Takeaways from Circle’s first post-IPO earnings call

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The most-repeated words on Circle’s first earnings call as a public company came from analysts: “Congrats on the IPO.”

But another prevailing sentiment related to the stablecoin issuer’s upcoming launch of a layer-1 blockchain called Arc. USDC will be the native asset for transaction fees; the blockchain’s litepaper notes the network would also support other local stablecoins. 

Designed to let financial institutions build products and services onchain, Arc is set to go live by the year’s end, executives said.  

“[With] Arc, we want to underpin all stablecoin finance — payments, FX, capital markets applications,” Circle CEO Jeremy Allaire said on this morning’s call. 

This follows a Fortune report that Stripe is building a payments-focused layer-1 blockchain of its own (you might remember Stripe’s purchase of stablecoin platform Bridge last year). And Robinhood revealing a layer-2 blockchain plan too. 

It’s becoming harder to find people denying the growth potential of a stablecoin market that currently stands at $260 billion. USDC in circulation grew to ~$61 billion at the end of Q2 — a 90% year-over-year increase. That figure was ~$65 billion on Aug. 10.

Allaire mentioned more trading firms, asset managers and the like wanting to move between tokenized yield-bearing collateral and digital cash. Our readers have heard that before. 

Circle got into this game in January via its buy of Hashnote, issuer of the US Yield Coin (USYC). It more recently revealed last month that Binance institutional customers could use USYC as off-exchange collateral for derivatives trades. 

“We hope and expect that we will deploy this kind of architecture in more digital asset exchanges and ultimately on major traditional clearinghouses,” Allaire said.

More broadly, Circle’s Q2 revenue/reserve income totaled $658 million. The company attributed its quarterly net loss of $482 million to IPO-related non-cash charges. Circle’s adjusted EBITDA of $126 million was 3% above Wall Street expectations.   

CRCL shares were trading around $166 at 1:30 p.m. ET — up 3% on the day. The stock quickly surged way above its IPO price but has dropped more than 40% from the nearly $300 peak it reached on June 23.

Compass Point analysts Ed Engel and Abdullah Dilawar said in a Tuesday note that they expected Circle to notch a higher gross margin than the $251 million it tallied in Q2. That was because of Binance’s USDC balances dropping and Coinbase’s on-platform USDC being down from Q1, they noted.

Alongside the Binance USYC news, Circle last month linked up with OKX and fintech FIS. 

“While CRCL’s lower margin guidance could be due to conservatism, CRCL’s recent partnerships don’t seem to benefitting the near-term margin outlook,” Engel and Dilawar wrote. 

Clearly the company continues to build products, with its Circle Payments Network launch in May, and now Arc. As for inorganic growth via M&A, Allaire said the company would be “careful and deliberate.”

He added: “I don’t think our strategy here is to go try and do big, complex acquisitions to kind of throw additional business lines next to what we do. I think we take a full-stack integrated platform view…and so we only want to do things that really fit clearly in that kind of product mandate.”

Circle obviously remains a top stock to watch amid a growing universe of public crypto firms.

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