The News: USDC stablecoin issuer Circle raised $400 Million from BlackRock and Fidelity ahead of a planned December 2022 IPO via SPAC merger. Circle and BlackRock also entered into a strategic partnership to explore capital market applications using USDC. Read the full announcement from Circle here.
USDC Stablecoin Issuer Circle Raises $400 Million from BlackRock and Fidelity
Analyst Take: The news of USDC stablecoin issuer Circle raising $400 million from BlackRock and Fidelity definitely caught my eye this week. What’s most interesting is that Circle continues to move from strength to strength, and the combination of raise and strategic partnership positions Circle for continued growth ahead of its planned December 2022 IPO.
USDC is the second largest stablecoin by market capitalization and one of the fastest growing. The market capitalization of the USDC stablecoin grew 370% over the past year. The company’s rapid growth allowed the firm to renegotiate its planned SPAC IPO, doubling the valuation from $4.5 billion in July 2021 to $9 billion in February 2022.
With the investment and strategic partnership, BlackRock will become the primary asset manager for the USDC reserves. The stablecoin is today managed by Circle and backed by a mix of cash and short-dated U.S. government obligations, but that wasn’t always the case. As recently as August 2021, a riskier mix of investments backed USDC. What I believe is important not to miss here is the fact that appointing BlackRock, the world’s largest money manager, as the asset manager will instill further confidence in the stablecoin.
The partnership also creates a cleaner separation of duties. Circle is primarily a financial technology company, not an asset manager or financial services firm. It only holds money transmitter and virtual currency licenses in the U.S., not banking licenses or related financial services licenses.
That’s in contrast to competitor Paxos, which holds many licenses including an OCC National Trust Charter. Paxos is already active on Wall Street. This is the first glimpse we’re getting of how Circle plans to make its foray.
Crypto Comes for Wall Street — A Look at the Different Approaches in Play
Paxos recently completed a two-year equities post-trade settlement feasibility study under an SEC no-action letter with major banks including Credit Suisse, Bank of America, and Societe Generale. During the trial, the company settled live bilateral delivery-versus-payment trades in U.S. equities every day, something previously impossible in securities trading. The company is awaiting SEC review of its application to become a registered clearing agent in anticipation of a production clearing system.
That approach is core to Paxos’s playbook – to be “a highly regulated financial institution with regulated product lines.” They’re bringing crypto to Wall Street as a peer, as another regulated institution.
Circle is taking a different approach. They’re bringing crypto to Wall Street as a more lightly regulated fintech, partnering with more heavily regulated and established institutions in order to build the trust needed for crypto to be used in the traditional financial world.
I think both companies are demonstrating compelling strategies. Both recognize the need for regulatory oversight of these new crypto-powered products, yet they’re simply taking different paths to ensure it happens. Paxos is building and Circle is partnering.
I expect the retail investor to be the ultimate winner. The new crypto-powered infrastructure can be faster, cheaper, and less risky than what we have today. I think a prominent stablecoin issuer like Circle raising $400 million to further that vision is great for Circle and equally great for the industry at large.
Disclosure: Futurum Research is a research and advisory firm that engages or has engaged in research, analysis, and advisory services with many technology companies, including those mentioned in this article. The author does not hold any equity positions with any company mentioned in this article.
Analysis and opinions expressed herein are specific to the analyst individually and data and other information that might have been provided for validation, not those of Futurum Research as a whole.
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Jared is an Analyst in Residence at Futurum Research, where he helps guide our practice in all things Web3, the Metaverse, and cryptocurrencies so as to help business leaders understand how they work, why they matter, and how they can not only get involved, but become market leaders along the way.
Jared previously co-founded and served as President and Board Member of Triple Point Liquidity, a blockchain-based fintech startup serving alternative asset managers, their investors, and fund administrators. Prior to Triple Point, he held multiple roles at IBM including leading Digital Assets at IBM Blockchain, leading corporate development for Industry Platforms, and founding Watson Risk & Compliance.
Jared is author and podcast co-host at Fat Tailed Thoughts and serves as a trustee for The Williams School.
Jared holds an AB from Dartmouth College.