas of crypto and blockchain.

Though regulation may be important for wide-spread adoption amongst the general public, it could hinder adoption from crypto evangelists.


Circle’s financials have ramped up during this fierce bear market as their net reserve income has increased from $10 million to $100 million YTD, showing resilience during a difficult time. Additionally, based on their most recent attestation in August, the Fair value of USDC reserve assets was $52,430,816,552 while the total number of USDC tokens in circulation sat at 52,258,056,105, meaning Circle is barely above a 100% collateralization rate.

Circle’s average weighted maturity was roughly 40 days of $43 billion, and cash assets were worth approximately $9 billion.

In terms of their filings, Circle stated a total revenue and interest income of $85 million in 2021 with an operating profit of ($79) million. They are projecting total revenue of $562 million in 2022 with an operating profit of ($134) million. They are launching profitability in 2023 of $677 million.


Figure 3 - Circle Financials

Effect of COVID-19

Given that USDC first launched in September 2018, it was a little under two years old when the COVID-19 pandemic began in March of 2020. At the time, USDC had a market cap of a mere $690 million, representing around 9% of the $7.53 billion dollar market cap of all stablecoins. Two years later in March 2022, the stablecoin market cap exploded to $164.29 billion, with USDC taking a market share of 31.2% ($51.37 billion).

It’s evident that USDC thrived during the pandemic, and the reasons for the surge in growth is clear. As e-commerce sales increased during the pandemic, the innovations in new payment rails through blockchain and crypto assets, which allowed for the near-immediate transfer of funds at a much lower cost, became increasingly appealing to smaller businesses. However, despite the increasing prevalence of DeFi in the general public, the uncertainty over the inherent volatility of crypto assets increased in kind. Stablecoins, specifically USDC, were seen as a happy medium, given their lower risk while still providing access to DeFi innovations. As a result, investment into USDC and stable coins as a whole increased exponentially, and will look to build off that growth in the future.


Figure 4 - Market Cap of all Stablecoins over time via Statista


The regulation of crypto assets has been a hot topic since the industry’s inception. However, among all crypto assets, stable coins are speculated to be the priority. Both Treasury Secretary Janet Yellen and SEC Chairman Gary Gensler have voiced concerns over the risk that stable coins pose, given that a collapse in one of the large market cap stable coins could have far-reaching ramifications on the financial industry as a whole. Yet despite these concerns, there have been few concrete actions taken to actually regulate stable coins. One of the few instances occurred last year in November of 2021, when the President’s Working Group on Financial Markets (PWG), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC) released a report which called for legislation to ensure that stablecoins are regulated on a “consistent basis”. In the report they identified three primary areas of concern: risk to stable coin users in the case of stable coin runs, payment system risk, and systemic risk and concentration of economic power. In specifics, the PWG report stated that legislation should require stable coin issuers to be insured depository institutions, custodial wallet providers to be subject to the appropriate federal oversight, and issuers to comply with activities restrictions that limit affiliation with commercial entities. The proposed regulation in the PWG report would almost certainly represent large material considerations for Circle and other stablecoin issuers, as any deposit would have to be insured by the issuer and compliance costs could come into play as well.

Additionally, on May 25, 2022, the Federal Reserve released a paper discussing the possibilities of a U.S. central bank digital currency (CBDC). While the paper was a preliminary brainstorm on the possibility of a CBDC, if a CBDC comes into fruition, it could represent serious competition to USDC and Circle, as the CBDC would have full governmental backing. In response, Circle submitted public comments to the discussion paper, claiming that the benefits of a CBDC are already met by private-sector innovations, and its creation may exacerbate financial inclusion, destabilize the banking system, and add an additional layer of costs to the private sector.

Ultimately, regulation is in its infancy, making many of the fine-grained details unclear, but given the current trends, it would not be surprising for major changes to the regulation framework to come sooner rather than later.

Future Outlook

In considering the short-term future outlook for Circle, it is important to emphasize their role as a pillar of stability within the ever-volatile financial system that crypto has shown to be, and the various challenges that come with being a breakout stablecoin.

Other potential areas of future revenue stream creation for Circle lie within the global payment system, with companies such as Mastercard showing interest in utilizing USDC as a method of cryptocurrency payment for vendors through their network, so as to ensure that the accounts receivable for these clients won’t be affected by the volatility that most other coins inevitably face as they are not pegged to the US dollar. Companies such as Mastercard serve to benefit off of this opportunity as it increases their vendor’s accessibility to receiving payments, while also taking a small portion of the transaction fee in USDC for themselves for soliciting the exchange, similar to a miner’s fee.

When considering a constantly increasing market cap for USDC and the strong foothold that Circle possesses on the demand for stablecoins for which the public can be confident in, it becomes readily apparent why they are becoming an increasingly exciting opportunity for investors to take advantage of. With the potential to completely revolutionize what is historically an extremely volatile market, there is ample room for growth should Circle strategize appropriately and pursue the various revenue streams they had previously mentioned they held an interest in.


Ultimately, Circle is clearly a growing company in an industry with the potential to revolutionize the financial system as we know it. Though Tether still holds the majority of the market share on stablecoins, USDC is on pace to catch up, gaining an additional 20% market share over the past two years. Circle’s reputation for transparency, appeal to traditional finance investors, and its upcoming IPO should catapult it past concerns over profitability and over-centralization.

As the regulatory environment becomes more clear, many in the stablecoin industry will take a hit due to growing costs, especially with those related to insuring deposits, however, Circle has proven that they have a good understanding of abiding to regulations.


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