Circle, sought after by Goldman Sachs, Baidu and Bitmain, declares war on US regulation
In the past two months, Bitcoin has more than doubled from $4,200 to nearly $9,000.
But on the other side of the industry’s entry into the bull market, the encrypted payment “unicorn” Circle, which has been seeking compliance in the United States, has been covered with a layer of frost.
On May 22, Circle CEO Jeremy Allaire announced on Twitter that the company had laid off 30 employees. This figure accounts for about 10% of the total workforce.
The scope of layoffs involves financial and product personnel. Allaire said frankly that the layoffs are in response to the increasingly stringent regulatory environment in the United States.
Since 2013, Circle has obtained the first Bitcoin payment license from the New York State Department of Financial Services, which is known for its strictest regulation.
For 6 years, Circle's business has covered bitcoin payments, exchanges and the issuance of stable currency USDC. However, limited by the constraints of the US federal securities laws, Circle's process of doing all this is difficult.
An example is that recently, due to the contraction of regulatory policies, Circle’s exchange has delisted 9 cryptocurrencies that are considered to be close to securities.
“US crypto policy needs to change,” Allaire exclaimed in a public blog post. This "unicorn", which has been running wildly on the road to compliance, finally couldn't help but point its sharp horn at the regulatory regulations that have not been loosened.
Circle has always attracted the attention of the Chinese market. One reason is its status in the encrypted payment industry. The most important thing is that it has received US$256 million in investment from Goldman Sachs, Baidu, IDG, etc., with a valuation of US$3 billion.
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"Bull market" layoffs
When announcing the 30 job cuts, Allaire said they were "removing" them, meaning Circle doesn't plan to fill them anytime soon.
"The job cuts were made in response to cost cutting, new market conditions and most importantly an increasingly stringent regulatory environment in the United States," Allaire wrote.
Layoffs were one of the hallmarks of last year's cryptocurrency bear market. Unlike general companies who "play Tai Chi" when talking about the reasons for layoffs, Allaire does not shy away from announcing the challenges the company is facing.
In 2013, Allaire and Sean Neville co-founded Circle in Boston, USA. Initially, Circle was positioned to support cryptocurrency payments, which can be understood as the "Alipay" of the cryptocurrency industry.
Before founding Circle, Allaire founded Brightcove, an online video platform, which was successfully listed on Nasdaq. Therefore, when they heard that Allaire was about to start a new project, Brightcove's former investors decided to continue to support Allaire and gave Circle a $9 million Series A round of financing.
Compared with today's ICOs that cost hundreds of millions of dollars in the currency circle, $9 million is a small amount. But at that time, the encrypted digital currency industry was already the largest financing. Coinbase, the current US digital currency trading giant, only raised $5 million at the time.
After that, Circle began to expand its payment territory.
There are several types of usage scenarios supported by it. One is to use digital currency between B2C merchants and customers, which can reduce bank settlement fees caused by refunds; users also use digital currency for cross-border transfers. The biggest advantage is The handling fee is cheaper than bank transfer; there is another category, it is said that Circle can also provide services in dark web consumption such as "Silk Road".
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No cost for "compliance"
If regulatory agencies such as the SEC are the class teachers of the US cryptocurrency industry, then Circle is undoubtedly one of the best students in the class, and its attitude towards regulatory policies has always been very positive and patient.
As early as its inception in 2013, Circle hired John Beccia, former chief regulator of the Financial Services Forum in Washington, D.C., as general counsel and chief compliance officer.
Not long after, Circle obtained a BitLicense from the New York State Department of Financial Services, which is known for its strictest regulation. Six years have passed, and New York State has only issued 16 BitLicenses.
In 2017, Circle spent $400 million to acquire the exchange Poloniex, provided that it has an ATS license issued by the SEC.
After acquiring Poloniex, the first thing Allaire did was to delist tokens on the platform that may be suspected of illegality, although this "violation" is only a potential possibility.
Allaire is so "loyal", "We are making our own compliance decisions, because you can't call the SEC and ask the SEC, is a certain token a security. It is a wise way to take it off the shelf."
Although cautious, butcher knife did not let Poloniex go.
On May 13, Poloniex announced that the platform will delist 9 cryptocurrencies from the pages of US users by the end of this month at the latest. Because these tokens — ARDR, BCN, DCR, GAME, GAS, LSK, NXT, OMNI, and REP — are already close to securities under U.S. law.
"Already close to securities" means that these cryptocurrencies have the attributes of securities but have not been registered as securities with the SEC in accordance with the law, that is, they may now be illegal. Once discovered, the SEC (US Securities Regulatory Commission) will punish the platforms that issue and sell these cryptocurrencies.
In November last year, cryptocurrency projects Paragon Coin and CarrierEQ encountered regulatory penalties. At that time, the SEC determined that these cryptocurrency issuances were securities issuances and believed that they did not meet the conditions for exemption from securities registration, so they decided to impose a fine on them, giving investors in the project the right to return the original principal plus interest in legal currency, and requiring these Project re-registration of securities, ongoing disclosure to the SEC, and more.
The US SEC regards all digital assets with financing purposes as securities, and the issuance and sale of securities can only be done in two ways:
One is to register securities with the SEC in accordance with Section 5 of the Securities Act of 1933;
The second is to meet certain exemption conditions without registering with the SEC, but still subject to SEC supervision. The so-called "exemption conditions" are to meet the various conditions fixed in the US JOBS Act (Jumpstart Our Business Startups Act, also known as the "Entrepreneurship Support Act"), such as assets issued through this channel have at least 6 months of lock-up period and so on.
As of October 2018, the US SEC has only approved a total of 39 financing projects, and the review is quite strict.
Under strong supervision, many ICOs began to avoid the United States, which led to a significant decline in the number of ICO projects in the United States in 2018. On the contrary, countries such as Singapore have attracted a large number of emerging projects because of their sound and loose policies (such as sandbox supervision).
Strong regulation is taking away Poloniex's users and fee income. If the project is not in compliance, naturally it cannot be traded online. In the highly competitive exchange market, if you cannot launch the latest and popular projects according to user needs, you will undoubtedly cut your own arms.
Back in October 2017, Poloniex was a struggling exchange built by altcoin mining firm Tristan D'Agosta. The problem it faced at the time was that due to the surge in the number of digital currency projects, users asked the platform to provide trading services, and the Poloniex team was struggling with operations (such as maintaining encrypted digital wallets), supervision (the SEC's views on many project tokens are not clear) and Compliance (such as conducting KYC customer information checks) was exhausted and chose to sell Poloniex.
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"Declaration of war" on US regulators
Now, the top student seems to have entered a period of rebellion, losing patience with policy lags and obstacles.
“We won’t sit idly by while innovators are driven out of the US,” Allaire exclaimed in a blog post, “US crypto policy needs to change,” two weeks after Poloniex delisted the digital currency.
It was 4 years ago that Allaire wrote the last blog. In that blog, Allaire talked about the vision of blockchain technology in the era of P2P payment. Four years later, this beautiful vision is no longer there. There are only sighs about "the road is long and difficult" and silent complaints about supervision.
Allaire also wrote in the article "US Encryption Policy Urgently Needs Change":
“We are deeply dismayed by the moves to delist tokens, but they are a direct result of recent policy changes. In recent guidance, U.S. regulators have become clearer about many cryptocurrencies being classified as securities. We don’t think They should be considered securities, but we are subject to U.S. law. Our decision to delist tokens represents our responsible response to the uncertain regulatory environment in the U.S.”
"We are taking the fight for crypto to Congress! We are taking the crypto fight to policymakers globally."
From the perspective of a practitioner in the cryptocurrency industry, Allaire's "manifesto" is quite passionate.
“We urge the U.S. to implement a more balanced crypto policy (meaning it’s too defensive right now). We — including Circle and many other innovators working around the clock in the U.S. and overseas — have been changing crypto and blockchain for years. The possibilities of on-chain technology have been relentlessly vocal about it. Unfortunately, regulation has not kept pace.”
“Cryptocurrencies represent a whole new class of financial instruments that go beyond simple categories like securities, commodities, or currencies. Depending on context and use, many digital assets occupy the characteristics of one, two, or all three categories. Innovative technologies require new regulatory framework."
“Without action by the U.S. Congress, the SEC would have had to rely on 85-year-old laws and 73-year-old court cases to determine which cryptocurrencies may be considered securities, but these regulations are insufficient to address the current problems of cryptocurrencies.”
“We understand that it takes time to understand the consequences of new technologies and that new laws need to be carefully drafted. But innovation happens fast and global competition is fierce. We don’t want America to be left behind. We urge lawmakers to recognize the The economic power that innovation unleashes, MPs want economic growth, so I hope they take the lead in seizing that opportunity."
“This is an issue that concerns everyone in the industry, and the corresponding legislation, industry governing bodies. Regardless of the grim regulatory outlook in the United States, we — and entrepreneurs around the world — are committed to building a more open global economy. We remain In awe of how the cryptocurrency and blockchain industry has grown in just 10 years and looking forward to what the future holds."
"Circle is at the cusp of the storm and may have an extraordinary impact on the drafting of rules for this emerging industry." Some industry insiders commented on Allaire's "remonstrance".
The attitude of the United States is also a reference for many countries to formulate regulations. How fast the cryptocurrency ship can sail may be seen in the near future.
In December last year, U.S. Representatives Warren Davidson and Darren Soto proposed the Token Taxonomy Act, which aims to exempt digital currencies from the federal securities laws and allow individuals to more easily participate in cryptocurrency trading.
But Congress did not pass the bill. In April, Warren Davidson reintroduced the bill to Parliament.
If the bill is approved by Congress and signed into law, it will "send a strong signal" to innovators that "the United States is the best destination for blockchain technology," he said in a statement.
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Circle enters China
Time goes back to 2015, when China's Internet giants have entered the fierce battle period of mobile payment. The United States missed this revolution because of its complex banking system and convenient credit card payment. However, the digital currency payment that bypasses the banking system represented by Circle may be the germ of the next revolution.
Goldman Sachs - the most powerful player in the financial industry - naturally sees this.
On April 30, 2015, Circle received USD 50 million in Series C financing led by Goldman Sachs Group and IDG China. Up to now, Goldman Sachs' olive branch is still a major sign that the encrypted digital currency industry is recognized by traditional financial groups. Since then, wherever Circle is mentioned, such a label will be added - The Goldman Sachs-backed firm (a company with a Goldman Sachs background).
Founded 150 years ago, Goldman Sachs is a multinational investment bank and financial services company and one of the largest investment institutions in the world. In addition to Goldman Sachs, this round of financing for IDG revealed another calculation of Circle.
Zhou Quan, managing director of IDG Capital Partners, once said, “We are very excited about (Circle’s) investment. China pays special attention to Circle and hopes that its services can be further internationalized. So we will help it launch in the Chinese market, (from In terms of experience in the US market) users' usage of digital currency payments is growing at an alarming rate."
Circle's move into China soon began. Zhou Quan not only joined Circle's board of directors himself, but also brought in a group of Chinese VCs and Internet giant Baidu.
At the end of June 2016, chaebols from China announced that they would inject $60 million into Circle. These investors include IDG China, Baidu, Zhongjin Jiazi, Everbright Investment, Wanxiang and CreditEase. Also participating in the vote are former IBM chairman and CEO Sam Palmisano and others.
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Pay the Abacus Lost
What is frustrating is that when Circle was still running to obtain a payment license in China, Chinese payment service providers fought a money-burning subsidy war (such as using "Alipay" to get cash back), and the popularity of domestic mobile payment Greatly accelerated, leaving no chance for the innovation of digital currency payment.
Around the world, the smug Circle Pay has also reached an impasse for various reasons. Allaire laid bare the defeat in an interview with Circle on its fifth anniversary.
“Circle’s goal is to provide consumers and businesses with a more secure, low-cost payment method using Bitcoin. But this is easier said than done. Merchants who accept digital currency payments gradually lose interest. Looking back at 2016. The developers did not innovation stagnated, many ideas, important milestones were not realized,” Allaire said.
By December 2016, Circle Pay canceled most of its bitcoin payment services, shrinking it to the vertical scenario of cross-border payments.
"Allaire played down the role of Bitcoin (payment) in Circle's business and started to do more about making money." Cryptocurrency industry media Coindesk wrote after an interview with Allaire.
As cryptocurrencies began to recover in 2017, so did Circle's business. In addition to the continuous operation of Circle Pay, Circle has developed three new businesses: Circle Trade, which provides digital currency over-the-counter transactions; Circle Invest, which provides digital currency investment products for retail investors; and the acquisition of Poloniex, a compliance exchange in Boston, Became a trader.
After the currency price peaked in 2017, it declined steadily in the following year. But 2018, which is in a bear market, is still of great significance to Circle.
On May 15, 2018, Circle received US$110 million in Series E financing led by Bitmain, and IDG and other old shareholders followed suit. The post-investment valuation was close to US$3 billion.
At the same time, Circle and Coinbase have cooperated to issue USDC, a stablecoin anchored to the US dollar, which is also flourishing under the strong endorsement of large companies, various compliance measures and the blessing of large exchanges.
In March of this year, Circle made another move to acquire SeedInvest, a compliant equity crowdfunding website in the United States.
In Allaire’s words, Circle’s vision for SeedInvest is that after the regulator’s attitude towards cryptocurrencies becomes clearer, it will tokenize the equity on SeedInvest and start a bold attempt at “currency reform” for traditional enterprises.
As in the past, Circle has never lacked imagination, but how much value it can create in the future, the control is likely to be firmly in the hands of US lawmakers.
