Circle Internet Financial (Circle), the company behind the popular USDC stablecoin, called off its merger with a blank check company this morning, ending its SPAC-led run toward going public. Circle’s SPAC deal made news when announced last year and earlier this year when it was repriced.
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Last we heard, Circle had renegotiated its SPAC transaction, boosting its enterprise value from $4.5 billion to $9 billion. What happened between then and now to get us from a new, higher deal price to a termination?
We’re following that particular arc today. Our investigation will include taking a look back at Circle’s financial results from both 2021 and the first half of 2022, data that we will cross with results from USDC in the back half of 2022. And, yes, we’ll need to talk about FTX at least a little bit.
This could be among our last chances to discuss SPAC transactions because the method of going public has, to put it politely, fallen out of favor. So let’s give ourselves a blank check to chat blank-check companies one last time, yeah? Into the data!
The rise of stablecoins
When Circle announced that it was going public with a SPAC partner, this column had nice things to say about the transaction:
This is the sort of business that is correct for a SPAC-led debut. It could not go public in a traditional manner in its current state of maturity. But a SPAC can get it a huge slug of cash at a price that it has locked in, allowing it to complete its growth into corporate adulthood while public. A gamble, sure, but one that will be very fun to watch.
At the time, the risk tolerance of the public markets was high — mirroring the private markets — making the transaction seem pretty reasonable. The company’s near-term revenue model seemed doable, and it had a growth story to pitch.
Why not?
Back in mid-2021, Circle projected that its revenue for 2021 would come to $115 million, a figure that would rise to $407 million in 2022. Those estimates were predicated on the amount of USDC — a stablecoin pegged to the U.S .dollar — in circulation rising from $35 billion at the end of 2021 to $83 billion at the end of 2022 (and $194 billion at the end of 2023, mind). So, what happened since?
Per filings with the U.S. Securities and Exchange Commission, Circle generated $84.9 million in revenue in 2021, a bit under its target figure. But, at the same time, Circle’s USDC stablecoin closed the year with around $42 billion worth of its token in circulation, per CoinMarketCap, ahead of projections.
So if you were a risk-on investor, you might look at that rising pile of reserve capital that Circle had on hand in an environment where, suddenly, cash was worth more and think that the company had some hot growth ahead of it. Hence, we reckon, the repricing of the company a few quarters back.
How has this year gone for Circle, and what can we infer from those results when we consider its now-kaput SPAC deal? We also have H1 2022 data to ingest. Here are the results from Circle from the start of this year through June 30:
- Revenues of $126.5 million ($253 million run rate).
- Operating loss of $131.4 million ($262.8 million run rate).
- USDC market cap near $56 billion (CoinMarketCap data).
So long as USDC kept growing, you could kinda see how Circle could get close to its revenue goals for the year. However, the midpoint of 2022 was also more or less the peak for the USDC stablecoin, in market cap terms. Since that point in time, the number of USDC in circulation has fallen to around $43.4 billion.
Given that — as we’ve discussed — revenues generated from the backing reserves that USDC commands are key to Circle’s growth, the fact that its circulating supply of the tokens is falling means that its revenue growth is likely constrained.
This is not really a diss of Circle; the crypto economy has been hammered this year, and many stablecoins have seen their market cap — synonymous with their circulating volume, given their 1:1 pegging to the dollar — decline. Here we can blame a host of factors, from rising interest rates to contagion stemming from the implosion of the Terra stablecoin to the collapse of FTX.
For Circle’s SPAC deal, a decline in the number of USDC tokens in circulation means that the asset base from which it generates much of its revenues is also falling. That’s a harder growth story to pitch, especially at a higher valuation than first agreed upon.
Much like with OpenSea, what made sense in early 2022 doesn’t in late 2022. And like OpenSea, which continues to hold a leading position in a smaller market, Circle is a big fish in a more modest pond than it expected.
If the crypto market recovers, and if demand for stables returns, then Circle can take another run at going public. But as it stands today, with the stablecoin market following the larger crypto market, going out via a SPAC just doesn’t make much sense, especially given that most SPAC-led combinations have proven to be value incinerators not vehicles toward corporate success.