Circle Goes Full Circle

By sheer luck, I had an opening bell media hit with NYSE TV this last Thursday, the day Circle listed as CRCL. The NYSE studio is upstairs at gallery level. I'd first visited the NYSE on the same gallery balcony as a boy with my Dad. I remember getting the impression that IBM was a huge company that represented the future.

Circle staff and guests filed in at 9:15, a much larger delegation than most bell-ringings. Not only was the floor packed, but both galleries were full. As the applause started, precisely at 9:29:30, everything else stopped. This wasn't the usual opening bell tea ceremony. NYSE President Lynn Martin stood beside an air-punching Circle CEO Jeremy Allaire, and the specialists, floor brokers, and other floor inhabitants joined in the cacophony. The energy took over the whole floor in a way that felt exceptional.

I asked, cheekily, to the NYSE TV folks which specialist booth would trade CRCL. No one had any idea what I was talking about. The producer decided to move our hit to the floor with a handheld microphone and change our subject from bitcoin to stablecoins on the fly. That was fine—plenty to say about stablecoins.

Standing within feet of Jeremy Allaire on the floor next to the bell balcony, doing our five-minute segment, it was pure electricity. It was the feeling when you finish a marathon and a beaming volunteer places a medal around your neck.

Accomplishment and validation. This was a moment enabled by a friendlier SEC and coincident with meaningful blockchain legislation, but it didn't have the vibe of MSTR rapture or youthful DeFi exuberance. It felt mature and financial–adults celebrating.

A long time coming

USDC sprang to life in September 2018, just before a local peak in U.S. interest rates. In retrospect, it was a handy time to launch, when carry (yield from backing assets) was positive but yield expectations in crypto (whose practitioners mostly grew up in a zero interest rate world) remained low. When COVID hit, in 2020, ZIRP (Zero-Interest-Rate-Policy) returned suddenly, threatening the business model, but prompting crypto adoption and experimentalism.

When the Fed aggressively raised rates in 2022 to help metabolize $5 trillion in COVID fiscal stimulus, stablecoins faced the opposite combination of supportive and threatening forces: higher carry revenues, but traumatized markets.

Circle's failed SPAC attempt spanned this transition. Announced in July 2021 when 3-month yields were 0.05%, the Concord Acquisition deal was renegotiated in February 2022 (as rates began their historic climb) and ultimately terminated in December 2022—right as rates hit 4.42%. The SEC never declared the S-4 registration statement effective. The transaction “timed out” waiting for regulatory approval, just as the underlying economics of Circle's business were being boosted by soaring rates.

Like yields

Now, several years into a 4-5% rate environment, the model has adapted and appears to be working. USDC holders can receive “rewards” on Coinbase that are similar to risk-free yields. On-chain cash holdings and collateral can be enhanced with tokenized treasuries. The GENIUS Act on stablecoins appears in good shape for passage, opening up the market for greater stablecoin adoption and participation.

The U.S. government has a new potential multi-trillion dollar customer for U.S. treasuries, providing much-needed demand for U.S. debt, which has become a chess piece in global trade. Circle (and other stablecoin issuers) are enjoying a good carry scenario, although near-term profitability has significant interest rate risk, now under the watchful scrutiny of CRCL shareholders and analysts.