Reading Circle’s 2023 stablecoin report on the state of the USDC economy, something seemed to be missing. At first it wasn’t obvious. The impressive report highlights the potential for growth and Circle’s role in making cross border payments faster and cheaper.
The paper’s order was unconventional. It started with the potential in different continents, with the United States covered last. Circle outlined its array of high quality partners in each region.
But the fact that the company’s statistics were at the end of the report seemed a little off. If you’re proud of the performance, wouldn’t that come first? The company has recently confidentially filed for an IPO, so one has to read the report in that context.
Circle was upfront that its market capitalization has fallen from $45 billion to $25 billion. It attributed the reason to the lack of returns on stablecoins in a high interest environment. While that’s undoubtedly true, the report didn’t mention that USDC lost its peg owing to the March 2023 collapse of Silicon Valley Bank. Of course, the less trustworthy Tether has gained from Circle’s misfortune. The crypto winter, high interest rates and de-peg combined explain most of the negative statistics. Some have criticized Circle over the USDC de-peg, often based on flawed data (covered later).
The stablecoin stats and omissions
Some of the statistics provided included 2.7 million wallets with a $10 or more balance, a growth of 59% during the last year alone. Cumulative transactions processed since 2018 surpassed a jaw-dropping $12 trillion. And there were 595 million transactions in 2023.
Bingo, there’s the missing statistic. Where are the 2023 dollar transaction volumes? That’s a key metric for a payments firm.
For 2022, the figure was $4.5 trillion. The payment volume figure dropped to $3.4 trillion for the first 11 months of 2023. Ledger Insights deduced that figure by comparing the cumulative stats in last year’s Circle report.
As highlighted, there are good reasons for the decline, mainly beyond Circle’s control.
Another stat didn’t quite go in Circle’s desired direction. Since day 1, the company has wanted to play a major role in real world payments. The metric it uses to measure this is wallet-to-wallet payments that don’t go via exchanges or service providers. In last year’s report the cumulative figure was 15% of transactions. This year, the statistic is 12%, but the comparative highlighted here was omitted.
In fairness, the metric itself is imperfect. Quite a few transactions that go through service providers might also be real world payments. After all, many people only use crypto via exchanges. However, given the numerous exchange bankruptcies, one would expect more self-hosted wallet usage and more wallet-to-wallet payments, not fewer.
That last point might explain the massive growth in USDC wallets. In the past, many people held all their crypto via an exchange, including stablecoins. With trust eroding in exchanges, some people might have moved balances to self-hosted wallets, exaggerating the growth figure. However, the increase could just as easily have been genuinely new users.
Unfair criticism re the SVB de-peg
Meanwhile, there have been a few critiques of Circle over the 2023 de-peg, which may not have been entirely justified. Firstly, many assumed that the $3.3 billion deposit at SVB was the vast majority of the cash in USDC’s reserves. That’s incorrect. At the time, Circle held 20% of reserves in cash, so around $9 billion. So it was a large proportion – perhaps a little too large – but around 36% rather than 90% of cash reserves.
Since the bank wobbles, larger stablecoins including USDC, have reduced their proportion of cash. However, based on the data it had at the time, a higher proportion of 20% in cash was a more conservative position, enabling faster liquidation if necessary.