Fireside with Circle's Jeremy Allaire

Yeah, a couple things. We actually publicly disclosed our 2022 financials and our first half 2023 financials recently. We grew pretty dramatically last year to almost $800 million in revenue and about $150 million in EBITDA. Then in the first half of this year, again revenue approaching $800 million in the first half and a couple hundred million of EBITDA. So we've really seen the business grow a lot. That's allowed us to invest a huge amount in product and infrastructure. One of the biggest investment areas is what I'll broadly call liquidity and market infrastructure. When you think about a digital dollar, our mission is to have the largest dollar stablecoin network, the most widely used dollar stablecoin network in the world. To do that, we want to make sure that wherever you are in the world, you can easily get access to these digital dollars and transact with them. If you think about the crypto industry up until March, the financial infrastructure was highly concentrated in the US, single points of failure with Silvergate and Signature Bank as examples. What was remarkable about what happened in the first quarter of the year: on the back of FTX failing, you had runs that began on Silvergate, then guidelines from the federal banking regulators in January that said they would have a lot more intense scrutiny on activity here, which created a risk-off environment. Then you had enforcement action after enforcement action, huge shots being fired at US entities largely. Then you had a regional banking crisis that had nothing to do with crypto, which saw several banks fail. That has cascaded. So you had a pretty dramatic set of things happen. All of that combined led a lot of people around the world to say, 'I need to find ways to operate in this market outside of the US, and Circle needs to be protected from the systemic risks of the US financial system.' Well, in some ways that's correct. So I'll talk about two things. On the other side of this, we've dramatically improved the market infrastructure of USDC. We're very proud of our transparency. Approximately 95% of the reserves are in what's called the Circle Reserve Fund, an SEC registered and supervised government fund structure issued and managed by BlackRock. It provides daily transparency into all of the underlying instruments, which are 90-day or less Treasury bills, overnight reverse repos that are over-collateralized with global systemically important banks, and cash. That is what USDC is. Anyone in the world can see it's transparent and audited. That makes USDC by far the safest digital dollar in the world on the internet. That's a good place to be. The other piece is that 5,000 companies or more were debanked in a matter of seven days. That created huge issues in terms of the liquidity of this market. So what we've been doing is building a distributed network of banking and liquidity. We're bringing online local banking in critical markets like Singapore, Hong Kong, Latin America, and Europe, so entities in those markets can easily attach to this digital dollar network and create and redeem USDC without having to open a bank account with a small community or regional bank in the US. They can work with major banks in these other jurisdictions. The ability to invest and scale and build those kinds of partnerships has been a huge piece. So in the aftermath of these things, there are huge opportunities to significantly improve infrastructure, and that's exactly what we've done.

The irony is that over a roughly three-month period, we saw a flight from safety. People moved from transparent, regulated entities to opaque, offshore, unregulated, and not even known banked entities, and that was viewed as more safe. There's a mythology around this. The idea that if you're offshore, you're not exposed to the US government or US financial system is complete BS. Offshore entities are holding assets within regulated financial intermediaries in the US, and if there were regulatory challenges, they could be stopped in the same way you've seen other incidents happen. So there's a mythology around that. But there's another piece: the upside of a rising interest rate environment for a stablecoin issuer like Circle is that the monetization is significant, as you can see in our publicly shared financials. But there's a real opportunity cost. If you're a traditional financial institution or have access to the traditional financial system and you've been using dollar stablecoins, the opportunity cost of holding a non-interest bearing stablecoin is high, five and a quarter percent. So we've seen a direct correlation from the first rate hike last April through today. Because USDC has seamless integration to the US financial system, anyone with a retail or institutional bank account can seamlessly redeem and move out. We redeem about a billion a week and issue about a billion a week. So we have seamless liquidity, and it's easy to do. That impacts that as well. My own view is that as the interest rate environment stabilizes and the talk about the Fed being done, we've seen that behavior stabilize as well. But it's also leading to innovation. There are probably 10 startups and a couple of very large companies that have launched or are launching tokenized money market fund products, and USDC is the way you create and redeem those. USDC as a cash settlement layer for tokenized real world assets is a great opportunity. We're seeing action there. The market structure and infrastructure of the onchain financial system is going to provide people with real-time liquidity in and out of various types of cash management infrastructure, onchain natively generated lending infrastructure, and global scale payment utility that works at internet speed and internet cost efficiency. Those are all part of what we're seeing being built and emerge.

I did see that, and I'm happy to comment on that. First of all, let me frame it a little differently so it's packaged right away. I'm curious, and this is part of the answer: in five years, what does a stablecoin market look like in terms of market share? What should it look like? Winner take all is probably not healthy, but obviously Circle should be one of the big ones. A lot of the tools we're building ideally, and right now we have about 20% market share, so there's a long way to go in terms of growth. In terms of five years from now, anyone's guess. But clearly the incumbents are not the stablecoin issuers; the incumbents are the big banks and the companies that manage electronic dollars today. There are about 25 trillion electronic dollars in distribution in the world, and that's the TAM. We want to see more of those electronic dollars become actual digital dollars that are fully reserved, not fractionally reserved, and that operate natively on blockchains. That will be an evolution. In five years, is that $3 trillion or $5 trillion? I don't know. If you look at the global TAM, it's about $100 trillion, so we are a tiny fraction of the market. The regulatory capture, by the way, there's an assault against passing comprehensive stablecoin laws by the banking industry. When we look at what we're trying to do, we are actually trying to agitate for the establishment of a regime that would make it possible for a competitive playing field to exist in payment systems in the United States, not based on fractional reserve risk-taking, but based on a safer foundation: full reserve money. That is a real structural challenge. To create a regime that allows startup companies, established companies, banks, and non-banks to all compete in that market, we want to see that. That legal certainty would allow this industry to develop and flourish. Without that legal certainty, we're in a gray area. Major companies, major consumer companies, major e-commerce companies, and other financial institutions are not going to build on stablecoins if it's in that gray area. The notion that this is Circle trying to do regulatory capture is complete BS, because we are up against a giant industry that is built on an insane amount of regulatory capture today. We're trying to make structural changes for how you can compete in that broader money and payment system world. It's quite different than Mark Zuckerberg saying 'please regulate us' when you're a multi-trillion dollar established infrastructure and you want massive structural barriers embedded in law. It's a completely different picture.

I think, as you know because you've known us for many years, it was very clear when we started the company 10 years ago that if we wanted to build a system where you could take traditional money and operate it over blockchains, which was always our vision, that integration and interoperability between the existing financial system and this new financial internet financial system absolutely required compliant, regulated infrastructure. So from the very early stages, we invested heavily in compliance, licensing, and regulatory around the world, always going in through the front door and working with policymakers and regulators. That's been really key. My vision is not that there's an alternative universe completely free of any intervention from governments, with a different monetary unit and we're all over there. That may exist, but our vision is how do we make this technology work at a mass scale for all of humanity? That integration and interoperability is really key. It has been important to our success over the years, and it's not just access to banking. There are thousands of companies that have had access to banking, and I don't think it's frozen right now at all. In fact, there are more banks all around the world than ever that are ramping up their involvement in this industry. So I'm way more optimistic than I've ever been about the amount of regional and global banks that are investing to support growth in the digital asset industry. We do need clear rules of the road so that everyone understands as a financial intermediary what your obligations are under the law. That will unlock more integration and interoperability with the traditional financial system.

A couple things. First, there's a really significant trend going on right now. We're seeing all around the world consumer-facing financial super apps like Fintech, digital wallets, and other companies that have large distribution in Latin America, the Middle East, Southeast Asia, and East Asia connecting to blockchains. That's a really big deal. In the aggregate, when you look at companies like Mercado Libre in Latin America, where we announced a partnership a couple weeks ago, they have a couple hundred million users. Nubank has 70 million users, enabling USDC. Or Grab, where we announced a partnership last week, they are the super app of Southeast Asia. We've helped them build on our Web3 services, and they've launched a Web3 wallet in their super app initially in Singapore, but eventually that will enable potentially a couple hundred million people to connect to blockchains and interact and use stablecoins and other things. These are significant. When I look at the consumer-scale internet companies, commerce companies, fintech companies, these are not crypto companies. These are companies that are integrating to Web3 for the use of blockchain, stablecoins, programmable money, and NFTs. They're doing this not so people can trade Bitcoin, but so they can bring utility to users. The technology is becoming more seamless, transparent, safe, and simple to do that. That leads me to believe that over the next 12 to 24 months, we will easily have one to two billion people connected to these networks. That's very exciting. That's something I'm seeing happening, and we're obviously trying to do our part to support that. The other thing is there's not a huge amount of talk about technical innovation. Right now, I'm a technologist by background, that's what I've done my entire career. The state of play in terms of what's happening with blockchain infrastructure, with abstractions that will make the usability of blockchain networks simple, where the crypto becomes invisible to the user, where you can interact across chains seamlessly, where you don't have to worry about gas fees paid in crypto tokens that are meaningless to you, and to be able to onboard without worrying about the safety of seed phrases, the usability, scalability, interoperability, it's all happening right now in front of us. So I'm way more optimistic than I've ever been about the state of the technology curve and the kinds of app experiences that people are going to be delivering. Even this year, we're going to see a lot of products launching and into next year. That's what I'm excited about. I'm seeing a lot of the building blocks that we've all hoped would come in place are falling into place, because there are great entrepreneurs and great technologists that keep plugging away and building. A lot of embers in the fire, just a matter of when the tailwinds hit.

No idea. That would be nice.

Thanks.