Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
The point of a stablecoin is that it is highly predictable. These digital tokens, whose value is pegged to dollars or euros, are a bit like money in the bank, but with the virtue of being transferable without the delays that vex old-style bank customers.
The technology industry, meanwhile, is the opposite of predictable. A good example of this is Circle Internet, the creator of the world’s second-biggest stablecoin, USDC. Its shares debuted in New York on Thursday at a theoretical valuation of $8.1bn. Compared with the Circle of three years ago, when the company last tried to go public, the difference is dramatic.
Circle came close to listing its shares by merging with a special-purpose acquisition company, in a deal that hit the skids in 2022. As part of that process, the company set out — in public — details of its business, strategy and financial projections.
Some of those proved way off. Circle used to think, for example, that there would be $190bn of its stablecoin USDC in circulation by 2023. As of now, the actual number is about $61bn. It also thought three-quarters of its revenue would come from transaction services and a platform that would help start-ups raise capital. Both have now been discontinued. The collapse of FTX in 2022 left the whole crypto-industry, for a while, on probation.
Despite that, Circle is better off. While stablecoins have not taken off as fast as it hoped, the rise in interest rates has more than compensated. Each dollar of tokens is backed by super-safe assets, most of them in a money-market fund run by BlackRock, on which Circle keeps the yield. Its plan is to make additional revenue from services that make USDC more usable, such as wallets and tools for developers, although these are tiny for now.
As it happens, Circle also makes more money than it thought it would. Revenue for 2023 was $1.5bn, twice what it expected four years ago. Should it keep growing at its current rate, it is on track to make about $500mn of ebitda this year. That puts its IPO valuation at 16 times that measure of profit, where Visa and Mastercard trade at about 27, although Circle is a company with a much less predictable business model.
It is a good reminder that technology is an industry where businesses often start as one thing and then become another. Think of Amazon, an online bookseller back in 1997, and now a cloud computing giant. Google was a search engine when it listed in 2004; now it is Alphabet, and also makes, among other things, chatbots and driverless taxis.
And change is not always positive. Stablecoin legislation, for instance, is still in flux. Banks, which are mostly just experimenting for now, and which Circle seeks as partners, could launch their own. The Federal Reserve seems disinclined to launch an official dollar stablecoin, but if it does, Circle has a problem. All of which is to say: Circle’s tokens should reliably preserve their value, but the same cannot be guaranteed of its shares.