On November 8, Bloomberg cited anonymous sources as saying that Circle, the issuer of the stablecoin USDC, is in talks with consultants and is considering listing in early 2024.
Looking back, Circle's road to listing has been bumpy, and it even pressed the "pause button" at one point. Behind the revelation that it may fight for an IPO again, its flagship product USDC is facing many challenges such as regulatory uncertainty and a sharp drop in market value. Whether it will restart its listing and whether it will succeed is still a big question mark.
The restart of IPO is still unknown, and the backdoor listing was terminated after multiple delays
Bloomberg reported that people familiar with the matter revealed that Circle is in talks with advisers to prepare for a possible IPO. However, the deliberations are still ongoing, and it is uncertain whether Circle will decide to go public, and it is not clear how much valuation Circle hopes to get through the IPO.
However, according to the fact that Circle raised US$400 million from financial institutions such as Goldman Sachs, BlackRock and Fidelity at a valuation of US$7.7 billion in 2022, its valuation has shrunk significantly compared with before.
As early as July 2021, Circle announced that it would merge with SPAC company Concord Acquisition (CND.US) to be listed on the New York Stock Exchange, and the transaction is expected to be completed in the fourth quarter. According to the terms of this merger, Circle's valuation will reach US$4.5 billion. More than half a year later, riding on the rapid growth of the market share of its main business stablecoin USDC, Circle announced that it had reached new transaction terms with Concord Acquisition, and the valuation was increased to US$9 billion. At the same time, Circle Chief Financial Officer Jeremy Fox-Geen also stated that regardless of market conditions, Circle will be listed through SPAC by the end of 2022.
However, Circle has been stumbling on the road to listing, and the acquisition deal has been repeatedly postponed. The terms of the transaction, which was originally scheduled to be completed on June 10, were postponed again for 6 months to December 10. As the agreed transaction time approached, Concord announced in November 2022 that it planned to postpone the acquisition transaction to the end of January 2023 because the Concord board of directors believed that there was no time to hold a special shareholders meeting to approve the transaction. But compared with the first postponement, this delay of nearly seven weeks has led the market to speculate that the reason why Circle has not completed the transaction is more likely to be procedural problems rather than the current unfavorable market environment.
In December 2022, Circle announced the termination of the SPAC merger agreement and obtained the approval of the Concord and Circle boards of directors. For this reason, Circle also admitted in January this year that it was the US SEC that "destroyed" its SPAC listing plan, not the turmoil in the crypto market. "Because the SEC has not yet declared our S-4 registration (S-4 registration refers to the registration document that a company must submit to the SEC to seek permission to issue new shares) valid, the business merger cannot be completed before the expiration of the transaction agreement."
That is to say, from the first SPAC listing application in 2021 to December 2022, Circle did not receive a response from the SEC within 15 months of application review. In this regard, people familiar with the matter said that Circle wasted a lot of time during this period, but the "regulatory confusion" in the United States' interaction with crypto companies was prevalent for most of 2021.
However, while Circle was disappointed that the proposed transaction timed out, its CEO Jeremy Allaire also said that making Circle a public company remains part of its core strategy to enhance trust and transparency.
USDC market value almost halved, coupled with regulatory risks, Circle faces many obstacles in listing
As the crypto market has recovered, although the news of Circle's listing has given the market optimistic expectations, Circle's listing faces many obstacles.
On the one hand, the market share of stablecoin USDC is constantly shrinking. According to CoinGecko data, as of November 8, the total market value of USDC has dropped by about 45.2% compared with the beginning of this year, and even almost halved from its historical high, and its market share has also fallen from 33.26% to 19.94%. On the other hand, the market share of competitors such as USDT and DAI is constantly expanding, and the entry of traditional payment giants such as Paypal has also intensified the competition in the stablecoin track. In fact, since the USDC de-anchoring storm caused by the run on Silicon Valley Bank at the beginning of this year, a large amount of funds have flowed out. For example, MakerDAO has launched an emergency proposal to limit USDC exposure.
The green line in the figure is USDC Source: CoinGecko
In response, Circle has also made a number of business adjustments. For example, in June this year, Circle restarted the purchase of U.S. Treasury bonds as USDC reserve assets to protect USDC from the potential impact of U.S. debt defaults; in July this year, Circle said it had made small layoffs to maintain a "strong balance sheet" so that it could "focus on core business activities and execution", and at the beginning of this year, its chief financial officer Jeremy Fox-Geen also said that it plans to increase the number of employees by 25% to achieve expansion; in August this year, Coinbase took a stake in Circle to continue its long-term successful adjustments and investments in stablecoins (especially USDC). At the same time, USDC also plans to deploy USDC on six new blockchains including Polygon PoS, Base, Polkadot, NEAR, Optimism and Cosmos; in the same month, Circle also launched an ecosystem funding program to provide up to $100,000 in USDC funding support.
On the other hand, the regulatory trend surrounding stablecoins has become stricter. Since the beginning of this year, the United States and other countries have increased their supervision of stablecoins. For example, BUSD was previously eliminated due to the US SEC's regulatory crackdown. In response, Circle began to expand its markets outside the United States, including obtaining a Singapore payment license and planning to issue stablecoins in Japan. At the same time, Circle has also invested heavily in lobbying legislators. Since the end of 2021, Circle has cooperated with strategic consulting firm Invariant to lobby, and has spent at least $560,000 since then. The company's quarterly lobbying budget is currently $100,000. However, as the future regulation of stablecoins becomes clearer and even landed, compliant stablecoins may usher in development opportunities, and with the golden signboard of "compliance and transparency", Circle is the stablecoin issuer with the most compliance licenses.
However, in addition to USDC, Circle has disclosed that its core businesses also include equity crowdfunding platform SeedInvest, trading and financial services (TTS), etc., of which TTS accounts for 56% of Circle's revenue, and USDC's revenue has not been disclosed. However, SeedInvest was sold to crowdfunding platform StartEngine in October last year, and Circle hopes to focus on developing stablecoin products. At the same time, Circle's revenue has also increased significantly compared to last year. According to the latest financial data released by Circle, revenue in the first half of 2023 was US$779 million, which has exceeded the US$770 million for the whole year of 2022. Circle's adjusted EBITDA in the first half of the year was US$219 million, which also exceeded the full-year revenue of US$150 million in 2022.
In general, although Circle's revenue has improved, it still faces regulatory risks and the dilemma of the declining size of USDC. There is great uncertainty as to whether its IPO restart can go smoothly.
