In response to a shrinking market share and increasing competition, Circle is strengthening its position with a $1 billion cash buffer to counteract challenges posed by dominant non-crypto entities like PayPal.
Circle’s USD coin faces market pressure
The move is in response to a concerning decline in the circulation of Circle’s USD Coin (USDC), dropping from $45 billion at the beginning of the year to $26 billion. In contrast, Tether’s USDT grew in the same period.
Circle’s CEO, Jeremy Allaire, noted that Binance, the world’s top crypto exchange, played a significant role in this decline by shifting away from USDC to promote BUSD a year ago.
Stablecoins have proven valuable for traders. However, their usage in everyday consumer transactions remains limited.
This is partly due to reduced investor trust following various scandals in the crypto industry.
One notable incident was Circle’s disclosure of its $3.3 billion exposure to the struggling Silicon Valley Bank (SVB) in March, which briefly caused the USDC to depeg.
Circle generates its main revenue by earning interest on assets supporting stablecoins, such as dollar deposits and short-term treasuries.
In the first half of 2023, the company reported revenue of $779 million, surpassing its total for 2022.
Circle’s CEO expressed confidence in the company’s financial stability, given that it has over $1 billion in cash as of June.
He noted that the unexpected increase in funding provides the company with substantial resources for investing, expanding revenue streams, creating new products, and pursuing global expansion effectively.
Circle’s CEO shares insights on its plans
Unlike competitor Paxos Trust Co, the company does not intend to offer white-label solutions. Instead, the focus will be on forming strategic partnerships to promote the broader adoption of the USDC.
Furthermore, despite potential Federal Reserve interest rate policy changes, Allaire remains optimistic about Circle’s prospects.
In line with the push for clarity, Circle has also taken proactive steps by appointing Deloitte as its auditor and committing to regular financial reporting. This move follows the recent termination of Circle’s merger plans with Concord Acquisition Corp.
Circle is also expanding its revenue sources, as evident from its recent launch of a crypto wallet service after its 2022 acquisition of CYBAVO.
According to Allaire, stablecoins are the future of online monetary transactions, and recent actions by PayPal are just the beginning.
The CEO predicts increased interest from online payment platforms and a wider range of financial service companies. However, the entry of more players may also lead to increased scrutiny and demands for traditional transparency measures such as audits.