Circle Relies on $1B Cash Reserve to Fight Competition

UTC by Benjamin Godfrey · 3 min read
Circle Relies on $1B Cash Reserve to Fight Competition
Photo: Unsplash

Circle revealed that it is actively pursuing partnerships to promote the adoption of USD Coin.

Prominent Stablecoin issuer Circle is demonstrating its commitment to adaptability and resilience as it faces renewed competition from unexpected players.

As non-crypto giants such as PayPal Holdings Inc (NASDAQ: PYPL) enter the field, Circle’s CEO Jeremy Allaire revealed in an interview with Bloomberg that the company is relying on a substantial cash cushion exceeding $1 billion to weather the storm while addressing a decline in the market share of its stablecoin.

Circle Reserve and USDC Market Share Slump

At the beginning of the year, Circle’s USD Coin (USDC) was riding high with a circulation of approximately $45 billion. However, that figure has since plummeted to around $26 billion. This downward trajectory stands in stark contrast to the growth of Tether (USDT), the largest stablecoin by market capitalization, during the same period.

Jeremy Allaire reiterated that various “tail-risk events” in the crypto industry have had an impact on USD Coin’s adoption. He highlighted that the fall of Terra, Binance’s conversion shift, the FTX crisis, and regional bank failures all led to Circle’s difficulties.

Despite these obstacles, Circle’s revenue production model has proven resilient, particularly through interest income generated by assets backing the stablecoin, such as dollar deposits and short-term Treasuries. Circle is now in a position to gain from rising interest rates.

Circle’s financial performance in the first half of the year reflects its resilience. With $779 million in revenue, Circle surpassed its total revenue of $772 million for the entire preceding year.

In addition, adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) reached $219 million, outpacing the $150 million achieved in the previous year. Bolstered by a substantial cash reserve exceeding $1 billion as of June, Circle is well-equipped to forge ahead with its strategic plans.

Allaire emphasized that the vision for Circle’s future is grounded in the mainstream adoption of stablecoins, envisaging them as the financial medium of the Internet era. He views PayPal’s recent announcement as just the initial step in this journey.

He expects a greater range of financial services companies and online payment firms to enter the stablecoin arena, increasing competition and accelerating the sector’s progress.

The Future Ahead of Circle

Circle revealed that it is actively pursuing partnerships to promote the adoption of USD Coin. The company is also enhancing transparency by sharing financial reports and collaborating with Deloitte as an auditor.

The company said it is also looking into partnerships for greater adoption of its USDC. However, Circle’s approach focuses on collaboration without adopting the white-label model used by competitors such as Paxos Trust Co.

Even as the Federal Reserve considers decreasing interest rates, Allaire remains bullish about Circle’s prospects, noting that historically, a low-rate environment has boosted crypto activity.

Circle’s development of new revenue sources, like the recent launch of a crypto wallet service following the acquisition of CYBAVO in 2022, demonstrates the company’s dedication to innovation and diversification.

Blockchain News, Cryptocurrency News, News
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