Circle’s sometimes head-scratching deals take shape as massive, long-term cryptocurrency bet

Jeremy Allaire, co-founder and CEO of Circle

Source: Circle

Jeremy Allaire, co-founder and CEO of Circle

There is a method behind Circle’s seemingly random deal-spree.

Boston-based Circle bought cryptocurrency exchange Poloniex in February, which Allaire said it plans to “marry” with the SeedInvest platform to issue tokens to high net worth as well as mom and pop investors.

The Poloniex deal was more than a play on cryptocurrencies like bitcoin, Allaire explained. Circle is betting that even existing equities, like stocks, will be “tokenized,” enabling them to operate faster, and more efficiently, on blockchain technology.

He used the example of Best Buy shares. The “token” in this example would still be backed by Best Buy’s stock, with the same price and underlying value. But the user could unlock other benefits in an actual Best Buy store, or add technology layers called “smart contracts,” that can do things like execute a transaction automatically.

“If people can exchange value over the internet without a toll extracted for payments it’s pretty dramatic,” Allaire said. “It’ll make the web look like a cute experiment comparatively speaking in 10-15 years.”

Despite his bullishness on crypto, Allaire isn’t sure that people will buy and sell these equities using bitcoin. He said investors will still rely on regular money — it just needs to be able to operate on the same technology.

So, Circle launched its U.S. dollar-backed “stable coin” in May. Allaire said at the time, there were “a number of banks” that were “excited about it and will support it.” The “USD Coin” as it’s called, is not meant to replace the U.S. dollar, he explained. It’s a way to take an existing dollar and make it compatible with the cryptocurrency infrastructure, which advocates say is better and faster than existing payment rails.

The “stable coin” also solves for the problem of volatility, which has been a key reason bitcoin hasn’t reached mainstream payment adoption, and is more often seen more as a store of value.

Circle announced a new mobile app for Poloniex this week, and debuted “Circle Research” to provide users with crypto asset-specific research, overall market research and insights. The new research will start with primers on certain cryptocurrencies, and includes a weekly “crypto recap” on Fridays with news and analysis.

In order for Circle’s vision to really take hold, regulators need to be on board. The Securities and Exchange Commission has been clear that it sees all cryptocurrencies aside from bitcoin and ethereum (which are commodities) as securities. That distinction made it much easier for Circle to operate and informed some of its deal-making strategy, Allaire said.

“The SEC basically said yes this is legitimate, this is a new form of capital formation, but you’ve got to follow the rules,” Allaire said. “At the end of the day you know the ideas the technology and the regulators have just got to meet in the middle.”

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