Circle Internet Financial is relying on a cash reserve of more than $1 billion to navigate increasing competition from non-crypto entities like PayPal Holdings Inc. This move comes as the company grapples with a decline in its market share for the second-largest stablecoin, media reports said.
The circulation of Circle’s USD Coin has fallen from $45 billion to approximately $26 billion since the start of the year. In contrast, Tether, the leading stablecoin, has experienced growth during the same period.
The drop in Circle’s market share can be attributed in part to Binance, the world’s largest cryptocurrency exchange, choosing to reduce its usage of USD Coin in favor of promoting its own token around a year ago.
Jeremy Allaire, the CEO of Circle, revealed this during an interview with Bloomberg News. Stablecoins are primarily used by traders for inter-exchange transfers and have had limited impact on consumer payments.
Confidence in the stablecoin sector waned after various industry scandals following a market collapse last year. In March, Circle disclosed its $3.3 billion exposure to the collapsed Silicon Valley Bank, which temporarily caused USD Coin to lose its peg.
Despite these challenges, Circle has been able to generate significant cash flow. Allaire acknowledges that a series of unexpected events in the cryptocurrency industry have affected the adoption of USD Coin.
Circle’s revenue largely comes from interest earnings derived from assets supporting the stablecoin, such as short-term Treasuries and dollar deposits, making the company well-positioned to benefit from rising interest rates.
In the first half of the current year, Circle reported $779 million in revenue, surpassing the $772 million achieved throughout 2022. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) for the first half reached $219 million, exceeding the $150 million from the previous year. The company holds more than $1 billion in cash reserves as of June, exceeding initial expectations.
