The issuer of USD Coin will not go public

Yesterday, the co-founder and CEO of Circle, the company that issues USD Coin, revealed the termination of the proposed deSPAC transaction. 

1/ Some big @circle news. This morning, we announced the termination of our proposed deSPAC transaction. While disappointing that we did not complete SEC qualification in time, we remain focused on building a long-term public company. https://t.co/R0XYfCFD54

— Jeremy Allaire (@jerallaire) December 5, 2022

Technically speaking, this is the mutual termination of the proposed business combination between Circle Internet Financial and Concord Acquisition Corp, a company listed on the NYSE under the ticker CND. 

The proposed business combination had been announced in July 2021, and then later amended in February 2022. In the event it went through, Circle would become a publicly traded company. 

The termination of the proposed business combination was approved by both the boards of Circle and Concord, but cooperation between the two companies will continue. 

Allaire said that Concord has been a strong partner during this process, and that they are disappointed that the deadlines for completing the aggregation have expired. Despite this, Circle is keeping alive the strategy of becoming a public company by going public, to improve trust and transparency. 

Circle and USD Coin

The company was created in 2013 by Jeremy Allaire and Sean Neville, and is based in Boston. 

It was initially funded by Goldman Sachs, but was later joined by BlackRock, Fidelity Investments, Marshall Wace, and Fin Capital. 

In 2018 it raised $110 million in venture capital to create USD Coin (USDC), a fully collateralized dollar stablecoin. 

In the third quarter of 2022 Circle had total revenue of $274 million, with $43 million in net income, ending the quarter with nearly $400 million in cash.

USD Coin

USD Coin, or USDC, is currently the second largest stablecoin in the world by market capitalization. 

Its price obviously has not been affected by the news of the failure of the merger with Concord, remaining always fixed around $1. 

During this year, however, its market capitalization has had two strong growths followed by two declines. 

The first growth was there from late 2021 through March 2022, with capitalization rising to $53.5 billion. 

Between April and early May it had then fallen all the way to below 49 billion, but with the implosion of the UST algorithmic stablecoin and fears about the resilience of USDT, by June it had risen all the way to over 56 billion. 

From July it began a decline to 42 billion in early November, before the FTX fiasco again brought fear to the crypto markets causing USDT’s capitalization to fall again and USDC’s to rise to the current 43 billion. 

In terms of price, however, there has been no significant deviation from the peg with the dollar. 

The IPO

Although the idea of listing on the stock exchange, through the merger with Concord, dates back to last year, it was after the implosion of the Earth/Moon ecosystem in May, with the total and final capitulation of UST, that it seemed to have become really important.

Indeed, publicly traded companies have significantly greater obligations to shareholders, such as publicly disclosing their core operations and sharing financial statements and financial position. 

It would have been quite useful for the issuer of a stablecoin to have an obligation to publish this information through the SEC, so as to make its business more robust, and users more trustworthy. 

When USDT’s stampede began in May, it was believed that USDC would be able to undermine it from the market due to its supposedly greater solidity. That did not happen, however, so much so that now USDT has again distanced itself, with a capitalization of $65 billion and a trading volume a dozen times larger. 

Without an exchange listing it appears difficult for USDC to challenge USDT, not least because USDT is indeed widely used as an exchange token, and not just for trading on crypto exchanges. 

Therefore, it is not surprising that Circle’s CEO stated that they still intend to list on the exchange, only that they will not be able to do so through a merger with Concord. 

Stablecoins

Focusing only on dollar stablecoins, there are currently three main ones, with USDT dominating the market followed closely by USDC, and Binance’s BUSD capitalizing less than half of USDC. However, precisely because of Binance, BUSD’s trading volume in the crypto markets is more than double that of USDC. 

Despite the fact that USDC is the most regulated, crypto market participants still mostly prefer USDT, and in second place BUSD.

In fourth place is the algorithmic stablecoin DAI, with only $5 billion in capitalization and a negligible trading volume compared to the top three.

All other dollar stablecoins, including Pax Dollar, TrueUSD, USDD, and Gemini USD, have neither significant volume nor market capitalization. 

The fact that USDC has failed to surpass USDT even this year, and cannot even surpass BUSD by trading volume, speaks volumes about the preferences of crypto market participants, who prefer stablecoins issued by crypto companies to those issued by perfectly regulated companies. It is possible that privacy plays a key role in this choice, as Circle being a fully regulated company is thought to have a lower actual level of privacy than USDC.