Declining Rates Are Catalyst for Growth, Circle CEO Says

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Watch Declining Rates Are Catalyst for Growth, Circle CEO Says - Bloomberg on Dailymotion

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00:00As Nora was telling us, your third quarter revenue and profit beat endless estimates.

00:04But you look at your stock today and it's down sharply on a full year forecast that includes

00:08higher costs and concern that falling interest rates will weigh on your results going forward.

00:14What are investors not fully appreciating about your latest results?

00:19Well, a couple of things first. Thanks for having me on. We had a very strong quarter.

00:24We saw 108% growth in USDC. We saw our revenues grow 66%. We saw adjusted EBITDA grow 78% to

00:34adjusted EBITDA margin of 57%. That's meaningful growth in the kind of core profitability that's

00:42there. We had major product launches across and growth in our payment network product,

00:47CPN, where we saw 100x growth in the volumes, the sort of monthly payment volumes from the first

00:56month through November 7th. And now on an annualized total payment volume run rate of over $3.4 billion.

01:04We launched the ARK blockchain network, which is an economic quest for the internet. So huge amounts

01:10of progress happening. I think there are a lot of trading dynamics and one can talk about that.

01:16This is our second earnings and we're going to go through our lockup expiry. And so one can take

01:23whatever view they want on that. I think we feel great about the progress, the mainstream partnerships,

01:29the growth in use cases, the actual financial performance. And then I think on the question

01:33of interest rates, what we, I think, have demonstrated in particular over the past two years as the rate

01:39expectations falling came in and then the actual rate declines from its peak about 33% down, we've seen

01:48USDC grow over 300%. And so I have long stated that declining rates are actually a catalyst for growth

01:56for us, a catalyst for growth in USDC, a catalyst for growth in on-chain activity, a catalyst for growth

02:02in investment in this category, in this technology. And so we continue to believe strongly in that.

02:08And that has certainly been the case over the past year and a half through this rate cutting cycle.

02:13Yeah, Jeremy, in a declining rate environment, you won't earn as much interest on reserves that

02:18back up the stable coin. In terms of diversifying revenue, how are you going to do it?

02:24Well, the first thing to note is that a 33% decline in the earning power just during this

02:31decline cycle has been corresponded by a 300% growth in actual circulation. And so declines in

02:38rates lead to more monetary money velocity and growth. And so our strong belief is that that core

02:45franchise actually will respond very well in a more neutral interest rate environment. So I think

02:51that's fundamental. And I think it's something that only time is going to play out, although we've

02:56demonstrated that that has been the case over the past year and a half or so. The other piece is we

03:02are working at the very earliest stages of the development of this internet financial system.

03:09We see this as a multi-decade opportunity to build one of the greatest internet platform franchises

03:15ever built. We're building a full stack internet platform company spanning network operating systems

03:20with ARK as an economic OS for the internet, our stable coin and digital asset business,

03:26which is the core business today, and building applications on top of these platforms like

03:30CPN. We really see this as the model for how major internet platform companies are going to be built.

03:38And we really believe that we're at the very, very beginning, not just of the growth in stable coins,

03:42but the growth in more and more financial market and economic activity actually happening on these

03:48new operating systems that are being built. And we're absolutely leaning into investing to build

03:55out all of these different platforms of businesses. And of course, they all support growth in USDC as

04:00well. So they're synergistic with that as well. So Jeremy, clearly you're moving very quickly to

04:05diversify away from your reliance on reserve yield for revenue. Could you share any kind of timeline

04:09that you're thinking of here in terms of when you would start to achieve some of those milestones and

04:14how big could that non-reserve yield portion be in, say, five years' time?

04:20So, I mean, we're not giving guidance on things like that. I think more importantly is that we're

04:26building the platforms that are going to have massive adoption. So as enterprises, as financial

04:33institutions want to build applications that operate natively, operate financial activity natively on

04:39the internet, we want to build the most widely adopted platforms for that. That's where ARK comes

04:44in. ARK Testnet just recently launched. We had over a hundred major companies, major global systemically

04:50important banks, the biggest asset managers, asset issuers, private credit companies, exchanges,

04:56major payment system operators, all collaborating and building with us. So the opportunity to work

05:02with these and to deploy applications on that network is tremendous. We also announced that we're

05:07exploring a native token for the ARK network. We want to align stakeholder incentives and governance

05:13with the build-out of this new distributed network operating system. And so we're building these

05:19platforms, CPN as well. We're investing in growing that. As noted, we now have 29 financial institutions

05:27on the network. We've expanded the markets. That network is moving money in, doubling, and with a large

05:33number coming online in the near future. We have another 55 financial institutions that are kind

05:39of going through the underwriting to come on the network and about 500 companies in the pipeline,

05:43financial institutions in the pipeline to build on this. And this is an emerging money movement

05:48network, which has tremendous potential for its members and ultimately tremendous potential for

05:53as well. Jeremy, I want to talk a little bit about the competitive environment. I mean,

05:57this is an incredibly competitive space. You've got hundreds of companies that are really looking

06:01to go after the market share that you've had. Tether is returning to the U.S. World Liberty Financial

06:06is a new stable coin issuer. It's associated with the Trump family. Let's start with Tether.

06:12What is the effect on your business of Tether coming back to the U.S. market?

06:16Well, I think what we've seen since the Genius Act passed is that we've accelerated our market share

06:22gains in on-chain transactions and growth. And I think that's been a steady theme over the last

06:30year as well. And so as we move into this mainstream scaling phase, where people want to work with

06:37trusted, compliant, regulated infrastructure providers, we're in a very unique position.

06:43And the data shows that out. We are gaining share. And in fact, there are many people who are trying

06:49to enter this market who have not gained any meaningful share. I think they may have given

06:54away funds to incentivize people. But if you actually look at on-chain activity, actual transactions,

06:59actual liquidity, we're seeing very little traction. And we've long held that this is a winner-take-most

07:04market structure. We're seeing that continue to play out. We see no reason why it will not continue

07:09to play out. And the network moats that we've built, both at an infrastructure level around the

07:13world, the liquidity at scale that exists for USDC, and the platform's utility. Tens of thousands of

07:19applications, products, and services integrate, which creates really powerful developer flywheels

07:23and network effects. Those are going to continue. So we feel very good about our position right now.

07:29And I think there's certainly a lot of interest in this space. I think what you'll see is many of

07:35these major payments firms, financial institutions, banks, and others, you'll see them partnering with

07:40companies like Circle and integrating infrastructure from companies like Circle versus really trying to

07:46build their own stable coins. You have distribution deals with Coinbase and Binance, but I know that

07:51you've been trying to get more USDC to sit on your platform where you don't have to share revenue with

07:55some of those partners. What's your strategy for growing that portion?

07:59Well, so it's an important part of our results as well. We grew on platform USDC 14x year over year,

08:09now to over $10 billion at the end of Q3. That's tremendous growth. And our share of USDC that's

08:16sitting on Circle platforms and infrastructure has grown 1,200% year over year. And so we're focused

08:23on building great infrastructure, building great partnerships with companies that want to build

08:28on that infrastructure and building win-win growth partnerships around it. And, you know, I think

08:33that's really the playbook and that playbook has been working and we're going to continue to execute

08:37that playbook as we, you know, go on here.

08:40Hey, Jeremy, I know it's kind of ancient history in the crypto world at this point, but back in 2023,

08:46the Silicon Valley Bank and the $3.3 billion that backed up USDC and the de-pegging event down to 85 cents

08:52for the value of the stable coin. What would prevent, like, what have you put in place to

08:58prevent a wide-scale de-pegging from happening in the near future or in the future ever?

09:04So Circle reserves are the most liquid, most transparent in the world. We provide daily

09:10visibility into 90% of the reserves held in the Circle Reserve Fund, custodied by Bank of New York

09:15Mellon and issued by BlackRock. You can see inside there every day, every serial number of every

09:22treasury bill and every repo that's there, treasury collateralized repo. And so you can see the actual

09:28fundamental liquidity that's there. And we also provide twice monthly attestations on the remaining

09:33cash portion of the reserves, which is almost entirely held with the largest cash custodian banks

09:39in the world. Think the Bank of New York Mellons of the world and the like. And so we have the ability

09:46to redeem, if you wanted to redeem 100% of the USDC, we believe we could redeem that one-for-one entirely

09:53over approximately 36 hours. So we've built the most transparency, the most liquidity. And by the way,

09:59we've also brought that liquidity at scale to major banking systems around the world, where, you know,

10:05we mint and redeem hundreds of billions of dollars of USDC. So it has the best primary liquidity in

10:12the real banking system compared to any other product in the market.

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