Takeaways from the Circle IPO
The stablecoin issuer went public last week.
Circle Internet Group, a stablecoin issuer, went public earlier in June. Stablecoins are a cryptocurrency that is pegged at a 1:1 ratio with an ordinary currency like the U.S. dollar or Euro. Circle issues two stablecoins: USDC and EURC.
The company’s IPO was upsized in response to investor demand. In addition to selling 34 million shares in the public offering, Circle gave underwriters an option to purchase over 5 million more shares - a so-called “greenshoe option” - which was fully exercised by JP Morgan and Goldman Sachs, among other banks.
Since going public on June 6th, Circle’s stock has risen over 300% which gives the firm a market cap of roughly $37 billion. The stock opened on the NYSE at $69 per share after being priced (mis-priced?) at $32 per share by investment banks. They clsoed today at just above $150 per share. In total, Circle raised $1.2 billion to expand its stablecoin business. Here are some takeaways from the IPO and S-1:
Internet maximalism: In his founder’s letter, CEO Jeremy Allaire recounts his early fascination with technology including having an Apple II computer at home while growing up in the 1980s. The advent of the internet in the early 90s coincided with his completion of a college degree and an understanding that the free flow of information enabled by computer networks would be a stabilizing force in the world.
With this internet maximalism philosophy in mind, he and his co-founder Sean Neville became fascinated with bitcoin in 2012 which led to the founding of Circle, which initially launched as a stablecoin on the Ethereum blockchain in an attempt to create an “HTTP for money,” a reference to the foundational protocol for the internet, HTTP.
Regional banking crisis tie-in: Circle maintains reserves at a number of banks which included Silicon Valley Bank prior to its collapse. Operating a dollar-based token that is compliant with the web of KYC and AML regulations in the U.S. and abroad - rules that banks must follow to deter money laundering and financial crimes - means that Circle relies on a large number of banking partners to enable the flow of funds through its network. When Circle issues a stablecoin, it receives dollars and puts them into what is called “reserve.” The reserve accounts are comprised of dollar-based deposits held at banks along with investments into government debt.
In 2023, Circle held $3 billion in deposits at Silicon Valley Bank. SVB would ultimately collapse as a result of a regional banking crisis and be seized by the FDIC. Circle was briefly in danger of being unable to match its stablecoin obligations on a 1:1 basis; however the FDIC stepped in to backstop all deposits at SVB. While Circle was always able to fulfill stablecoin outflows during the 2023 regional banking crisis, customer concerns remained and, as referenced in Circle’s S-1, Circle lost business as a result: USDC circulation fell following SVB’s collapse.
2nd largest stablecoin: Tether is the world’s largest stablecoin. USDC, which partners with Coinbase, is the 2nd largest as measured by the amount in circulation. Partnering with Coinbase offers a KYC-complaint onboarding process and the possibility for wide distribution to retail users. This contrasts with the #1 stablecoin issuer, Tether, which as faced scrutiny for compliance issues and was reportedly subject of a federal criminal probe last year.
Tokenized Money Market Funds: Among the next frontier of products to be offered by Circle is a savings account for your stablecoin stash. Called a “tokenized money market fund,” these products offer yield on an investors stash of stablecoins. Pooled together and held in a separate account that invests in treasuries - with ownership denoted on the blockchain, or “tokenized” - these sorts of crypto-native offer parallels to banking services and are an indicator of where Circle sees opportunities to grow.
Yield on reserve assets: Earnings from the yield on government debt has generated billions in revenue for Circle but raises questions about the trajectory of future earnings if rates go down. 85% of reserves are in a government money market fund managed by Blackrock and custodied at BNY. From the WSJ, “The Circle Reserve Fund grew from more than $22 billion in 2023 to more than $37 billion in 2024, and the average yield rose from 4.89% to 5.09%. The rest of the reserves are in banks, which also earns a yield. Circle’s overall reserve income in 2024 was almost $1.7 billion.”
One aspect that is interesting is how Circle has its reserve assets custodied at BNY, one of the oldest banks in America. In his Founder’s Letter, CEO Jeremy Allaire describes the appeal of bitcoin as money for the internet in contrast to the banking system’s near collapse from the 2008 Great Financial Crisis. So there is a certain irony that in growing a thriving parallel dollar-based cryptocurrency network in a compliant manner, Circle is obligated to partner with banks in a variety of ways including one that was founded by Alexander Hamilton in BNY.
Time will tell if the stock market’s excitement for IPOs is isolated to crypto companies - the Trump administration has sought to make America into a “bitcoin superpower” - or whether overall conditions have eased for companies to go public. Ticket seller Stubhub reportedly delayed its planned IPO earlier this year; it may be reassessing those plans after taking a glance at Circle’s stock price.
