Demystifying Circle’s Eight-Year Growth Story: Many Transformations, Finally Seeking Mission USDC

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Circle’s growth path is full of thorns. It has done wallet payments, OTC, and exchanges, and finally found a long-term mission on the stable currency USDC.

Original title: “Multiple transformations, frustrated entry into China, the capital bureau behind the USDC issuer”
Written by: Moon

“The greatest fortune in a person’s life is to discover his life’s mission halfway through his life, that is, when he is young and strong.”

Zweig wrote in “When the Stars Are Shining”.

Everyone has to climb several mountains and cross several rivers in his life to find the mission that accompanies him throughout his life. The same is true for the company.

On July 8, 2021, USDC issuer Circle announced that it plans to merge and go public with a special purpose acquisition company (SPAC) at a valuation of US$4.5 billion.

Looking back at the development history of Circle since its establishment in 2013, the journey has been bumpy. It has paid a heavy price for wallet payment, OTC, cryptocurrency exchange, stable currency… The bear market valuation fell by 75% at one time, layoffs, and sold core assets. Finally Finally found the long-term mission and direction-USDC.

Circle is fortunate. In times of crisis, there is always noble people to help. Jim Breyer, General Catalyst, and IDG Capital support all the way to make Circle today.

This is a story about growth and capital in the blockchain world.

Serial entrepreneurs embrace Bitcoin

In 2013, Jeremy Allaire and Adobe chief scientist Sean Neville (Sean Neville) co-founded Circle, headquartered in Boston, this is his third official start-up.

Prior to this, he founded two listed companies, the software company Allaire and the online video platform Brightcove, in 1995 and 2012, respectively, and accumulated a deep network of resources.

At the beginning of its establishment, Circle received 9 million US dollars in Series A financing, setting the highest amount of funding in the history of a cryptocurrency company at that time.

Investors include Jim Breyer, Accel Partners and General Catalyst, all of whom are investors in Allaire’s previous company, Brightcove. Instead of investing in Circle, it’s better to say that they are investing in Jeremy Allaire. .

The Circle at that time was known as the “U.S. version of Alipay.”

The initial product form of Circle is a digital currency wallet, which mainly provides cryptocurrency (Bitcoin) storage and legal currency exchange services, and uses Bitcoin to realize the rapid transfer of funds.

For example, using SWIFT for international transfers requires 3-5 working days to confirm, but with Circle, you can rely on the “cash-bitcoin-cash” path to quickly transfer funds. In this process, bitcoin has become an intermediate channel.

At this time, Allaire was a firm believer in Bitcoin, and believed that it was only a matter of time before the realization of a cross-border payment system. He wants users to realize transfer payments without too much hindrance, just like using emails and short messages.

Afterwards, Circle sang all the way.

In August 2015, Circle received US$50 million in financing led by Goldman Sachs Group and IDG Capital. Since then, IDG Capital has become the “noble man” on Circle’s growth path.

Why does IDG Capital participate in the lead investment of Circle?

This is inseparable from Circle’s early investor Jim Breyer, who is known for his early investment in FaceBook. He has another identity-IDG’s investment partner in the United States. Under the recommendation of Jim Breyer, IDG Capital participated in the investment in Circle.

In September, Circle received the first digital currency license BitLicense issued by the New York Financial Services Authority, which means that Circle can provide digital currency services with a license in New York State.

In the same year, China’s mobile payment market was raging. WeChat relied on WeChat red envelopes to quickly squeeze Alipay’s market share. The Circle on the other side of the ocean not only waited and watched, but also launched social payments at the end of the year.

At that time, this was a bold innovation attempt, but now, it may be due to its unclear positioning, which paved the way for many subsequent transformations.

Demystifying Circle’s eight-year growth story: multiple transformations, and finally looking for a mission USDC

Enter China

2016 was a year of turning fortunes for Circle.

In April, Circle obtained an electronic payment license issued by the British Financial Services Regulatory Authority. This is the first time that a British regulatory agency has issued a license to a company that operates cryptocurrency and digital asset businesses.

In June, when the sun was blazing, Circle successfully joined hands with China Capital and announced the completion of a $60 million Series D financing. IDG Capital, the lead investor of the Series C round, will continue to lead the investment. In addition, Baidu, Everbright, CreditEase, Wanxiang, Zhongjin Jiazi Waiting for Chinese companies to join in the investment.

Among them, IDG Capital successively led the investment in Circle C and D rounds, and entered its board of directors. IDG Capital founder and partner Xiong Xiaoge once commented on the investment:

At present, domestic investment in Internet companies is basically investing in applications, not technology. A very important reason is that at present, there are more innovations in business models in China, but relatively few technological innovations. The American technologies invested by IDG Capital, such as Circle’s Bitcoin blockchain technology, are basically “the United States can do it, but China can’t do it currently, or it is not as good as the U.S.”.

However, although the technology is invested abroad, IDG Capital’s original intention is to one day bring cutting-edge technology to China and achieve substantial development. This is our “Chinese perspective” for investing in a US company.

The reason why Circle brought in many top Chinese capitals was related to his plan to enter China at that time.

At the beginning of 2016, Circle established an independent Circle China company-Sike China, with Tianjin Sike Technology Co., Ltd. as the main body, which means “Payment that can pass all over the world”. The CEO of the company was set up by the EIR of IDG Capital at that time. Entrepreneur) Li Tong serves as the director, and Wanxiang Group Xiao Feng serves as the director.

Demystifying Circle’s eight-year growth story: multiple transformations, and finally looking for a mission USDC From left: Sike China CEO Li Tong, Circle founder Jeremy Allaire, IDG Capital founding partner Xiong Xiaoge

Founder Allaire stated that Circle will conduct business under China’s regulatory framework and will not rush to launch products without obtaining government permission.

In addition, Circle has been communicating and sharing information with Chinese regulators, banks and other institutions. However, my country attaches great importance to financial security, and third-party payment licenses are required to carry out payment services in China. Therefore, Circle’s business in China has been stagnant for a long time and it is not true.

According to the company’s information, on August 15, 2020, Tianjin Shike Technology Co., Ltd. applied for a simplified cancellation, and officially cancelled on September 7, withdrawing from China.

Interestingly, Circle did not carry out actual business in China, but it once affected the stock prices of A-share listed companies.

Perhaps IDG’s influence on Circle is too great. In 2018, the A-share market went viral. IDG wanted to inject Cirle into its controlling listed company “Sichuan Shuangma”. The Shenzhen Stock Exchange sent a letter asking that Sichuan Shuangma had to To clarify, this is an unfounded guess, and the company does not have a plan to develop blockchain business.

Demystifying Circle’s eight-year growth story: multiple transformations, and finally looking for a mission USDC

Transformation: exchanges and stablecoins

In 2016, with the intensification of the struggle for Bitcoin’s fork and expansion, Allaire gradually became dissatisfied with the stagnant development of Bitcoin. “Three years have passed, and the speed of Bitcoin’s development has slowed down a lot.” Have said so.

On December 7, Circle issued an announcement announcing that it would “abandon the Bitcoin business” and retain the transfer business of fiat currencies such as Bitcoin and U.S. dollars, but users could not buy and sell Bitcoin, and said, “Circle will shift its business focus to social payments. “.

But in fact, Circle’s overall development idea has shifted from payment to transaction. “Allaire has played down the role of Bitcoin (payment) in Circle’s business and started to do more about making money.” Coindesk once did. Report.

In the field of cryptocurrency, which business is the most profitable? Exchange.

In 2017, Circle stated to the public that although it cancelled the function of directly buying and selling bitcoin in the APP, it still made the market for large-scale transactions and launched Circle Trade, which provides institutional customers with large-value crypto-asset OTC services.

In February 2018, Circle announced the acquisition of the crypto asset exchange Poloniex for USD 400 million, and officially entered the field of cryptocurrency exchanges. The financing of the merger was led by its major shareholder IDG Capital.

In May, Circle continued to announce financing news, announcing that it had obtained 110 million US dollars in financing, led by Bitmain, and IDG Capital, Breyer Capital and other old shareholders continued to invest.

It is worth noting that Bitmain, which led the investment, was also invested by IDG Capital. According to Deep Wave TechFlow, it was the marriage of IDG Capital that led to Bitmain ‘s lead investment. At this time, IDG was already Circle’s largest institutional shareholder.

This investment is extraordinary for Circle. On the one hand, it was financed at an ultra-high valuation of $3 billion after the investment. Less than a year later, its valuation fell by 75%.

Secondly, the second half of 2018 will usher in a tragic big bear market. Both Circle and Bitmain will face the test of life and death. With this money, it helps Circle to tide over the difficulties to a certain extent.

With capital injection, Circle began to attack everywhere, trying to fully blossom.

In July 2018, Circle launched USDC, a stable currency pegged to the U.S. dollar. Looking back, this is undoubtedly a historic moment, and Circle made the most important decision for it.

In addition to the core exchange and stable currency business, Circle’s layout has also begun to extend outward.

In October 2018, Circle acquired the equity crowdfunding platform SeedInvest, and established Circle Reseach to output cryptocurrency industry news and reports.

So far, driven by capital, Circle has become a cryptocurrency group with diversified businesses: Circle Pay provides transfers; SeedInvest is used to raise funds; Circle Trade provides over-the-counter trading services; Poloniex provides trading services; USDC is a US dollar stable currency.

Everything looks very beautiful, as everyone knows, the cold winter is here.

Gray 2019, Survive with Broken Arm

In 2019, Circle is a gray year.

In February, Cointelegraph Japan was the first to disclose that on the SharesPost stock trading platform, Circle was valued at US$705 million. Nine months ago, Circle received a $110 million investment from Bitmain and its valuation was as high as $3 billion. Less than a year ago, its valuation plummeted by 75%.

In May, Coindesk reported that Circle had laid off 30 employees, which accounted for about 10% of the total number of employees. Later, it left 3 executives.

But perhaps the biggest headache for Allaire is that the heavily acquired Poloniex suffered Waterloo.

On May 13, 2019, Poloniex announced that it would delist 9 cryptocurrencies from the pages of US users. Because according to US law, these tokens are close to the concept of securities, but they have not been registered with the SEC, and there is a risk of violations. In October, 6 cryptocurrencies were again delisted, losing a lot of profits.

For this reason, Allaire has publicly expressed his dissatisfaction with US regulators several times, but he has no choice but to transfer Poloniex’s business body to Bermuda, where the regulatory environment is more relaxed. On July 23, Circle announced that P-Net will obtain a Bermuda digital asset business license.

But this still cannot prevent Poloniex from losing the market. From a close to 60% of the market share (in compliance exchanges) in 2017, to September 2019, the market accounted for only 1%.

Demystifying Circle’s eight-year growth story: multiple transformations, and finally looking for a mission USDC

Valuation plummeted, core business frustrated, brain drain…Circle once again stood at the crossroads of destiny. At the critical moment, Circle chose to survive by breaking its arms and gradually divesting its non-core businesses from the second half of 2019 to focus on the stable currency USDC.

In June, Circle announced that starting from July 8th, the Circle Pay service will gradually remove support for user payments and charges, and will eventually completely cancel all support for Circle Pay on September 30.

On September 25, Circle issued an announcement stating that it would suspend the Circle Research project.

In October, amidst everyone’s consternation, Circle sold the exchange business Poloniex, which was subordinated to “Polo Digital Assets” operated by an Asian investment company. The participant behind it was Justin Sun, the founder of TRON.

According to the latest SPAC documents, Circle lost more than $156 million in its acquisition and subsequent sale of Poloniex.

On December 17, Circle sold its OTC service desk Circle Trade to the exchange Kraken.

By 2020, Circle Invest, an encrypted investment trading application owned by Circle, will be sold to Voyager Digital in the form of equity.

So far, after a series of weight reduction, Circle has changed from a diversified cryptocurrency group to a stable currency issuer focusing on USDC, facing the challenge of Tether.

The ultimate mission-USDC

In the stable currency arena, USDT has always been in an unshakable dominance, but by 2021, the situation has begun to change slightly.

According to TheBlock data, year-to-date, the entire stablecoin market has grown from 28.9 billion U.S. dollars to 109.4 billion U.S. dollars, an increase of more than that.

Among them, the total issuance of USDT increased from US$21.6 billion to US$64.2 billion, an increase of 296%, while the total issuance of USDC increased from US$4.2 billion to US$25.8 billion, an increase of 614%.

Under the impact of USDC, the share of USDT’s stable currency market value decreased from 74% at the beginning of the year to 58% today, while the share of USDC market value increased from 15% to 23%.

Demystifying Circle’s eight-year growth story: multiple transformations, and finally looking for a mission USDC

From the perspective of the market, this is the victory of compliance and DeFi.

According to cryptocurrency expert Ryan Watkins, one of the main reasons for the decline of Tether is due to the increasing adoption of USDC in DeFi protocols, and users can obtain high profits by using USDC to interact with DeFi protocols.

This year, Circe launched the DeFi API, allowing institutional users to access the API to access various DeFi protocols, thus becoming a bridge connecting the traditional financial market and DeFi.

Compound and Coinbase have successively launched USDC savings income products, with yields around 4%, far exceeding the USD yields of traditional financial markets.

And all this thanks to USDC’s compliance and transparency, the founder Allaire is proud of:

USDC is both regulated and audited. This is important to ensure that the stablecoin and the US dollar are linked one-to-one. Therefore, we have monthly statements from the world’s largest accounting firm, which ensures that the funds in circulation are stored in U.S. dollars one by one, and we store these U.S. dollars in a separate account of the world’s largest U.S. dollar banking institution assets. Therefore, it can give USDC holders a lot of confidence. Another difference is that you can go to Circle and Coinbase to convert it into U.S. dollars at any time.

There are currently more than 25 billion U.S. dollars in USDC in circulation, and Allaire believes that 190 billion U.S. dollars in USDC will be in circulation by the end of 2023.

Issuing stablecoins is only the first step. Circle’s ambition is to use the popularity of USDC to establish a financial service system based on USDC. For this reason, USDC will take more active actions in the future.

(1) Multi-chain expansion.

On June 30, Circle issued a draft announcement stating that USDC is expected to be issued on Avalanche, Celo, Flow, Hedera, Kava, Nervos, Polkadot, Stacks, Tezos and Tron in the next few months, which will greatly improve the transfer efficiency of USDC. , While reducing costs.

(2) Broaden commercial applications.

According to Allaire, the fastest growing use of USDC is as a loan asset. In addition, USDC is also being used in digital games, online games, e-commerce and other markets. In March 2021, the credit card company Visa stated that it will allow the use of USDC to settle transactions on its payment network, and USDC is on the way out of the circle.

In May 2021, Circle announced the completion of US$440 million in financing, attracting participation from institutions such as Fidelity, FTX, DCG, Marshall Wace, Valor Capital Group, Pillar VC, Intersection Fintech Ventures, Atlas Merchant Capital and Willett Advisors.

At this time, Circle has already begun to prepare for the listing of SPAC, and waited for the bell to sound.

to sum up

Unlike Coinbase, which has firmed its mission and direction from the beginning, it has never been the same. Circle has gone through a series of explorations in the world of digital finance. It has gone through detours and paid a heavy price. It has also been on the verge of life and death. On the occasion of “young rich and powerful”, I found my mission.

On the thorny road of exploration, Circle should thank its nobles.

Jim Breyer, Accel Partners and General Catalyst supported Jeremy Allaire and Circle from beginning to end. It was also because of Jim Breyer’s recommendation that IDG Capital and Circle were married and became a firm supporter on its growth path.

IDG Capital has made multiple rounds of betting, not only becoming Circle’s largest institutional shareholder, but also at its critical time, helping many times to help acquire Poloniex and attract Chinese capital investment… To some extent, without IDG, there would be no Circle. Of today.

Of course, all of this may be inseparable from Jeremy Allaire’s successful resume and personality charm. After all, the end of investment is to invest in people.

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