Stablecoins are a major source of innovation in the payments space.
Since going public on June 5, it’s been pedal to the metal for the stablecoin issuer Circle (NYSE: CRCL), which has seen it’s stock absolutely explode in just a few short weeks. The company priced shares at $31 per share, or a roughly $6.8 billion valuation.
However, once hitting the open market, shares of Circle jumped to $69 and at one point topped $103 per share. As of June 24, shares of Circle had jumped to $248 or a nearly $56 billion market cap, up 700%. After such an incredible run, can you still buy the stock?
Circle is the issuer of the stablecoin USDC (CRYPTO: USDC), which is the seventh largest digital asset with a $62 billion market cap. Stablecoins are digital assets pegged to a currency or commodity; USDC is pegged 1-for-1 to the U.S. dollar. Circle also has other products, like EURC, a stablecoin pegged 1-to-1 to the euro.
The idea of stablecoins is to take advantage of the ingenious technology behind the blockchain while removing the volatility typically associated with cryptocurrencies. Using digital assets, people are able to transfer money seamlessly to anyone with internet access, even if they don’t have a bank account.
This makes stablecoins very useful for cross-border payments and for potentially helping the underbanked population. Circle supports wireless transactions for minting and redeeming USDC in more than 185 different countries.
The company’s business model and strategy are fairly straightforward. Circle wants to increase the popularity of USDC and EURC and the general use of stablecoins. It plans to partner with financial institutions to provide as many on-and-off ramps as possible, where people can easily transfer between fiat currencies and stablecoins.
Recently, Circle took a big step in that direction by announcing a strategic partnership with Fiserv, one of the major players providing core processing capabilities for thousands of banks all over the world. The partnership aims “to jointly explore and develop stablecoin-enabled solutions for financial institutions and merchants within the Fiserv ecosystem.”
Circle makes money through the dollar reserves it holds for each stablecoin, on which it earns a yield. The yield it earns has historically been a small discount to the Secured Overnight Financing Rate (SOFR), or the rate at which banks lend very short term to each other.
