Can Circle, which has abolished the divestiture business and focused on stablecoins, win the "gamble" this time?

Text | Edited by Zhou Wenyi | Bi Tongtong Source | PANews

Six years after its establishment, the unicorn Circle has reached a fork and made strategic adjustments again.

On December 17, Circle's official blog announced the sale of the Circle Trade OTC business to Kraken, saying that the company will focus on the stablecoin business in 2020. This time, Circle has made another "cutting" adjustment to its business after canceling its social payment application Circle Pay support, suspending the Circle Research project, and splitting the exchange Poloniex.

In addition to the business sector, the Circle team organization has also been "slimmed down". Among them, Sean Neville, the co-founder of Circle, will step down as co-CEO and participate in the board of directors only as an independent director. Also leaving the team are chief financial officer Naeem Ishaq and chief legal counsel Gus Coldebella.

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History of Blockchain Unicorn Circle's Attack

Since its establishment in 2013, it mainly provides Bitcoin storage and fiat currency exchange services. Circle has entered the "blockchain unicorn club" and has developed smoothly all the way. It has been favored by many well-known institutions including Goldman Sachs and Baidu. According to PANews statistics, so far Circle has raised a total of 246 million US dollars.

In early 2013, Circle received $9 million in Series A financing led by General Catalyst. This financing also set a record for the highest financing amount in the history of a cryptocurrency company at that time. In March 2014, Circle received a $17 million Series B round of funding led by Breyer Capital and followed by General Catalyst. In April 2015, Circle received $50 million in Series C financing led by Goldman Sachs and followed by Accel Partners.

At the end of 2015, Circle made a social transformation of its Bitcoin application Circle Pay. At that time, Circle Pay was similar to WeChat Pay and could support Bitcoin buying and selling and transfer transactions. In 2016, Circle opened the market doors of the European Union and China successively, engulfing a large amount of funds and users along the way. Circle, which was booming at that time, had a transaction volume of more than US$1 billion in 2016, and the number of users increased by more than 1,000%.

Since 2016, Circle began to expand the Chinese market, trying to carve up the payment business from Tencent and Alibaba. In June of the same year, Circle received US$60 million in Series D investment and completed the building of its business team in China. This round of financing was led by IDG Capital, with Baidu, Breyer Capital, General Catalyst, CICC, Everbright Investment, Wanxiang Group and CreditEase also participating in the follow-up investment, with a valuation of approximately US$480 million. (Related reading: Exclusive Dialogue | Trade Secrets of Blockchain Unicorn Circle)

Circle is favored by investors, and its compliance license may be an important bargaining chip. In September 2015, Circle obtained the first digital currency license BitLicense issued by the New York State Department of Financial Services, which means that Circle can provide digital currency services in New York State with a license. At present, it has the payment licenses of the United States, the United Kingdom and the European Union and the BitLicense of New York State. It is the company with the largest number of global licenses in the encryption asset industry. It also has compliance channels for US dollars, British pounds, and euros to enter and exit encrypted assets.

With the double blessing of funds and licenses, Circle has become a dazzling star in the encryption field, and was once regarded as the "American version of Alipay".

However, its bitcoin payment business encountered a bottleneck. On December 7, 2016, it announced that it would "abandon the bitcoin business", but it still used the underlying blockchain technology of bitcoin, and launched a platform called "Spark", which can realize zero payment. Fees and zero exchange rates for foreign exchange transfers.

It was also from this year that Circle shifted its focus to the cryptocurrency market and launched various products one after another. These include the Bitcoin transfer service in iMessage that supports Apple IOS 10 and Circle Invest, a mobile application for personal encryption asset investment.

In October 2017, Circle officially launched "Circle Trade", which is also its first business established and launched in Asia, providing institutions with large-value digital currency transactions.

In February 2018, Circle acquired Poloniex, one of the world's largest digital currency exchanges at the time, for $400 million. Despite mixed reviews, the acquisition is an important step for Circle in taking on the fat of cryptocurrencies. The acquisition of Poloniex means that Circle has expanded the OTC trading of encrypted assets to the on-site market. In addition to greatly improving its ability to attract money, it can also greatly expand the user scale and user types.

In May 2018, Circle completed a US$110 million Series E round of financing led by mining giant Bitmain. After this round of financing, its valuation soared to US$3 billion.

Immediately afterwards, in the second half of 2018, Circle and Coinbase launched the Centre-based US dollar stablecoin USDC, and successively launched the US dollar-anchored stablecoin USDC and the platform for USDC deposits and fiat currency conversion to test the waters of stablecoins. Through Centre, Circle is gradually making a fuss about cross-chain and cross-digital asset conversion.

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How can Circle be reborn after abolishing the spin-off business?

If it is said that the development of Circle before 2018 can be said to be sailing smoothly, but entering 2019, Circle has gone through a particularly bumpy road.

In March of this year, Circle laid off about 30 people in its finance department, accounting for about 10% of the total workforce, and its off-site business has also been affected by a brain drain, including its former OTC head Ryan Salame. Circle attributes this to the challenging regulatory environment in the United States.

In the first half of 2019, Poloniex, Circle's core business exchange, was also turbulent. Due to the continuous regulatory turmoil, in May 2019, Poloniex was forced to delist 9 cryptocurrencies, and in October, it delisted 6 cryptocurrencies again, losing a lot of profits. Circle CEO Jeremy Allaire has publicly expressed displeasure with U.S. regulators several times.

In the second half of this year, the passive situation evolved into a layer-by-layer divestiture of its business.

Since June this year, Circle began to "slim down" and was forced to slash the former country with a knife. In that month, Circle announced that starting from July 8, the Circle Pay service will gradually cancel support for user payments and charges, and finally completely cancel all support for Circle Pay on September 30.

On September 25, Circle published an article on its official website stating that it would suspend the Circle Research project.

In October 2019, Bermuda became the first government to accept USDC as payment for taxes and other government services. Earlier in July, Circle announced that Poloniex had obtained a Bermuda digital asset business license. In the same month, the Poloniex team and leadership separated from Circle and established a new independent international company, Polo Digital Assets Ltd. The main business of Poloniex gradually shifted to Bermuda. With the backing of an Asian investment group, the spin-off could reap huge benefits.

On December 17, Circle sold its OTC desk, Circle Trade, to the exchange Kraken. Another media report said that since this summer, Circle has been looking for buyers for its OTC platform. Circle’s OTC platform had $24 billion in trading volume in 2018.

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Aiming at stable currency, can USDC work?

According to the official statement, from 2020, Circle will support global payment, custody and stablecoin wallet APIs, providing low-risk, high-efficiency infrastructure services for global enterprises and developers.

For targeted stablecoins, there are already clues. Since the hearing on "Reviewing the Regulatory Framework for Digital Currency and Blockchain" in July, Circle CEO Jeremy Allaire has realized that the current U.S. regulatory environment is still unclear, and it is difficult for cryptocurrencies to get out of regulatory shackles, while stablecoins are legal tender and The intermediate bridge of cryptocurrency will be the key cornerstone of the future digital economy.

Jeremy Allaire has publicly stated that Circle will focus on issuing a single fiat currency stable currency, and its long-term goal is to establish a global digital currency, backed by major fiat currencies and Bitcoin, making it a global transaction and commercial currency. The most attractive currency in terms of

According to data from DAppTotal.com, as of December 18, the USDC stablecoin market totaled US$46.405 billion, accounting for 8.11% of the market, ranking second. Its supply has grown by roughly 81% since late October. However, the market share of the first USDT has reached more than 80% of the total market, basically dominating the market, and the market Matthew effect is significant. In 2017, the transaction volume of USDT reached 107 billion U.S. dollars, and in 2018 it broke through the trillion U.S. dollar mark.

Undoubtedly, stablecoins have long been established as the cornerstone of the encryption ecosystem, and have outstanding advantages in cross-border payment settlements, agency fiat currencies, etc., but there are especially risk factors relative to them. If USDC wants to sail on the sails of the stable currency, it still needs to take advantage of the regulators.

But daring to bet on stablecoins with the momentum of breaking the boat, Circle does hold an important weight-regulatory compliance. Circle has done a lot of work in regulatory compliance, in addition to winning the first digital currency government licenses in New York State and the United Kingdom; the company has built its own internal legal compliance team, and actively cooperates with regulators in anti-fraud and KYC. In terms of regulatory compliance, it happens to be the weakness of USDT, the leading stablecoin. Circle's CMO Marieke Flament once told PANews, "In the field of blockchain, the way to sustainable development is service regulation." Stable coins will become a trend.

The DeFi field is also an important application market for USDC. PANews previously pointed out in the article "Ethereum DeFi Lending Status: Maker Becomes the "Central Bank" User Financial Needs Are Booming" that Maker, CompoundV1/V2, Dharma and dY/dX's loans in the past month USDC has become the second largest lending asset, accounting for 20%, and it has the most borrowing among all fiat currency stablecoins. Pan Chao, the head of Maker Dao’s Chinese community, analyzed to PANews that this is related to Circle and Coinbase behind it, “Circle and Coinbase, the issuers of USDC, have the usual US dollar exchange channels, regulatory advantages, credit guarantees, and 100% reserves. Others Stablecoins, such as USDT, are risky, and people are unwilling to hold them for a long time, and the US dollar channel is not smooth, and the main users of DeFi are still US dollar holders.”

Whether USDC, which ranks second, can surpass USDT in one fell swoop, and whether Circle can recreate its glory in the stablecoin business is still unknown.