Davos 2023: Circle CEO talks crypto markets, FTX fallout, and plans to go public

Circle Co-Founder and CEO Jeremy Allaire joins Yahoo Finance’s Julie Hyman at the World Economic Forum in Davos, Switzerland, to discuss raising awareness about crypto, regulation, the flight to safety in crypto markets and risk-off trading environment, plans to go public, and the outlook for crypto firms acquiring banking charters.

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RACHELLE AKUFFO: Right, well, crypto's presence in Davos was much diminished this year. Apart from blockchain signage on the Promenade, there weren't too many people from the crypto community at the meeting. To get an idea of the landscape for digital assets and blockchain into 2023, Yahoo Finance's Julie Hyman spoke with Circle co-founder and CEO, Jeremy Allaire. Take a listen.

JEREMY ALLAIRE: Circle's in a really interesting place right now. We have-- it's our 10th anniversary, actually. And we've been diligently building out a dollar-based digital currency infrastructure business. And that business has actually thrived over the past several years. It's grown significantly. And it's really right at the kind of cutting edge of the intersection of the traditional financial system, the dollar-based financial system, and this new blockchain-based infrastructure.

And so for us, the World Economic Forum convenes policymakers. It convenes major corporations, major financial institutions, thought leaders. And so for us, it's a great platform to help raise awareness of this new innovation in dollars on the internet and, obviously, to try and provide our own kind of thought leadership as well.

And so it's a very strong investment. And, you know, I think we're also, I think, as noted, in a very different place than a lot of firms that have really focused on speculative trading as their core business model. That's never really been our focus. We're more boring and stable and focused on digital dollars.

JULIE HYMAN: At the same time, obviously, there's been a ripple effect from the collapse of FTX and what's happened with Sam Bankman-Fried, and not just those that were directly exposed, but that it sort of pulled the curtain back on the fragility in the industry and on the speculation that you're talking about. Have there been any effects for you guys? And what do you think the ultimate effect on the crypto industry is going to be?

JEREMY ALLAIRE: Well, there have been some effects. Some of them have actually been quite positive. In the kind of risk-off environment, there's a flight to safety. People are looking to say, where is there actually safe value? And--

JULIE HYMAN: But aren't they just pulling their money out of crypto entirely?

JEREMY ALLAIRE: In some cases, yes. And if you look at sort of price movement, that's a proxy for sort of money coming out. But USDC has actually grown since the FTX collapse. And it's actually, we've seen other digital dollar, infrastructure, stablecoins have significant declines, while we've continued to sustain. And so, you know, I think regulated, transparent, kind of infrastructure like ours is well suited to this environment.

JULIE HYMAN: Now this is not to suggest that this is anywhere in the cards for you, but one of the questions raised by the FTX collapse is where investors stand in the bankruptcy stack, right? People who invest in crypto with them. What can you tell us about where that stands at Circle for people who hold USDC?

JEREMY ALLAIRE: So USDC is regulated under US payments and electronic money law. There are statutory protections within the states. And USDC is structured as a bankruptcy remote asset. And so individuals can look at the reserves. They can actually see daily positions through an SEC registered and supervised reserve fund that we work with BlackRock on. And so there's deep transparency. And there are very strong protections for individuals that use USDC, just like a balance you might have with PayPal or Venmo or other electronic money providers in the world.

JULIE HYMAN: So maybe not backed by the FDIC, so to speak, but is it commensurate with that?

JEREMY ALLAIRE: Well, so FDIC exists because banks actually don't hold your money on a full reserve basis. They take your money, and then they lend it out eight times over. And so it's-- FTX-- the insurance exists because the banks actually don't have your money. They've lent it out a bunch of times. And so it's really a protection if there was a run on a bank, that there'd be some coverage for people. Electronic money is much more conservative. We are required by law to hold one-for-one reserves. And so that is afforded that kind of protection as well.

JULIE HYMAN: One of the things that was in the cards before FTX happened were you guys were going to go public through a SPAC. Now you're not going to do that anymore, at least not that SPAC and at least not right now. What's the plan on that front?

JEREMY ALLAIRE: Yeah, so about a year and a half ago, we entered into a transaction to go public through a dSPAC. That terminated late last year. And our business has evolved a great deal since 2021. We had a full year of profitability in 2022. We grew over 300%. We have a very strong business right now. And we're kind of taking a beat and really sort of assessing where the public markets are. We're in a position of very solid financial strength, generating cash. And so we don't need to go raise money right now, but we'll obviously keep our eye on the markets.

And what I have said is, we are committed to becoming a publicly traded company. We think it's important for transparency and trust for corporations and financial institutions and others that want to do business with us that they have that kind of full public accountability and visibility.

JULIE HYMAN: But you don't feel any urgency to do so, it sounds like.

JEREMY ALLAIRE: No.

JULIE HYMAN: OK. Something else you've also talked about in the past is getting a banking charter. Is that still in the cards? Is that something you were interested in pursuing?

JEREMY ALLAIRE: Yes, so we specifically said, we wanted to be chartered under federal banking supervision as what we called a full reserve digital currency bank. Now that doesn't exist in the United States. But what is happening is, there's a effort with, I think, sponsorship from the Federal Reserve, the Treasury Department, and in Congress, to establish new stablecoin issuing charters.

And that's really around new regulations for federal supervision of firms like Circle. We think that's the appropriate kind of supervisory structure at a federal level. What we call it, what that's called in the end, that will be up to Congress and the ultimate regulators to determine what we're called. But we think that's the right path for the United States. We also think that's the right path for Circle.

JULIE HYMAN: There are some regional, or I should say, state charters that are going in that direction. Paxos, one of your competitors, has a charter from the New York State, the Department of Financial Services, that sort of ensures funds are never commingled. Is that something you would want to pursue? And why haven't you already?

JEREMY ALLAIRE: Well, so we are regulated by many of the-- almost every US State and the banking supervisors and financial supervisors. We're not allowed to comingle assets either. So there's really no distinction there. But trust bank charters are limited in scope.

I think what the Financial Stability Board and what almost every major national regulator is focused on is really defining stablecoins as a kind of payment system and needing a different level of prudential supervision. And we think that's ultimately what's appropriate. That's what's coming into place in almost every other major jurisdiction. And so I think we're really expecting something like that to emerge in the US.

JULIE HYMAN: And just to close it out, I mean, as we think about where crypto is right now in the wake of FTX, is there more fallout to come? What is 2023 going to look like?

JEREMY ALLAIRE: Well, I look at this, having been in many boom and bust cycles of technology for the past almost 30 years, have seen sort of hype cycles, technology growth cycles, and the troughs of disillusionment, as people say. And my view, looking at things right now, is, there are absolutely going to be more firms that don't survive, whether it's because of risk decisions they've made or just because they can't raise more capital, and they can't continue to build.

At the same time, though, there are some very solid, durable companies. And I think those companies are going to continue to compound their leadership positions. I think we're one of those. And we'll really grow significantly.