A Major Stablecoin Issuer Aims to Go Public. The Crypto Crash Will Make It Tougher.

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Stablecoins are the foundations of crypto trading.

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Circle Internet Financial, backer of the “stablecoin” USD Coin,
says it remains committed to its $9 billion merger with Concord Acquisition,

But getting the deal through the Securities and Exchange Commission is turning into a long and arduous slog, and the crypto market crash may only be making it tougher.

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Stablecoins are digital tokens typically pegged to a dollar and backed by reserve assets. USD Coin, or USDC, is the second-largest stablecoin on the market, after Tether, worth $52 billion in outstanding issuance.

Jeremy Allaire, Circle’s co-founder and CEO, said on Wednesday that he had initially thought a merger with Concord (ticker: CND), a special-purpose acquisition company, would take six to eight months. Circle announced the deal with Concord in July 2021, valuing the fintech at $4.5 billion.

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Ten months later, the SPAC merger is still awaiting regulatory approval at the SEC. In the meantime, Circle agreed to revised Concord that boosted the fintech’s enterprise value to $9 billion.

Circle and Concord now have until Dec. 8 to complete the merger, with the potential to extend that date to Jan. 31, 2023.

If the deal falls apart, it would hardly be the only one dying in this market. The number of busted de-SPACs–where a blank-check company agrees to a merger with a business but then terminates the deal–has increased this year to about 20, according to data from SPAC Research. This is up from 19 terminated deals in all of 2021.

Allaire said Circle is still all-in on the merger, adding that it’s “a complex business, a new type of financial platform.” The company is moving through the process with the SEC, he added, providing no further insight into timing. Circle is also seeking a federal bank charter.

USD Coin’s issuance has rocketed 262% over the past 12 months, making it the fourth largest token by market value, after Bitcoin, Ether, and Tether. It’s widely used for liquidity in crypto markets, held by brokerages, hedge funds, and individual traders. It also serves as collateral for borrowing on decentralized-finance or DeFi platforms.

Circle is not yet profitable, according to its regulatory filings. But the company is projecting adjusted operating profits of $677 million in 2023, assuming that USD Coin in circulation reaches $220 billion, with 5,000 monthly active customers and $6.4 billion in lending volume

Some of the slowdown at the SEC may be due to more scrutiny of SPAC deals overall. Accounting guidance issued by the SEC in 2020 changed how SPACs handle warrants. The regulator also proposed new regulations this past March that would make the disclosures and obligations around SPACs more like those of an IPO. SPACs, under the proposed rules, will have to disclose details about sponsors’ compensation and potential conflicts of interest.

This year, just 66 SPACs have gone public as of May 11, valued at $11.4 billion, according to Dealogic. This compares to 315 blank check companies that collected $102 billion for the same time period in 2021.

But the crypto crash and collapse of the TerraUSD stablecoin may only make the SEC even more reluctant to approve Circle’s merger with Concord.

Stablecoin rules are likely to emerge in Washington, either through bills now in Congress or orders from the Biden administration.

“We are now working with Congress to advance legislation to help ensure stablecoins are resilient to risks that could endanger consumers or the broader financial system,” Treasury Secretary Janet Yellen said in a recent speech.

Were the SEC to give Circle a greenlight, it could be viewed as a seal of regulatory approval–something that isnt likely under the SEC’s Democratic Chair Gary Gensler, who has been critical of cryptos and called for tougher rules. In April, Gensler said the agency plans to exercise more oversight of the crypto market and warned that stablecoins are so critical “that a loss of the peg or a failure of the issuer could imperil one or more trading platforms, and may reverberate across the wider crypto ecosystem.”

Allaire said Circle has benefited from the TerraUSD collapse and a brief spell of Tether losing its dollar peg. Circle’s outstanding issuance picked up 7% in the wake of those events, while Tether’s issuance has fallen by around $9 billion.

Terra and “that whole ecosystem was a source of froth,” Allaire said. “Our view was this was a house of cards,” he added, saying a “flight to quality has taken place.”

Whether the SEC agrees with that sentiment remains to be seen. An SEC decreased to comment.

Corrections & Amplifications, Circle Internet Financial is projecting adjusted operating profits of $677 million in 2023, assuming that USD Coin in circulation reaches $220 billion, with 5,000 monthly active customers and $6.4 billion in lending volume. An earlier version of this article incorrectly said that Circle is projecting adjusted operating profits of $76 million in 2023, assuming that USDC in circulation reaches $190 billion, with 30,000 institutional accounts and $50 billion in lending volume.

Write to Luisa Beltran at [email protected]

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Credit: www.marketwatch.com /

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