Chaos, doubt & FUD has taken hold of crypto investors as we deal with the contagion from collapsing crypto hedge funds & exchanges. And the ripples from Terra’s de-peg have shaken the world of stablecoins with allegations & rumors now at Circle’s doorstep. How is the issuer of the world’s second-largest stablecoin, USDC fairing? Are its assets safe? Are USDC holders safe in case of bankruptcy? How has USDC managed to increase its market capitalization in these chilly times? And what are the company’s plans for the crypto winter? Get all the inside details on this exclusive one-on-one conversation between Jeremy Fox-Geen, Chief Financial Officer of Circle, and Forkast’s Editor-in-Chief, Angie Lau.
Angie Lau: Welcome to Word on the Block, the series that takes a deeper dive into blockchain and all the emerging technologies that shape our world at the intersection of business, politics and economy. It's what we cover right here on Forkast.News. I'm Editor-in-Chief Angie Lau.
Well, USDC, the stablecoin created by Circle is the second largest stablecoin in the world. How is it holding up in this age of crypto contagion? How secure are its assets? And if it's all about minimizing risk? Exactly how is Circle doing that right now? We find out today. Very pleased to be here – we are in conversation with the chief financial officer of Circle, Jeremy Fox-Geen to get an answer to that question and so many more.
Jeremy, it's great to have you.
Jeremy Fox-Geen: Angie, it's great to be here. Thank you.
Angie Lau: Okay. So let's just call it out. The market is extremely nervous. There is currently a market cap of 55 billion potentially going on to 60 of a billion dollars worth of USDC on the line. If we see an un-peg the way that we're seeing others unravel, there is just going to be a lot of wealth, destruction. If there was a bank run and investors wanted to hypothetically withdraw that $55 billion worth of USDC today, could it? And could you redeem all of those redemptions?
Jeremy Fox-Geen: Well, the first thing to understand is how we hold USDC, how we manage the reserve, and how we're regulated to ensure that we can meet redemption demands, even in the most extreme stress scenarios. Fundamentally, it’s the assets that back the stablecoin, and where they’re held, that are the critical questions to understand, to answer your question.
As you know, and as I think — as I hope — everyone knows, trust and transparency are at the heart of everything we do. We hold the USDC reserve 80% roughly in short-duration U.S. Treasuries and 20% roughly in cash within the United States banking system, and we have advanced liquidity operations capabilities, and our customers can mint and redeem USDC on-demand using our APIs. Fundamentally, what that means is we have US$10 billion (to) US$15 billion of cash at hand to satisfy immediate demands, and U.S. Treasuries themselves are the most price-stable, liquid assets in the world, with a daily trading volume of something like US$650 billion, and they can settle on the same day or at the very least T-plus 1.
So, our customers could redeem all of (their) USDC in one day. We could process those redemptions, and the only limits to the time that they would get their U.S. dollars back are the limits in the settlement systems of the fiat currency banking system itself.
Angie Lau: Uncertainty and doubt, fear, uncertainty, doubt, this is classic FUD situation that we're experiencing all right now. There is just a lot of hesitation now about where the industry is going, what is it doing? And Circle really is at the heart of that play. You are trying to navigate this space and thus far have really kept within the rails and work with regulators and try to get the the bigger institutions in the mainstream institutions into the space. Is that now at risk?
Jeremy Fox-Geen: No, we don't think so. We are committed at Circle to safety, to stability and transparency, and that's the hallmark of everything we've done since we launched USDC from the beginning. And in terms of larger institutions, I think the world at large, leaving aside the current market conditions within the crypto world and the crypto asset universe, the world is beginning to understand the real promise of blockchain technology.
The world is beginning to understand that just like billions of people use the Internet every day to exchange information, so one day will billions of people use the Internet enabled by blockchain technology to exchange value in new ways and in old ways and in ways we haven't even begun to invent yet. Large institutions are beginning to understand that, and we're seeing more and more and more businesses, the leading businesses, the class category leaders and everyone behind them, seeking to understand this new world and how their models of commerce can evolve.
Angie Lau: Jeremy it is a very rare chance to sit down with you directly, CFO of Circle. And I wonder, how are you responding to a lot of the allegations that are circling on the Twittersphere that have gotten a little bit of traction? I'll start with this one – that Circle is paying to signature and signet banks that are silvergate rather a 5% interest to hold those assets. And I'm curious, you know, how does that relationship work? What is the exposure that that presents in of itself? And why are you paying if you are 5% interest for those banks to hold USDC?
Jeremy Fox-Geen: You talked about the FUD that's reverberating through the markets. To us, FUD is just FUD, most of it, much of it is not based on fact, it's speculative. And so we can address kind of pieces of it, but at the same time bring it back to the fact that our business model is rooted in minimizing risk for USDC and transparency around everything we do. Now, to the specific question you just mentioned, the answer is no, we don't. The concept is absurd, and the writer doesn't really understand how banks work.
Angie Lau: So if you have these relationships, the relationship is also that they hold the USDC in reserve for banks to do business. Those reserves also have to be put to work. The concern is with the contagion that we are seeing really across the space with three AC, with Voyager Digital, with BlockFi, with Alameda Research and FTX have bailed out. You know, we're seeing we're seeing withdrawal freezes from Celsius and CoinFlex. These are all really big players in the space and customers that are interconnected through and perhaps directly or indirectly to Circle. How can you explain the exposure that Circle may or may not have and how? How are you assessing it, addressing it, if it has been impacting on on Circle's bottom line?
Jeremy Fox-Geen: First piece is just understanding how USDC works. USDC is a digital asset and it's a bearer asset that exists natively on the Internet. So at its most basic level, when one of our customers wants to create a USDC, they send us a US dollar within the United States banking system that goes into the USDC reserve, and then we mint one usdc into that customer's Circle account.
The reserve itself is segregated from all of the rest of Circle. It's held in segregated accounts titled for the benefit of USDC customers, and it's afforded the legal protections given to us because we are regulated and USDC is regulated as a stored value asset under United States state money transmission laws. And so those laws and that segregation ensure that the USDC Reserve is complete and separate from anything else that Circled us. So that's the first piece to understand. So a holder of USDC can always be confident that they can redeem it at any time, one for one for a US dollar.
The next question you asked was around the sort of the borrowing and lending markets of digital assets more broadly, as we see with any sort of new markets and new innovations, there's a lot of and innovation is a good thing. Frankly, responsible innovation is the right thing and the best way to do it. But those customers are suffering. And it's important to take a moment just to acknowledge that underpinning the last several years of growth in digital asset markets, to the extent that Alan Greenspan would have probably have called irrational exuberance in the digital asset markets. Underpinning that, a real customers who've put their money to work and have put their money at risk often without knowing the risks and without having the risks clearly explained to them.
Did people communicate how much risk they were taking to their customers? Were promises made and not kept? And we'll unpick all of that as an industry. But you're right, those markets are challenged right now.
Now onto Circle. Circle has never been stronger financially. We have de minimis exposure to any of the issues that are currently unfolding in the borrowing and lending markets for digital assets more broadly.
Angie Lau: To be super, super specific USDC reserves held and segregated from Circle as a business. And is there any way that Circle can tap into USDC reserves that are backed by short term Treasury bills, cash, 80:20 mix – I think you you mentioned – to shore up its own business to potentially in a bankruptcy knock on word, God forbid. Nobody wants to see that for anyone. But in a in a bankruptcy situation, which unfortunately we are seeing in the space right now that Circle cannot touch. USDC reserves to shore up its own survival.
Jeremy Fox-Geen: That is correct. So let me explain. Circle is a regulated financial services company. So there are rules, and there are laws that say what we can and cannot do. And we're in the United States and we follow those rules and those laws that is foundational to our business.
We're not looking to make a quick buck, so we are building what we aspire to be the elements of fundamental infrastructure for this future financial system that the world is going to build on blockchain technology. To your questions, Circle is not allowed to use the USDC Reserve for any purpose other than to give it back to USDC holders on demand. And that is unlike a bank with deposits. That is unlike an exchange when you put your money into an exchange, and that's certainly unlike any unregulated institution where there are no rules about what that institution can do with your money. So unlike a bank, unlike an exchange, unlike any unregulated institution, we cannot use the USDC Reserve in any way. We cannot lend it out. We cannot borrow against it, and we cannot use it to pay our bills. Now, second question was about bankruptcy.
Under United States bankruptcy law. The USDC Reserve is shielded and afforded protections by those laws. Such that creditors of Circle cannot access the USDC reserve.
Angie Lau: So I grilled you there pretty hard. Jeremy, I probably have a few more to do. And you've
Jeremy Fox-Geen: That's your job, Angie.
Angie Lau: That is my job. You've been you've been very clear on some specific points. One thing is, post collapse of UST. We've seen a lot of redemptions. There's some competitors in this space Circle is not the only one. It is the second largest stablecoin in the world, it is not the only one. Tether is the largest. But you are catching up. Your market cap is around 55 right now. You've gained 6 billion during that window, the same window when Tether lost about $16 billion in market cap. First of all, how were you able to do that and why?
Jeremy Fox-Geen: So, I'd focus listeners’ minds on what we do, and not really talking about what others do. We started from the very beginning, and we set out to build the most trusted, robust, stablecoin possible. That’s not just how the reserve is held. That’s added layers of transparency, and that's operational issues as well. That's robust liquidity management. That’s API so our customers can mint and redeem 24/7, 365, in certain cases, with certain customers, with certain relationships where banks have enabled that type of settlement.
The institutions that hold the USDC reserve aren’t lending it out in any way to grow USDC. They're just holding fiat currency within the banking system and holding U.S. Treasuries in custody on behalf of USDC holders. So there's no lending out of USDC to grow USDC. All USDC growth is driven by customer activity.
Angie Lau: Want to talk about this sensitive topic of auditing. It's very clear. It's you've been very specific. Why do people and the market feels the need to understand the true breakdown of the underlying assets. Are those audits available?
Jeremy Fox-Geen: Circle as a company has been audited, I think nearly since inception. For many years the USDC Reserve has been audited annually since launch. And that's publicly available for 2021 and 2020 as part of our own public filings with the SEC. But what's important to understand here, because there's again, there's a lot of FUD and misinformation in the market, what's important to understand is what is an audit and what is an attestation.
I get asked all the time, you know, why do you publish attestations? Why not an audit? The answer is there is an audit and it is public. the USDC Reserve has been audited annually since launch in 2018 by a leading global accounting firm as part of Circle's annual financial statement audit. That audit verifies the completeness of the Reserve and the composition of the Reserve, and it tests the controls we have around the reporting that ensures the accuracy of the financial statements that report. Among other things, the reserve and those, as I said, are available publicly and we will continue to publish quarterly financial statements of Circle. But since launch we also wanted to provide the additional assurance of attestations and what that all in attestation is. It's a different type of assurance engagement.
So every month our auditor reviews the statements that we make about the USDC Reserve and says they're true, confirms that true because they've done the testing and those statements say there are more dollars in the reserve than there are tokens outstanding. And those statements also say the composition of the assets that is in the reserve. They also say to some degree where those assets are held, they're all with United States regulated financial institutions.
Angie Lau: So on one hand, yes, you work with small, medium sized businesses, but also big institutions bringing more in. One of obviously BlackRock is is the most notable as as a key investor and partner with Circle. And then on the other end of the spectrum are real people who depend on wealth preservation with USDC. So how are you managing just what a lot of people see as a crisis right now, a crypto winter and navigating that from your point of view and from the executive level at Circle?
Jeremy Fox-Geen: It's a great question. We're navigating it by doing exactly what we've always done, which is build things the right way, which is embrace regulation because it brings benefit to customers. And we think this is. Demonstrated not only by the success of Circle, of Circle and of USDDC and of our other products and services, but also demonstrated by the nature and quality of the institutions that are seeking to build upon our infrastructure or partner with us.
You mentioned some of some of them in your question that BlackRock, the largest, I think asset manager in the world and the largest participant in the capital markets in the world, an institution who manages to to the end of your question, who manages the pension fund money for millions and hundreds of millions of people has seen fit to partner with Circle – is a notable moment for USDC and for Circle and for this industry.
It's a huge signal, that the Reserve is custody of the Treasuries by BNY Mellon, the Bank of New York Mellon, which I think is the largest custodian in the world. Is a signal that it's being done right, but that's just the people working with Circle.
Then there's the people building on USDC. Obviously USDC has been built upon by developers globally from the smallest startups up, but also you have institutions like MoneyGram, one of the leaders in cross-border remittances who said – ‘you know what, we're going to start to use digital assets because they're better for this purposem, we're going to start to use USDC and enable that for our customers’.
So I've just given some examples building on your question of major institutions as well as many, many start ups that are building on USDC, and they're doing so because it's trusted.
Angie Lau: The regulatory space is very much part of the fabric of Circle, and I want to understand that a little bit more. There are plans, as we know, for Circle to and goals to become a bank or banking license. How is that going? Is the Federal Reserve, does it have appetite to to award that designation to Circle? What are you hearing? And and how is that all being played out right now, especially during these market gyrations?
Jeremy Fox-Geen: Again, there's a lot in your questions, bits about Circle and bits about the market as a whole and the gyrations of the market. I think what we're seeing and this may be a statement of the obvious to everyone who follows the industry. We're seeing regulators pay more and more attention and we're seeing lawmakers pay more and more attention. There are some who have been paying attention for a long time and who have wanted to bring more and evolved regulation to the digital asset markets. And they haven't done so because the world wasn't ready.
Now, as you said, with the gyrations in the market and the challenges that many borrowing and lending institutions are facing and the impact of those challenges and of the decline in value on real people and having real impact, we're seeing, I think, an acceleration of regulation of digital assets. We've just seen MICA in Europe, there's several proposals in the United States and there are several agencies, each with different views on how in the United States digital assets should be regulated.
And there are many other countries around the world that have advanced digital asset regulation and we have activities and relationships with many of these regulators globally. So we think more regulation will be coming soon and crisper regulation will be coming soon.
Angie Lau: So Japan recently approved stablecoin issuance, but from major banks only, then you also have the Biden administration coming in with a president's working group saying that stablecoins should be issued by either an entity that is a bank or an entity that would be regulated like a major bank. And so the question is, what are your plans on becoming a bank?
Jeremy Fox-Geen: Our stance is very straightforward – it's whatever the government, the legislators and then the regulators say needs to happen in order to be a well regulated stablecoin issue, we will become. And we have close relationships with all of these regulators at the principal level and with their staffs. And we talk to them all the time, including many of the leading regulators who do not currently regulate us today. We have ongoing dialogs with so they can learn more about our business, more about us, more about how we do business, which is very important.
And they can start the process of thinking at the staff level. How can the rule books that we have today be possibly even applied to a company that looks like this? So there's many, many levels of our own interaction with regulators, and the future pathway isn't settled yet, but I think we're going to see bank and non-bank pathways. If the regulator said you need to become a bank, well, then we'll become a bank.
Angie Lau: In a way, paving the roads in the wild, wild west. That's what we're seeing right now in the pioneering days. And certainly that is the next stage of growth. A lot of people anticipate that that's the that is the speed of construction, as it were. What are your SPAC plans? Do you plan to do your IPO?
Jeremy Fox-Geen: It's a great question. A SPAC is different from an IPO. We announced middle of last year at the beginning of July that we were planning on going public through a merger with a special purpose acquisition company, Concord Acquisition Corp – those plans still exist. We entered into a transaction with Concord. We are under registration with the SCC, eagle eyed viewers may have noticed that we have filed a number of amendments to the registration statement that we first filed in August of last year. That is the normal comment process for the SEC that happens with every IPO, every direct listing and every listing by way of SPAC. The SEC is looking and it's doing its job to ensure that disclosures are complete and robust.
And you can see and some people have even, I think, written about it, you can see the the evolution of those disclosures. So that when we do go public, much as we've been saying, as I've been saying through this conversation, we're doing so with the highest standards of transparency. And so people can really understand what it is they would be buying. We expect the timing of our eventual listing, therefore, is in the hands of the SEC who have been faced with novel industry and novel issues and are doing their own work to make sure that the disclosures that we are volunteering are answering all of the questions that they have, and that is a good thing. So we can't be precise about the timing. Our best expectation is that we will enter the public markets in the fourth quarter of this year.
Angie Lau: Are you worried about where this market is growing? How cold will this crypto winter get?
Jeremy Fox-Geen: Well, we're not worried. But using your words, the crypto winter could get very cold indeed. From a company perspective, we are fortunate, and by intent are in a very strong financial position – so we are able to continue to accelerate our investments in building this future financial infrastructure of programmable money that I talked about a little bit before.
So we are hiring people, we are investing and we are going to continue to do that and we're able to do that whether we're public or private and however long this crypto winter may last.
Angie Lau: You've provided a lot of clarity and really appreciate the time that you spent with us. I absolutely agree that at the end of the day, what doesn't kill us makes us stronger. And when it comes to the concerns that we have in this market, the opportunity today to really dive into the understanding of how markets work, what the interconnection is and how you've been structured, you know, is really one big signal as well.
So, Jeremy, thank you so much for sharing your time with us today on Word on the Block.
Jeremy Fox-Geen: Angie, thank you so much. And just your closing remarks reminded me of a quote, I think, attributable to Bill Gates, which I feel is very relevant now in this time of challenge in our markets. And it was – we always overestimate the amount of change we're going to see in the next two years. And we always underestimate the amount of change we're going to see in the next ten years.
We firmly believe that we're here for the long haul. Thank you, Angie, for your time, tremendously great to be here.
Angie Lau: Absolutely. Jeremy, thank you. And thank you, everyone, for joining us for this very important conversation at Word on the Block. It was great to have you all here. I'm Forkast, Editor-in-Chief Angie Lau. Until the next time.