The IPO puzzle of Circle, the "first share of stablecoins": the founding team missed out on a $5 billion exit

Author: Ji Zhenyu, Tencent News "Periscope"

In Wall Street's latest wealth-making story, the listing of stablecoin USDC issuer Circle (NYSE: CRCL) was a "triumphant escape" and a "rhapsody of capital" at the same time.

On the one side of the story, the company's founders, executives and early investors accurately cashed out nearly $600 million collectively at the time of the IPO, but as a result, they also passed by the "paper wealth" of more than $4.2 billion brought about by the subsequent stock price surge.

The flip side of the story is Wall Street's unprecedented enthusiasm for the "crypto world disruptor." Its share price took off from the issue price of $31 and once rushed to the cloud of nearly $300, an increase of nearly 10 times in less than a month, making it one of the brightest IPOs so far this year. At the same time, numerous analysts did not hesitate to give a "buy" rating, predicting that it will dominate a future market worth trillions of dollars.

This scene of ice and fire can't help but make investors ponder: what kind of foresight or concern did this group of insiders who know the company know best choose to make a "imperfect" perfect exit? And what kind of stars do avid public market investors see in the future of this company?

An analyst who has been focusing on the fintech field for a long time told Tencent News that although insiders and early investors sold aggressively at the time of the IPO, he believes that these are routine operations and is still firmly optimistic about the long-term development of stablecoins, whether it is the regulatory environment or the industry ecology, the development of stablecoins is still in its infancy.

From vision to cornerstone: Circle's 10-year evolutionary journey

To understand Circle's internal decision-making, one must first understand the company's DNA. Founded in 2013, founders Jeremy Allaire and Sean Neville had a vision for much more than creating a new digital currency. Their vision is documented in the prospectus's "Founder's Letter": "Building a New Global Economic System", an Internet-based system that allows value to flow freely and frictionlessly like information.

The company's development has not been without its challenges. Circle Pay, a peer-to-peer payment app like Venmo, was initially involved in the cryptocurrency exchange business, but eventually underwent strategic contraction and business transformation. The real turning point came in 2018, when Circle partnered with crypto giant Coinbase to co-found the Centre Alliance and launched its flagship product, the USD stablecoin USDC.

USDC is designed to hit the crypto world's pain points with precision: it provides a value anchor pegged 1:1 to the U.S. dollar, regulated, and transparent. Circle has taken a "regulatory-first" approach from the outset, proactively applying for and obtaining the first BitLicense issued by New York State, as well as obtaining compliance approvals in several major financial centers around the world. This dedication to compliance has made USDC stand out in the mixed stablecoin market, earning the trust of institutions and the mainstream financial world. As highlighted in its prospectus, Circle is committed to "getting from the front door to regulators and policymakers".

Today, USDC is the world's second-largest stablecoin, with over $60 billion in circulation, and runs natively on 20 blockchains, forming the cornerstone of Circle's vast business empire.

Dismantling Circle's business model: more than just stablecoins

Although the USDC stablecoin issued by Circle is the most well-known to the outside world, its business model is far more complex and far-reaching than "issuing stablecoins".

In a nutshell, it is a multi-level and networked financial service platform with the flagship product USDC as the core, and its model can be understood as a strategic structure of "one body and two wings":

One (Core Business): An interest income model based on USDC reserves. This is the company's most important and mature profit engine at present. According to Circle's prospectus, reserve income accounted for more than 95% of the company's total revenue between 2022 and 2024. How it works is that when an institutional client mints USDC, they must deposit an equivalent amount of USD. These dollars make up a large pool of USDC reserves, which Circle invests in highly liquid, low-risk assets, primarily the "Circle Reserve Fund" government money market fund managed by asset management giant BlackRock, as well as cash deposited in systemically important banks around the world. Circle earns interest and dividends on these reserve assets, which is the company's core income, Reserve Income.

Two Wings (Growth Business): Transaction-and-service-based platform fee model and emerging asset management model. These are the two major directions that the company focuses on to diversify its revenue and build a long-term moat.

Platform & Developer Services: Circle's goal is to become the "Stripe" of the Web3 world, providing powerful APIs and tools for developers to build apps and charge for their services. Its products include: the Cross-Chain Transfer Protocol (CCTP), which allows USDC to be "natively" transferred between different blockchains and charges per transaction; and a range of services designed to simplify the development process and create charging opportunities, including programmable wallets, gas fee solutions, and smart contract platforms.

Asset Management & Tokenized Funds: This is a sign of Circle's foray into traditional finance, and its core product is USYC, an interest-bearing tokenized money market fund. Acquiring the business through the acquisition of Hashnote, Circle aims to provide traders in the digital asset market with a tool that can both earn yield and serve as efficient collateral. As the manager of the fund, Circle can collect management fees and performance fees, opening up a whole new stream of asset management income.

The "Truth" of IPOs: A Feast Designed for "Exit".

However, it is such a promising company, but its IPO structure reveals a strong "exit" signal. According to Circle's S-1/A listing filing with the U.S. Securities and Exchange Commission, as many as 19.2 million shares, or 60 percent, of the 32 million shares issued, came from the company's "selling shareholders" rather than the company itself. That means nearly $600 million of the more than $1 billion raised in the IPO went directly into the pockets of early-stage investors and executives.

The star-studded list includes founder Jeremy Allaire (1.58 million shares), co-founder P. Allaire. Sean Neville (1 million shares), as well as a number of top Silicon Valley venture capitalists such as General Catalyst and Breyer Capital.

At the final actual offering price of $31, these insiders cashed out a combined $595 million. But when the stock price hit nearly $300, they missed out on nearly $5 billion in one-time potential gains.

Wall Street frenzy: Why is the market so bullish on Circle?

In stark contrast to the aggressive retreat of insiders, there is extreme optimism in the public markets. After Circle's listing, its stock price skyrocketed, and its market capitalization quickly exceeded $50 billion.

This frenzy is not unfounded, and investors and analysts see Circle's unique value and tremendous growth potential:

Analysts at Seaport Research hailed Circle as a "top crypto disruptor" and gave it a "buy" rating and a price target of $235. His logic is simple: no matter which cryptocurrency or blockchain application wins in the future, it needs a stable and reliable medium of exchange, and USDC is the "dollar of the digital world". Circle does not sell cryptocurrencies, but rather provides the infrastructure on which the crypto world operates, which is considered a more robust business model.

Other analysts predict that the stablecoin market could grow tenfold in size over the next five years, from about $260 billion today to more than $2 trillion. As one of the most compliant and transparent stablecoins on the market, USDC is poised to dominate this huge incremental market. Analysts believe that Circle is more than just USDC. It is building a vast payment network through partnerships with payment and tech giants such as Visa, Mastercard, Grab, Mercado Libre, and others. At the same time, its developer-facing tools, such as the cross-chain transfer protocol CCTP and wallet services, are attracting tens of thousands of developers to build applications on its platform, forming a powerful network effect that further solidifies its leading position.

Recently, the U.S. Senate passed the GENIUS Act, which aims to establish a clear regulatory framework for stablecoins, which has been interpreted by the market as a major positive for compliance participants such as Circle. Analysts generally agree that a clear regulatory environment will accelerate the adoption of USDC among mainstream financial institutions and businesses.

The example of Circle's IPO perfectly illustrates two very different perspectives in the capital markets: for founders, executives, and early-stage VCs, it's a rational takeaway after a long entrepreneurial journey. They face known significant risks – industry competition, systemic financial risks, regulatory uncertainty. In the face of these risks, it is a prudent and wise financial decision to convert some of the "wealth on paper" into real bank deposits.

For investors in the public markets, they are now betting on a much bigger future. They believe that as the digital economy rushes forward, Circle, with its compliance advantages and technical barriers, will become an indispensable financial infrastructure for this new era, and its value is far beyond today.

Was it the cautious insiders who misjudged the rocket's fuel, or did the fanatical outside investors ignore the risks of flying? The answer to this question, worth nearly $5 billion, may only be revealed in time.