Circle: Guarding the stablecoin that is a key battleground, aiming at new financial infrastructure

Author: Jessie, Overseas Unicorn

With CZ's announcement last night of the acquisition of FTX, this thrilling business battle in the history of cryptocurrency has finally come to a temporary halt. However, the fall of FTX does not mean that Binance can rest easy; the opacity of reserves, lack of regulation, the industry's general short-term debt and long-term investment, and liquidity panic triggered by bank runs are all deeply hurting users' wallets and confidence. As a result, following the acquisition news, BTC/ETH continued to decline sharply. CZ quickly called for: "All exchanges should do Merkle-tree proof of reserves, and Binance will soon launch proof of reserves, completely transparently."

Binance's "leading self-discipline" helps to form a new industry consensus, and prior to this, for the stablecoin sector, which is particularly critical for sufficient reserves, Circle has adopted a "full reserve system," disclosing audited USDC reserve details and custodian lists on its official website every month, accepting oversight from all investors. This has brought widespread user trust and helped Circle become the leader in the stablecoin sector.

Stablecoins can be said to be the largest sector in the cryptocurrency field, currently valued at $148.5 billion, accounting for 16.1% of the entire crypto market. Undoubtedly, without stablecoins, there would be no DeFi Summer, and certainly no thriving Web3 ecosystem.

USDC is one of the fastest-growing dollar digital assets in the world, providing an open standard for dollar payments on the internet. Since the beginning of 2020, as of December 31, 2021 (the peak market value), the circulation of USDC has grown from $400 million to over $55.9 billion, an increase of more than 139 times. From 2020 to the present, USDC has supported over $6.26 trillion in transaction volume on blockchain networks. Especially after the collapse of Terra's algorithmic stablecoin UST this year, USDC has attracted a large influx of investor funds due to its safety, transparency, and full reserves.

In addition to the highly regarded USDC, Circle's business also includes Transaction and Treasury Services (TTS) and the equity crowdfunding platform SeedInvest, with TTS being Circle's largest business, accounting for 56% of Circle's revenue.

According to the Circle team's plan, Circle aims to go public at the end of this year with a valuation of $9 billion. Given the recent market environment and regulatory pressures, we are concerned about whether Circle can go public smoothly or if it will face a valuation inversion. Of course, a $9 billion valuation is too expensive for all investors, but we must understand the important position that stablecoins like USDC hold in the crypto ecosystem ------ serving as a bridge for traditional assets to flow into the crypto world, which is also a "battleground" for the interest groups represented by major exchanges.

Circle's ambition and the capabilities it has demonstrated clearly extend beyond stablecoins; its mission is to promote global economic prosperity through frictionless exchanges of financial value. As Circle has already reaped the largest dividends in the emerging crypto market, it will continue to compete and is the most likely candidate to become the infrastructure for the next generation of financial systems based on blockchain.

Thesis

Overall, we remain optimistic about the development prospects of this company for the following reasons:

1. Circle faces enormous market opportunities. The reachable markets include the $148.5 billion stablecoin market, the $630 million global crypto payment market, and the $17.5 billion equity crowdfunding market. Catalysts for increasing market penetration include future dollar issuance, overall recovery of the crypto market, and the ongoing struggle between regulation and the crypto market.

2. Circle has a competitive advantage that is hard to surpass.

• Circle has multiple growth avenues. Circle operates one of the fastest-growing dollar digital assets in the world, USDC, and will continue to issue other fiat-backed stablecoins. Its Transaction and Treasury Services (TTS) and SeedInvest business penetration rates are also continuously increasing, establishing a multi-scenario safety net for USDC.

• USDC is fully reserved, safe, stable, and compliant, with a strong foundation of user trust.

• Circle is expected to leverage its TTS to become the infrastructure for a new financial system based on blockchain.

3. Circle's management team has a strong background, with world-class expertise in payments, crypto, and compliance. Team members have extensive and diverse experience in related industries such as crypto, internet, and fintech, particularly CEO Jeremy Allaire, who has founded and led two tech companies to IPOs.

What is Circle

Founded in 2013, Circle was not initially known for its flagship product ------ the stablecoin USDC. At its inception, the development of Bitcoin made the team see an opportunity ------ to create a fund transfer product based on blockchain technology aimed at C-end users, such as converting dollars to Bitcoin and then back to dollars. The Bitcoin trading channel would greatly reduce the inconveniences of traditional central banks and international remittances, transforming it into a fast channel without time limits globally.

However, by 2016, with the congestion of the P2P network, Bitcoin's operation had become extremely slow, and moreover, Bitcoin could not support more innovative applications. Thus, Circle embarked on a typical AWS path ------ "Since the current infrastructure is insufficient to support the ideal C-end product in mind, we began to build B-end infrastructure ourselves." USDC was born this way. Products Currently, Circle offers a range of products for its clients, including the stablecoin USDC and its market infrastructure, Transaction and Treasury Services (TTS), and the equity crowdfunding platform SeedInvest.

1. USDC

Launched in September 2018, USDC is the second-largest stablecoin by market capitalization globally and is currently the fastest-growing dollar digital currency. As of November 2022, USDC's circulation was $43 billion, with 1.6 million holders, and the total on-chain transaction volume reached $3.77 trillion, supported by over 190 countries. In addition to the dollar digital currency, Circle also announced the issuance of EUROC in January 2022, which will be backed by euro reserves held by financial institutions "within the regulatory framework of the United States."

Circle operates the core market infrastructure for USDC, including the infrastructure for issuance and redemption, liquidity management, and managing the dollar reserves supporting USDC circulation.

The advantages of USDC are as follows:

1) USDC is backed by dollars, fully reserved, low risk, safe, and stable.

The essence of USDC's profit model is a banking business; the company earns interest income by purchasing other more stable investment products with USDC's dollar reserves. Its revenue formula is: Revenue = Reserves * Yield.

To increase its revenue, there are two ways:

• Increase reserves

• Seek higher reserve yields

Higher yields inevitably mean higher risks, while Circle's CFO emphasizes that USDC's business model is "minimizing risk," thereby gaining more trust and attracting more reserves. Therefore, USDC is relatively conservative in reserve choices, holding only dollar cash and short-term U.S. government bonds.

Circle's USDC reserves consist of 80% U.S. Treasury bonds and 20% cash, with the U.S. Treasury bond reserves having a maturity of 3 months or less, held by one of the oldest and largest custodial banks in the U.S., BNY Mellon. Cash reserve partners include Silvergate, Signature Bank, and New York Community Bank.

USDC is a "fully reserved" stablecoin, meaning that USDC's dollar reserves are separate from other investment businesses, and anyone can redeem USDC stablecoins for an equivalent amount of dollars at any time, even in the most extreme market conditions. As CFO Jeremy Fox stated: The reserves of USDC are separate from Circle's other businesses and operations; the USDC reserves belong to USDC holders and not to Circle, and are all kept in independent accounts. Circle does not allow USDC reserves to be used for any other purposes. Unlike exchanges or other unregulated entities, we cannot lend them out or use them to pay our bills. 2) Transparency

To make USDC's reserves more transparent, Circle discloses USDC reserve details and custodian lists on its official website every month, accepting oversight from all investors.

3) The DeFi market explosion makes USDC more favored in the DeFi market due to its compliance.

With the emergence of more and more new DeFi projects, especially yield-generating, DEX, and lending products, they all launch stablecoin liquidity mining activities to maintain high liquidity. In the DeFi market, due to compliance and security considerations, most projects prefer to use ETH and USDC to establish trading pair liquidity pools, with the more compliant USDC becoming the preferred stablecoin for most DeFi users and project parties.

• As of November 9, the locked amount of USDC in the Uniswap liquidity pool was $903 million, while the locked amount of USDT was $205 million, with the former being more than four times the latter. In terms of daily trading volume, USDC trading pairs reached $2.9 billion, while USDT trading pairs had a trading volume of $780 million, with the former also being more than four times the latter, reflecting a more pronounced tendency for Uniswap users to trade with USDC.

• In the Aave liquidity pool with the highest TVL, USDC's deposit amount was $940 million, and the borrowing amount was $470 million, both being the highest assets on the platform, while USDT's deposit amount was $340 million and borrowing amount was $310 million, indicating that USDC far outpaces USDT in both deposit and borrowing amounts.

These two data points reflect that USDC has become a more favored stablecoin asset among DeFi users and plays an irreplaceable role in DeFi ecosystem trading and lending activities. Even though it faced some turbulence recently, it still cannot shake USDC's leading position in the DeFi ecosystem.

Currently, USDC has been issued on nine blockchain networks, including Ethereum, Algorand, Solana, Stellar, Avalanche, Tron, Flow, Hedera, and Polygon, and will expand to more blockchains in the future to further amplify USDC's advantages in the on-chain DeFi market.

2. TTS (Transaction and Treasury Services)

TTS includes transaction services, integration services, funding services, etc., forming a unified service system by providing customers with the infrastructure to handle various transactions, which can be accessed and integrated with Circle accounts.

Clients include banks and financial institutions, cryptocurrency financial companies, fintech companies, institutional traders, digital content creators, blockchain startups, etc., such as Dapper Labs, Compound Labs, and FTX.

Circle Account

Circle Account provides a platform for payments and storing funds in USDC, allocating funds to yield products. Circle Account enables businesses to make and receive payments instantly to any blockchain-compatible digital wallet globally, providing an efficient and inexpensive alternative to traditional bank payments, currently covering banks in over 90 countries.

Circle Yield

Circle Yield offers short-term interest rate products fully collateralized by Bitcoin, built on USDC. All collateral is held by BitGo. Note: BitGo is a third-party custodian with over 400 institutional clients, partnered with Genesis Global Capital, a full-service digital asset trading company. Since its official launch as a self-service product in February 2022, Circle Yield has grown to approximately $248 million, with annual yields of up to 6.3%. Its interest rates come from the yields Circle earns from borrowers in the blockchain lending market, currently only open to institutional clients.

(As of September 21, 2022, the Federal Reserve's interest rate was adjusted to 3%-3.25%.)

API Services

Circle's application programming interface (API) extends the functionality of Circle accounts, allowing clients to fully automate Circle payments and infrastructure and integrate them into their own payment and financial applications. It offers four types of API services: Account API, Payment API, Payout API, and DeFi API.

Use cases:

• Dapper uses Circle's infrastructure and USDC settlement to support global payments for the NFT market;

• Visa integrates USDC into VisaNet, allowing its cardholders and issuing institutions to use USDC for transaction settlements, thus bridging the gap between digital currencies and mainstream merchants;

• FTX uses Circle APIs to support its global exchange and brokerage product suite. Circle APIs enable FTX to provide a secure and seamless deposit and withdrawal experience for crypto investors.

• ……

Integration Services

Integration services are designed to support the on-chain application of USDC, including integration with Circle accounts and Circle API services. By enabling USDC to operate across multiple chains, it expands the use of Circle products and infrastructure in a wide range of payment, commercial, and financial applications, including higher transaction throughput and lower blockchain network fees.

3. SeedInvest

SeedInvest is one of the largest internet equity crowdfunding platforms in the U.S., acquired by Circle in October 2018, with financing amounts ranging from $5 million to $30 million. To date, SeedInvest has over 630,000 investors, helping 235 startups raise funds online, having raised over $400 million. Several companies in the SeedInvest portfolio have announced plans to go public, including the clean energy company Heliogen, valued at $2 billion.

SeedInvest's products include end-to-end services required for crowdfunding, due diligence, securities issuance, investor accreditation, payment and securities custody, as well as a range of innovative tools for startups to sell crowdfunding products online in a compliant manner. With regulatory approval, it will also support investments priced in crypto assets, including stablecoins like USDC, and the issuance and provision of tokenized securities, thereby reducing friction in the equity crowdfunding market.

For investors, SeedInvest provides individuals with the ability to invest in the primary market, an asset class that most retail investors have historically been unable to access. Investors can even invest just a few hundred dollars, enjoying an investment experience as simple as online shopping. This democratizes opportunities to invest in high-potential growth companies and provides a fairer competitive environment for early-stage companies and entrepreneurs. Competition USDC's competitors include:

• Traditional payment platforms. Competitors include existing bank settlement networks, such as SWIFT and ACH, as well as higher-level payment networks like credit card payments, and new digital payments like Square and PayPal.

• Other stablecoins. There are currently hundreds of stablecoins based on different digital assets in the market, including dozens of dollar stablecoins, stablecoins backed by other fiat currencies, stablecoins pegged to the dollar using crypto assets as collateral, and algorithmic stablecoins. By market capitalization, the largest dollar stablecoin is USDT, provided by a subsidiary of the Hong Kong cryptocurrency exchange Bitfinex. Although it has struggled to gain attention from compliant financial institutions and mainstream market participants, USDT remains popular in the Asian market and exchanges. Other competitive dollar stablecoins include the white-label stablecoins operated by Paxos, including BUSD and HUSD, which are the main stablecoins offered by the exchanges Binance and Huobi (now renamed Aboutbi).

• CBDC. Some national governments are also actively promoting the issuance of central bank digital currencies. However, CBDCs still represent the centralized will of the U.S. central bank, embodying complete compliance with government regulation, which may be difficult for the crypto community, founded on the spirit of "decentralization," to adopt on a large scale and support free and open innovation.

Competitors facing the TTS business include:

• Circle Account products primarily face indirect competition from institutional accounts, such as cryptocurrency brokerage firms or exchanges like Coinbase, Binance, or Gemini, which also open accounts, but these accounts mainly focus on investing and trading crypto assets, while Circle Account focuses on payment and funding services.

• Circle Yield indirectly competes with lending products from companies like BlockFi or BitGo, which offer lending services for various crypto assets. More broadly, it also competes with traditional financial service companies that provide yield products.

• The trading services provided by Circle API face various direct and indirect competition, including clients building their own solutions by integrating different banks and processing relationships, storage and wallet infrastructure, and blockchain management software. Some direct competitors of Circle's API services include PrimeTrust.

SeedInvest's competitors include:

• The growing and fiercely competitive equity and debt crowdfunding market. Regulators are also continuing to embrace crowdfunding; according to the latest changes in SEC guidelines, the issuance of crowdfunding regulations (Reg CF) and Regulation A+ (Regulation A+) allows companies to raise funds via the internet, creating more demand and leading to more intense competition. SeedInvest faces competition from companies providing similar services, including StartEngine and Republic. SeedInvest's advantage lies in its closer and deeper relationships with key investors, supporting larger-scale financing.

Regulation Most states in the U.S. and certain regions require licenses to engage in certain currency trading services, including trading in digital assets. Circle has obtained licenses to operate as a remittance agent or equivalent institution in states and the District of Columbia and Puerto Rico where licenses are required, including obtaining a BitLicense from NYDFS and registering as a "Money Services Business" with FinCEN.

Outside the U.S., the activities of Circle's overseas subsidiaries are supervised by the financial regulatory authorities in the jurisdictions where they operate and are licensed to provide services in those jurisdictions. Currently, Circle holds an electronic money institution authorization from the UK's Financial Conduct Authority ("FCA") and an F license from the Bermuda Monetary Authority ("BMA"). Circle complies with the rules and regulations applicable to the financial services industry in the UK and Bermuda, including those related to fund management, corporate governance, anti-money laundering, disclosure, reporting, and inspection.

Circle is the most compliant institution in the stablecoin field, and its deep partner Coinbase is also the only compliant listed exchange, making them the best representatives of traditional capital and compliance power in the crypto market.

Business Model

USDC Circle earns interest income from the reserves supporting USDC (mainly dollar cash and U.S. Treasury bonds), with USDC interest income primarily generated from the circulating USDC and reserves.

The global demand for on-chain transactions continues to grow, driving the circulation of USDC and the use of USDC in on-chain transactions, supporting a range of payment, financial services, yields, and other use cases. USDC has become one of the fastest-growing dollar digital assets in the world. As of November 2022, USDC's circulation exceeded $43 billion and has supported over $3.77 trillion in on-chain transactions. TTS Circle Account

Circle Account provides businesses and institutions with an integrated account for storing, sending, and receiving digital asset payments. Circle Account is offered free to clients and provides an important bridge between existing banks, currencies, and digital asset payments and financial services.

Yield Services

Circle Yield was launched in Q2 2021, bringing regular yields to investors holding USDC, with yields generated by Circle lending USDC to borrowers in centralized lending markets, with an annual yield of up to 6.3%.

Circle API Services

The revenue from API services is divided into two parts. One part is the monthly subscription fee that clients typically need to pay, which we classify as subscription-based trading service revenue. The other part is the fees clients pay when using Circle API services for specific transactions, which we classify as volume-based trading service revenue.

It is expected that most of the revenue from TTS will continue to be driven primarily by volume-based revenue. SeedInvest SeedInvest primarily earns revenue through investment banking fees paid by financing parties and transaction processing fees paid by investors.

For most transactions, Circle receives a cash fee of 7.5% of the total financing amount as an investment banking service fee. Additionally, Circle also receives equity in the corresponding company, equivalent to 5% of the amount raised through the platform. This equity is classified as part of the investment banking fees.

Circle also earns transaction processing fees from investors, charging 2% of the investment amount for a given investment, covering various administrative costs associated with processing investments for investors.

In the short term, we expect investment banking fees to continue to be the main driver of SeedInvest's revenue, thus these revenues depend on SeedInvest's ability to continue attracting financing parties, especially those seeking larger transactions.

Revenue

According to the prospectus Circle submitted to the SEC in May of this year: Circle generated $84.877 million in revenue in 2021, of which $47.547 million came from TTS, $28.464 million from USDC, and $8.866 million from SeedInvest, representing increases of 1736.5%, 541.8%, and 5.3% respectively compared to 2020.

The company expects total revenue from the three business segments to reach $562 million in 2022, with earnings before interest, taxes, depreciation, and amortization of $76 million. However, given the current macro environment, we believe that the 2022 target may be difficult to achieve.

Team

Circle's management team is the top team in the stablecoin sector, with extensive experience in digital currency, internet technology, fintech, financial services, and compliance.

• Co-founder & CEO Jeremy Allaire is a serial entrepreneur who has served as the founder and CEO of Brightcove (now public), a partner at General Catalyst, CTO of Macromedia (acquired by Adobe), and co-founder and CTO of Allaire Corporation (now public). In 2013, Circle was born, marking his third all-in venture after founding two public companies.

• CFO Jeremy Fox-Geen has 25 years of experience in corporate finance and financial services, previously serving as an executive at iStar and Safehold, McKinsey, PwC, and Citigroup.

• Chief Strategy Officer Dante Disparte has decades of experience in global finance and risk issues, previously serving as Executive Vice President of the Diem Association, responsible for engaging with government and financial industry leaders worldwide on the issues and opportunities presented by stablecoins and digital currencies.

As of December 31, 2021, Circle had 404 employees globally and has successfully transitioned to a "remote-first" working model to attract top talent from various industries worldwide.

Glassdoor has a total of 103 reviews, with Circle receiving an overall rating of 4.1, with 93% of reviewers expressing a positive attitude toward the company, believing that the business is at the forefront of emerging trends, has good development prospects, and that employees are highly skilled. Negative reviews mainly focus on the fast-paced work environment, lack of work-life balance, and the complexity of multiple business lines without clear main lines.

Financing and IPO

As Circle has reaped the largest dividends from the crypto economy, it is often criticized for being another "scythe" supported by traditional Wall Street capital. Below is Circle's financing history:

In fact, not only USDC, but due to fierce competition in the sector, successfully launching a stablecoin project requires not only substantial startup capital as backing but also strong market-making capabilities, making this sector almost always a feast for institutions. In addition to Circle's strong capital backing, Tether is backed by Bitfinex, and MakerDAO's DAI is backed by a16z.

Circle is also making a push into the secondary market. On February 17, 2022, Circle reached new transaction terms with the publicly traded special purpose acquisition company Concord Acquisition Corp, setting Circle's enterprise value at $9 billion, higher than the $4.5 billion announced in July 2021.

The increase in valuation reflects improvements in Circle's financial outlook and competitive position. USDC is one of the fastest-growing dollar digital currencies, with a continuously increasing market share. Since the initial announcement of the transaction, the issuance of USDC has more than doubled, reaching $52.5 billion as of February 16, 2022.

On July 19 of this year, according to decrypt, Circle CFO Jeremy Fox-Geen revealed that regardless of market conditions, Circle will go public by the end of 2022 through a SPAC (Special Purpose Acquisition Company).

Risks

Recent Declines As previously mentioned, Circle's unparalleled compliance advantage has also become its biggest constraint and shadow.

Since the U.S. Treasury announced sanctions against the mixer Tornado Cash in August, Circle directly froze USDC funds in the wallets of related users, causing dissatisfaction in the crypto community and leading to Binance's delisting of USDC. With the recent conclusion of the battle between Binance and FTX, the overall pessimism in the crypto industry has further brewed, along with the entire market, the circulating market value of USDC has also been continuously declining.

Considering a series of chain reactions, we believe that the recent decline in USDC's market value is mainly due to the following reasons:

• The stability of USDT has been proven. Wes Hansen, Director of Trading and Operations at Arca, stated: "After the collapse of Terra, there was a strong move to sell USDT and switch to quality USDC due to concerns that USDT would also drop to $0. However, once concerns about USDT's collapse dissipated, investors began to turn to the most liquid stablecoin, which is USDT."

• Circle complied with government sanctions against Tornado Cash. Messari research analyst Dustin Teander told CoinDesk: "Since the announcement of the Tornado Cash sanctions on August 8, approximately $4 billion of USDC has left the Ethereum ecosystem, and USDC's market share on Ethereum has decreased by about 3%."

• Binance delisted USDC and other dollar stablecoins. Teander said: "In the past 7 days, USDC pools accounted for over 50% of swaps, generating 77% and 63% of fees in the top Uniswap V3 pools, respectively." MakerDao proposed Endgame in response to a series of regulatory issues regarding Tornado Cash, planning to gradually reduce reserves of real-world assets like USDC to combat censorship.

• The market sentiment brought about by the collapse of FTX has plummeted. FTX, once the second-largest exchange in the market, faced issues such as chaotic ledgers and misappropriation of customer funds, which were enough to bring down Binance. This is the fall of a larger giant following Luna and Three Arrows Capital, and as the price of FTT nears zero, the entire crypto market has also seen significant declines, including the market value of a series of stablecoins.

Future Possibilities Circle stands between the crypto community and regulation, its contradiction lies in the fact that its profit model and IPO plans are based on web2 practices while it must strive for web3 users, creating an inherent conflict between regulatory will and community preferences. This presents a difficult and delicate test for Circle on how to navigate such contradictions.

Based on this, we can make two expectations:

Downside Scenario

1/ A prolonged global crypto bear market

2/ Escalation of conflicts between regulation and crypto, leading to compliance-oriented USDC facing industry resistance and suppression

3/ With Binance's industry monopoly, user trust in CEX collapses, shifting towards DEX and crypto-native stablecoins

Upside Scenario

1/ The global crypto bear market quickly recovers, entering a bull market

2/ Circle continues to maintain its current advantages, ranking among the top five in the stablecoin sector

3/ Regulatory tightening leads the crypto community to largely yield to compliance, making USDC the number one stablecoin in the sector

Currently, it seems that Circle, in order to ensure a smooth IPO, will lean more towards regulation, so its upper limit is likely to become the spokesperson for the dollar in the cryptocurrency field, and it is not ruled out that the future web3 world will fork into compliant web3 and gray web3, which we will wait and see.

Valuation Analysis

A $9 billion valuation was announced on February 17 of this year, considering that at that time USDC had nearly reached its peak market value of $53 billion after explosive growth in 2021, there is no doubt that the Circle team had infinite expectations for the company's future. However, with the bear market's cooling, we must also lower our expectations for Circle. A $9 billion valuation clearly contains the prosperous bubble of the last bull market, and as the noise settles, the industry's future uncertainties and the competitive landscape fraught with crises make it difficult for us to remain optimistic. We attempt to anchor Circle's valuation against the crypto market's performance and the market capitalization of the already listed exchange Coinbase.

On February 17, 2022, the total market capitalization of the crypto market was $1.9 trillion, and as of November 9, the total market capitalization of the crypto market has fallen to $920 billion, a decline of 51.6%.

We extract the data of Coinbase and Circle during the same period, with Coinbase's market cap dropping from $49.54 billion on February 17 to $13.31 billion on November 9, a decrease of 73.1%.

USDC's market value fell from $52.55 billion on February 17 to $42.74 billion on November 9, a decline of 18.7%, which is less than the overall decline in the cryptocurrency market.

In its prospectus, Circle expects its revenue to reach $562 million in 2022, and a $9 billion valuation corresponds to a 16x 22' PS. Similar crypto-friendly bank stocks currently cannot enjoy such a high multiple; for instance, Signature Bank, with a market value of $9.6 billion, has a 22' PS of only 3x, with P/B and 22' P/E of only 1.2x and 7x, respectively, while another bank, Silvergate Bank, with a market value of $1.9 billion, has a 22' PS of close to 4x. Meanwhile, in the current market environment, we are not optimistic about Circle achieving its revenue guidance of $562 million this year.

Circle's Ambition

A $9 billion valuation is certainly expensive, and few players can afford such a price, and this price also resembles a "beautiful signboard," behind which is the proof of capital groups like Coinbase to regulators and the crypto market, serving as a "step-by-step" approach in the "battleground" of "continuously delivering fiat currency into the crypto market."

Circle's two core businesses both have significant strategic importance.

First, stablecoins have always borne the responsibility of "delivering fiat currency into the crypto market," and our crypto assets are often held in the form of stablecoins. Exchanges can be said to be the "borderline between the crypto market and the fiat market," and stablecoins have become the "battleground" for every exchange, with almost every major exchange having its promoted stablecoin project, such as Binance's BUSD, Huobi's HUSD, and Coinbase's USDC… Stablecoins and exchanges combined, whoever can occupy a larger market share can continuously collect tolls on the borderline.

Circle's greater ambition is reflected in its TTS business, as its years of efforts to rebuild the world's economic infrastructure are almost impossible to replicate. Circle has seamless integration with existing banks and payment networks, with 7 years of experience in KYC/AML compliance, supporting interoperability across multiple blockchain networks and risk management against fraud… All of this helps Circle steadfastly achieve its mission ------ "to enhance global economic prosperity through frictionless exchanges of financial value." Although we do not have great confidence in USDC maintaining its leading position among stablecoins, thanks to its diversified products, good relationships with traditional banks and governments, and its construction of a new financial system based on blockchain, we are optimistic about Circle becoming a bridge and envoy between traditional capital and the emerging crypto market, playing a significant role at the crossroads of regulatory upgrades.