Circle's exploration in the digital financial world: a bumpy journey, and finally find USDC
Original title: "Multiple transformations, setbacks in entering China, the capital bureau behind the USDC issuer"
Written by: Moon
"There is no greater luck in a man's life than in discovering his mission in life in the middle of his life, that is, in the prime of life."
Zweig wrote in "When the Human Stars Shine".
Everyone has to climb several mountains and cross several rivers in his life to find the mission of his life, and the same is true for companies.
On July 8, 2021, Circle, the issuer of USDC, announced that it plans to merge and go public with a special purpose acquisition company (SPAC), with a valuation of $4.5 billion.
Looking back on the development history of Circle since its establishment in 2013, it has been a bumpy journey. It has done wallet payment, OTC, cryptocurrency exchange, and stable currency. It has paid a heavy price. The valuation in the bear market once fell by 75%. Finally found the long-term mission and direction - USDC.
Circle is lucky. In times of crisis, there are always noble people to help. Jim Breyer, General Catalyst, and IDG Capital have supported all the way, and Circle is where it is today.
This is a story about growth and capital in the blockchain world.
Serial Entrepreneurs Embrace Bitcoin
In 2013, Jeremy Allaire co-founded Circle, headquartered in Boston, with Adobe chief scientist Sean Neville, his third official startup.
Before that, he founded two listed companies in 1995 and 2012 respectively, software company Allaire and online video platform Brightcove, and accumulated deep network resources.
At the beginning of its establishment, Circle received US$9 million in Series A financing, setting the highest financing amount in the history of a cryptocurrency company at that time.
Investors include Jim Breyer, Accel Partners, and General Catalyst, all of which were investors in Brightcove, Allaire's previous company. Rather than investing in Circle, they are investing in Jeremy Allaire. .
At that time, Circle was known as the "American version of Alipay".
The initial product form of Circle is a digital currency wallet, which mainly provides cryptocurrency (Bitcoin) storage and legal currency exchange services, and uses Bitcoin to realize the rapid transfer of funds.
For example, using SWIFT for international transfers requires 3-5 working days for confirmation, but using Circle, you can rely on the path of "cash-bitcoin-cash" to quickly transfer money. In this process, bitcoin becomes the middle channel.
At this time, Allaire was a staunch believer in Bitcoin and believed that it was only a matter of time before a cross-border payment system was realized. He wants users to transfer and pay without too many obstacles, just like using emails and short messages.
Then, Circle sings along.
In August 2015, Circle received US$50 million in financing led by Goldman Sachs Group and IDG Capital. Since then, IDG Capital has become a "noble person" on Circle's growth path.
Why did IDG Capital participate in the lead investment in Circle?
This is inseparable from Jim Breyer, an early investor in Circle, who is famous for his early investment in FaceBook. He also has another identity-IDG's investment partner in the United States. On the recommendation of Jim Breyer, IDG Capital participated in the investment in Circle.
In September, Circle obtained the first digital currency license BitLicense issued by the New York Financial Services Agency, which means that Circle can provide digital currency services with a license in New York State.
Also in this year, China's mobile payment market was full of wars. WeChat relied on WeChat red envelopes to quickly squeeze out Alipay's market share. Circle on the other side of the ocean didn't just wait and see, but also launched social payment at the end of the year.
Looking at it at the time, it was a bold innovation attempt. Looking at it now, it may be due to its unclear positioning, which laid the groundwork for many subsequent transformations.
Enter China
2016 was a turning point in Circle's fortunes.
In April, Circle received an electronic payment license issued by the UK Financial Services Authority, which is the first time that the UK regulator has issued a license to a company operating cryptocurrency and digital asset businesses.
In June, the sun was like fire, and Circle successfully joined hands with Chinese capital, announcing the completion of the D round of financing of 60 million US dollars, led by IDG Capital, the lead investor of the C round. In addition, Baidu, Everbright, CreditEase, Wanxiang, CICC Jiazi Other Chinese companies followed suit.
Among them, IDG Capital led Circle C and D rounds consecutively, and joined its board of directors. IDG Capital founder and partner Xiong Xiaoge once commented on the investment:
Now domestic investment in Internet companies is basically investing in applications, not technology. A very important reason is that at present, there are more innovations in business models in China, but relatively few technological innovations. The American technologies invested by IDG Capital, such as Circle’s bitcoin blockchain technology, basically belong to the type of “the United States can do it, but China can’t do it now, or it can’t do it as well as the United States”.
However, although the technology is invested abroad, IDG Capital’s original intention is to bring cutting-edge technology to China one day and achieve substantial development. This is our “Chinese perspective” for investing in an American company.
The reason why Circle introduced many top Chinese capital is related to his plan to enter China at that time.
image description
From left: Li Tong, CEO of Seke China, Jeremy Allaire, founder of Circle, and Xiong Xiaoge, founding partner of IDG Capital
Founder Allaire said that Circle will operate under China’s regulatory framework and will not launch products rashly without government permission.
In addition, Circle has been communicating and sharing information with Chinese regulators, banks and other institutions. However, my country attaches great importance to financial security, and a third-party payment license is required to carry out payment business in China. Therefore, Circle's business in China has been stagnant for a long time, in name only.
According to the information from Qichacha, on August 15, 2020, Tianjin Shike Technology Co., Ltd. applied for simple cancellation, and officially canceled it on September 7, withdrawing from China.
Interestingly, Circle did not carry out actual business in China, but it once affected the stock price of A-share listed companies.
Perhaps IDG has too much influence on Circle. In 2018, the A-share market was once rumored that IDG was going to inject Cirle into its listed company "Sichuan Shuangma", which attracted a letter from the Shenzhen Stock Exchange. Sichuan Shuangma had to To clarify, this is speculation without factual basis, and the company has no plan to develop blockchain business.
Transformation: Exchanges and Stablecoins
In 2016, with the intensification of bitcoin forks and expansion disputes, Allaire gradually became dissatisfied with the stagnant development of Bitcoin. "Three years have passed, and the development speed of Bitcoin has slowed down a lot," said Allaire in an interview before. Said so.
On December 7th, Circle issued an announcement announcing that it would "abandon the Bitcoin business" and retain the transfer business of Bitcoin and U.S. dollars and other legal currencies, but users could not trade Bitcoin, and said, "Circle will shift its business focus to social payment. ".
But in fact, Circle’s overall development idea has shifted from payment to transaction. “Allaire played down the role of Bitcoin (payment) in Circle’s business and started to do more work on making money,” Coindesk once said reports.
What is the most profitable business in the field of cryptocurrency? exchange.
In 2017, Circle stated that although it canceled the function of directly buying and selling Bitcoin in the APP, it still made markets for large exchanges and launched Circle Trade, which provides OTC services for large amounts of encrypted assets for institutional customers.
In February 2018, Circle announced the acquisition of Poloniex, an encrypted asset exchange, for US$400 million, officially entering the field of cryptocurrency exchanges. The financing of this acquisition was led by its major shareholder IDG Capital.
In May, Circle continued to announce financing news, announcing that it had obtained US$110 million in financing, led by Bitmain, and continued old shareholders such as IDG Capital and Breyer Capital followed suit.
It is worth noting that Bitmain, which led the investment, was also invested by IDG Capital. According to Deep Tide TechFlow,It was the marriage of IDG Capital that led to Bitmain’s lead investment. At this time, IDG was already the largest institutional shareholder of Circle。
This investment is extraordinary for Circle. On the one hand, it is financing at an ultra-high valuation of US$3 billion after the investment. Less than a year later, its valuation fell by 75%.
Secondly, the second half of 2018 is about to usher in a tragic bear market. Both Circle and Bitmain will face the test of life and death. With this money, it has helped Circle to tide over the difficulties to a certain extent.
Armed with capital infusions, Circle has hit the ground running in an attempt to fully blossom.
In July 2018, Circle launched USDC, a stable currency anchored to the US dollar. Looking back, this is undoubtedly a historic moment. Circle made the most important decision for it.
In addition to the core exchange and stable currency business, Circle's layout has also begun to extend outward.
In October 2018, Circle acquired SeedInvest, an equity crowdfunding platform, and established Circle Research to output cryptocurrency industry news and reports.
So far, driven by capital, Circle has become a cryptocurrency group with diversified businesses: Circle Pay provides transfers; SeedInvest is used to raise funds; Circle Trade provides over-the-counter trading services; Poloniex provides trading services; USDC is a US dollar stable currency.
Everything looks beautiful, but as everyone knows, winter is coming.
Gray 2019, Broken Arm Survival
2019 is a gray year for Circle.
In February, Cointelegraph Japan was the first to disclose that Circle was valued at $705 million on SharesPost's stock trading platform. Nine months ago, Circle received a $110 million investment from Bitmain and was valued at $3 billion. In less than a year, the valuation plummeted by 75%.
In May, Coindesk reported that Circle had laid off 30 people, accounting for about 10% of the total number of employees, and then left three executives one after another.
But perhaps the most troublesome thing for Allaire was the encounter with Waterloo of Poloniex, which was acquired with a lot of money.
On May 13, 2019, Poloniex announced that it would delist 9 cryptocurrencies from the pages of US users. Because according to US law, these tokens are close to the concept of securities, but they have not been registered with the SEC, and there is a risk of violation. In October, 6 cryptocurrencies were delisted again, losing a lot of profits.
For this reason, Allaire publicly expressed his dissatisfaction with the US regulators several times, but he had no choice but to transfer Poloniex's business entity to Bermuda, which has a more relaxed regulatory environment. On July 23, Circle announced that P Network will obtain a Bermuda digital asset business license.
But this still can't stop Poloniex from losing the market continuously, from nearly 60% of the market share (in compliant exchanges) in 2017 to only 1% in September 2019.
Plunging valuations, setbacks in core businesses, brain drain... Circle once again stands at a crossroads of destiny. At the critical moment, Circle chose to break its arms to survive, and gradually divested its non-core business from the second half of 2019, focusing on the stable currency USDC.
In June, 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 announced in an announcement that it was suspending the Circle Research project.
In October, amidst the astonishment of the crowd, Circle sold its exchange business Poloniex, which belongs to "Polo Digital Assets" operated by an Asian investment company, and the participant behind it is Justin Sun, the founder of Tron.
Circle lost more than $156 million in its acquisition and subsequent sale of Poloniex, according to new SPAC filings。
On December 17, Circle sold its OTC desk, Circle Trade, to the exchange Kraken.
By 2020, Circle Invest, Circle's encrypted investment and trading application, will be sold to Voyager Digital in the form of equity.
So far, after a series of downsizing, Circle has transformed from a diversified cryptocurrency group into a USDC-focused stablecoin issuer, facing the challenge of Tether.
Finally find the mission - USDC
In the stable currency arena, USDT has always been in an unshakable hegemony, but in 2021, the situation began to change slightly.
According to TheBlock data, year-to-date, the entire stablecoin market has grown from $28.9 billion to $109.4 billion, an increase of more than $109.4 billion.
Among them, the total issuance of USDT increased from US$21.6 billion to US$64.2 billion, an increase of 296%, while the total issuance of USDC increased from US$4.2 billion to US$25.8 billion, an increase of 614%.
Under the impact of USDC, USDT's stablecoin market share has dropped from 74% at the beginning of the year to 58% today, while USDC's market share has increased from 15% to 23%.
From the perspective of the market, this is the victory of compliance and DeFi.
According to cryptocurrency expert Ryan Watkins, one of the main reasons for Tether's decline is that due to the increasing adoption of USDC by DeFi protocols, users can obtain high returns by using USDC to interact with DeFi protocols.
This year, Circe launched the DeFi API, allowing institutional users to access various DeFi protocols by accessing the API, thus becoming a bridge connecting traditional financial markets and DeFi.
Compound and Coinbase have successively launched USDC savings income products, with yields of around 4%, far exceeding the dollar yields in traditional financial markets.
And all this is due to the compliance and transparency of USDC, the founder Alaire is proud of:
USDC is both regulated and audited. This is important to ensure that stablecoins are pegged one-to-one to the U.S. dollar. So we have monthly statements from the largest accounting firm in the world, which ensures that the funds in circulation are backed one-to-one by dollars, and we store those dollars in segregated accounts at one of the largest dollar banking institutions in the world assets. Therefore, it can give USDC holders great confidence. Another difference is that you can go to Circle and Coinbase and convert it to USD anytime.
There are currently more than 25 billion USDC in circulation, and Allaire believes that there will be 190 billion USDC in circulation by the end of 2023.
Issuing stable coins is only the first step. Circle's ambition is to use the popularity of USDC to establish a financial service system based on USDC. For this reason, USDC will take more active actions in the future.
(1) Multi-chain expansion.
On June 30, Circle issued a draft announcement stating that USDC is expected to be issued on Avalanche, Celo, Flow, Hedera, Kava, Nervos, Polkadot, Stacks, Tezos and Tron in the next few months, which will greatly improve the transfer efficiency of USDC , while reducing costs.
(2) Broaden commercial applications.
According to Allaire, the fastest-growing use of USDC is as a lending asset. In addition, USDC is also used in digital games, online games, e-commerce and other markets. In March 2021, the credit card company Visa stated that it will allow the use of USDC to settle transactions on its payment network, and USDC is on its way out of the circle.
In May 2021, Circle announced the completion of $440 million in financing, attracting participation from institutions such as Fidelity, FTX, DCG, Marshall Wace, Valor Capital Group, Pillar VC, Intersection Fintech Ventures, Atlas Merchant Capital, and Willett Advisors.
Summarize
Summarize
Unlike Coinbase, which has been firm in its mission and direction from the very beginning, Circle has experienced a series of explorations in the digital financial world, gone through detours, paid a heavy price, and was on the verge of life and death. When I was "in the prime of life", I found my mission.
On the road of thorny exploration, Circle should thank its noble people.
Jim Breyer, Accel Partners, and General Catalyst have supported Jeremy Allaire and Circle from start to finish. Also because of Jim Breyer's recommendation, IDG Capital married Circle and became a staunch supporter on its growth path.
IDG Capital made multiple rounds of betting, and not only became Circle’s largest institutional shareholder, but also helped it acquire Poloniex and attract Chinese capital investment at critical moments. To some extent, there would be no Circle without IDG today.
Of course, all of this may be inseparable from Jeremy Allaire's successful business experience and personality charm. After all, the end point of investment is to invest in people.
