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Circle Changes Financial Prediction

Circle, which owns one of the most popular stablecoins – USDC, has made changes to its financial forecasts due to the automatic conversion of USDC into BUSD stablecoin and the risks after the collapse of FTX, outlining them in a new document for the Securities and Exchange Commission.

Blank S-4 and Circle logo on US flag background.

In September of this year, Binance announced that it was starting the automatic conversion of some stablecoins into its own – BUSD. Of course, according to the exchange, this step was made for the convenience of users, but there were also those who already pointed out that automatic conversion is primarily beneficial for Binance. A month later it became clear that automatic conversion harms stablecoins, but recently this fact has another indisputable confirmation.

Circle released a document from which it is clear that they had to revise their financial prediction not for the betterment of the company. One of the reasons was the automatic conversion of USDC to BUSD. Despite the fact that Circle's management initially supported automatic conversion, they now point out that this may have contributed to the absorption of a large market share by BUSD's stablecoin, and also calls Binance's stablecoin as one of the two main competitors (it's not difficult to guess that the second competitor is Tether's stablecoin).

Given the inherent network effects that accompany stablecoin usage, a rapidly growly competitor could gain enough market share to ultimately limit the viability of Circle stablecoins. An example of such an adverse impact was the auto conversion by Binance of several billions of USDC into BUSD held in Binance wallets, which contributed to a reduction in USDC in circulation during the quarter ended September 30, 2022. “ - it is written in the document.

It also becomes clear from the document that the company did not expect that automatic conversion would have such a strong impact on the USDC, but now it is clear that this impact is negative and can greatly affect Circle's plans, for example, to reduce the circulation of the USDC.

“While it is difficult to determine how much of the decline in USDC in Circulation was driven by the Binance auto conversion, we observed an approximate $3.0 billion increase in BUSD from August 17, 2022 through September 30, 2022 and, accordingly we estimate that up to $3.0 billion of the $8.3 billion decline in USDC in Circulation from June 30,2022 to September 30, 2022 was driven by the auto conversion by Binance.”

If we consider the circulation of stablecoins on the market, then at the time of writing, according to CoinMarketCap, stable coins have the following circulation: USDC - 44.31B coins, BUSD - 22.39B coins. It seems that the gap is still significant and there is no reason to worry. But if we pay attention to the DAI coming after BUSD in the rating of stablecoins, we will see that its circulation is only 5.66B coins, and this demonstrates a huge gap with BUSD. Thus, the stablecoin from Binance is actively gaining momentum and really striving to outperform the two largest stable coins and is already their serious competitor.

Of course, in its document for the SEC, the company also pointed out that the risks associated with the recent collapse of FTX cannot be ignored, because the fall of the exchange affects cryptography as much as the fall of LUNA and Terra. As for specific figures, Circle and FTX link $10.6. The company stressed that work is still underway to assess the consequences of the crisis caused by FTX.

The fact that Circle has highlighted the events described above and its consequences into the documents for the SEC speaks primarily of their importance for the crypto industry. If the collapse of FTX was initially perceived as a serious blow to the crypto market, then the automatic conversion of stablecoins to BUSD did not attract so much attention. Now we see that the issuer of the second largest stablecoin calls BUSD as its main competitor and shows the consequences of Binance's actions. In fact, this example shows that even the management of the largest companies cannot always calculate the consequences of their actions, but initially it is a little strange to support the automatic conversion of their own stablecoin into a competitor's stablecoin. We will continue our observations and keep you posted on further news about stable coins.